On 24 September 2024, the G7 Sub-Working Group on Export Control Enforcement, which comprises representatives from the United States, Canada, France, Germany, Italy, Japan, the United Kingdom, and the European Union (the “G7”), published the first-ever joint guidance for industry on preventing evasion of export control and sanctions imposed on Russia (“Joint Guidance”). The stated goal of the Joint Guidance is to assist industry in identifying Russia’s evolving evasion tactics and in complying with multilateral export controls and sanctions.
The Joint Guidance calls on all parties in the supply chain to be alert to diversion risks posed by Russia and to adopt risk-based measures to prevent such diversion. It also describes certain legislative and executive actions Russia has taken in an effort to continue its procurement efforts.
The Joint Guidance then outlines the following priority areas: (1) a list of items that pose a heightened risk of diversion to Russia (i.e., the Common High Priority List items); (2) a list of red flag indicators of potential export control and/or sanctions evasion; (3) best practices for industry to address these red flags; and (4) resources on screening tools and guidance documents to assist with due diligence.
- Items posing a heightened risk of diversion: The Joint Guidance references the Common High Priority List (“CHPL”) developed jointly by multiple countries to aid industry in conducting necessary due diligence. The CHPL is a list of 50 items identified by their 6-digit Harmonized System code that Russia seeks to procure. It focuses on sensitive items that have been found on the battlefield or have been identified as essential for Russia to manufacture its own military equipment, such as integrated circuits and other electronic and mechanical items and components.
In previous guidance issued by the US Department of Commerce’s Bureau of Industry and Security (“BIS”) referencing the CHPL List (see blog post regarding this guidance here), BIS recommended that companies exporting any CHPL items conduct additional screening to prevent diversions to Russia. It specifically recommended screening transaction parties via the Trade Integrity Project website, which relies on publicly available trade data to list companies that have supplied CHPL items to Russia since 2023. - Red flag indicators: The Joint Guidance identifies a list of red flags and related, practical examples indicating potential export control and sanctions evasion. These red flag indicators include, but are not limited to: sudden changes in business activity after 24 February 2022; false, inaccurate, missing or vague/incomplete documentation and information; concealment of the end-user; and inconsistencies or abnormalities in the transaction.
- Best practices for addressing diversion red flags: The Joint Guidance notes the importance of conducting additional risk-based customer and transactional due diligence in relation to identified red flags in order to mitigate diversion risks. It emphasizes that there is no “one-size-fit-all” approach and all surrounding facts and circumstances should be considered when determining if a specific transaction raises diversion concerns. Specifically, the guidance “strongly encourages” taking certain specific due diligence steps when encountering red flags, such as conducting restricted party screenings and additional due diligence, obtaining end use certificates from customers, analyzing the risks of circumvention, etc.
- Additional resources: The Joint Guidance provides links to additional resources to assist with industry’s due diligence efforts, including to various sanctions list search tools and guidance documents published by G7 countries’ export control and sanctions authorities.
This Joint Guidance follows the establishment of the G7’s Enforcement Coordination Mechanism (“ECM”) in February 2023. The ECM was created to bolster compliance and enforcement of multilateral export controls and sanctions, including by coordinating and working with the Global Export Control Coalition, a 39-member coalition that includes all G7 members (Canada, France, Germany, Italy, Japan, the UK, the US and the EU) and that has implemented substantially similar export controls and/or sanctions against Russia.
With multilateral enforcement on the rise, companies are encouraged to review the Joint Guidance and adjust their compliance approaches accordingly.