1. Overview
Following several announcements in public media,[1] it has been reported that Kazakhstan will monitor goods that are imported into the country for re-export tracking them until they reach their final destination. As reported in the media, the new measure started applying as of 1 April 2023 and is intended to prevent companies and individuals from using Kazakhstan to circumvent Russia sanctions. Below we highlight some of the key developments and discuss certain practical takeaways.
Kazakhstan has not imposed any restrictions or sanctions on its trade with Russia/Belarus. Russia is Kazakhstan’s largest trade partner accounting for up to 40% of non-oil exports, and is the main country of transit notably via the Caspian Pipeline Consortium (CPC), through which up to 80% of Kazakhstani crude oil is exported.[2]
Kazakhstan is party to the Eurasian Economic Union (the “EAEU“) along with four other post-Soviet states, including Russia, Belarus, Armenia and Kyrgyzstan. The Treaty on the EAEU[3] provides the statutory basis for the EAEU which encourages the free movement of goods and services, and provides that customs duties and customs clearance do not apply within the EAEU. There is also a common customs tariff with respect to third parties and product permits issued by one EAEU member state are automatically recognized in other EAEU member states.
After the war between Ukraine and Russia began, Kazakhstan has trod a careful path and has been neutral on the conflict. Kazakhstani authorities have also taken active steps to avoid being caught up in secondary sanctions. More specifically, ownership has changed at the two subsidiaries of the Russian banks that operated in Kazakhstan – Alfa Bank and Sberbank.
2. Key considerations
Against this background, on Thursday, 23 March,[4] it has been announced in public media that Kazakhstan will launch a new online tool effective 1 April which will enable real-time tracking of the entire chain of movement of goods.
It is important to note that there is no specific legislation implementing the new online tool, except the announcement made by reference to the government officials in Kazakhstan that the new tool is intended to monitor trade with Russia in the context of secondary sanctions risks. In this regard, from the information available in public sources, we note that the Kazakhstan – Russia trade is up 25% compared to the previous year. For example, the number of washing machines exported to Russia rose from zero in 2021 to almost 100,000 in 2022.[5] Also, in the calendar year before the war started, Kazakhstan exported to Russia advanced semiconductors worth USD 12,000. In 2022, that amount jumped to USD 3,7 million according to public sources.[6]
Because there is no specific legislation governing the implementation of the new measure, it is unclear what specific products will be subject to the monitoring requirement. Equally, there is no procedure detailing how the products will be monitored in practice by the Kazakhstani customs authorities. As a result of this, there are areas of uncertainty and we are in dialogue with the customs authorities in order to get further clarification. When there is further clarity, we will prepare an update setting out any further guidance received from the customs authorities.
3. Practical takeaways
3.1 Compliance strategies: Routing exports to Kazakhstan to avoid Russia sanctions may lead to risks around circumvention of laws in Kazakhstan. As a result of this, enforcement proceedings may be initiated with respect to complex import schemes involving supplies to one or more offshore entities in order to deliver products to Russia. Until further clarity is provided in respect of the new online tool, we expect that such supplies will be under increased scrutiny by the Kazakhstani authorities.
3.2 Due diligence: The new development demonstrates Kazakhstan’s intent to comply and actively enforce the latest sanctions imposed by the U.S. and other Western states. It is recommended to ensure that the goods are genuinely destined to a third country for use outside of Russia. We recommend that companies should put in place adequate due diligence procedures to ensure that their exports are not diverted to Russia, including potentially the use of the new online tool which is reported to apply from 1 April.
3.3 Other measures: After analyzing specific risks in relation to a transaction with a counterparty in Kazakhstan, companies should determine what actions should be taken, on a case-by-case basis, to address specific cases of circumvention.
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Should you have any questions on the matters discussed above, please contact Azamat Kuatbekov, Gulnur Bekmukhanbetova or your usual contact at Baker McKenzie.
[1] See https://www.vedomosti.ru/business/articles/2023/03/24/968111-kazahstan-poluchil-mehanizm-ogranicheniya, in Russian.
[2] See https://www.fitchratings.com/research/sovereigns/kazakhstan-reliance-on-cpc-pipeline-remains-key-vulnerability-21-07-2022
[3] The Treaty on the Eurasian Economic Union was signed on 29 May 2014 by the leaders of Belarus, Russia and Kazakhstan and became effective on 1 January 2015. Armenia’s accession to the Treaty came into force on 2 January 2015. Kyrgyzstan accession to the Treaty entered into force on 6 August 2015.
[4] See http://www.hngn.com/articles/247414/20230328/kazakhstan-imposes-stricter-trade-controls-russia-amidst-rising-sanctions.htm
[5] See https://www.ft.com/content/b4e8c02a-adb5-4148-9b15-c0cf2845fa0f
[6] See https://kz.kursiv.media/2023-03-06/lnsh-sanctions/, in Russian.
