On 7 January 2025, the UK’s Office of Trade Sanctions Implementation (“OTSI”) published two guidance documents on compliance with the UK’s sanctions against Russia, focusing on combatting sanctions evasion and on incorporating “no Russia” clauses in customer contracts.
The new guidance documents aim to support UK businesses in understanding and mitigating the risks associated with Russian sanctions evasion, by providing guidance on understanding circumvention practices and recommendations for mitigation steps, including incorporating protective “no Russia” clauses into certain export contracts or other documents.
Further details are set out below, including links to relevant guidance, although some key points to note on the new guidance are:
- The guidance broadly aligns with recent EU (and other regimes’) guidance in this area, but in contrast to the EU sanctions position, the UK has not gone as far as legally requiring companies to include “no Russia” or “no Belarus” clauses or to conduct due diligence, although this is encouraged as best practice (see our most recent post on the EU “no Russia clause” obligations here).
- The guidance sets out a specific (but non-exhaustive) list of countries for which heightened due diligence is recommended in order to address circumvention concerns.
Russia sanctions evasion guidance
The guidance on countering Russian sanctions evasion is designed to help UK exporters identify and counteract Russia sanctions evasion practices.
The guidance lists a number of goods considered at heightened risk of being diverted to Russia, including military and dual-use items, which are detailed in the Common High Priority Items List (available here – as developed together with the EU, Japan and the United States) but refers to a number of additional items identified as supporting the Russian military and industry. Such items include centrifugal pumps, printing inks, gas turbines, motor vehicles, engines and associated parts and industrial machinery, plant and laboratory equipment.
More generally, the guidance also flags certain sectors as being at higher risk of circumvention and diversion risks, including the military and dual-use goods, aerospace, automotive, microelectronics and heavy machinery sectors.
The guidance also includes an extensive but non-exhaustive list of red flag indicators that may suggest potential sanctions evasion, broadly grouped into four categories, namely:
- Product red flags, such as: (i) items with military or dual-use applications; and (ii) the capabilities of the product ordered not fitting the buyer’s line of business;
- Customer red flags, such as: (i) a change in customer ownership around the time sanctions were imposed or significant changes to an existing customer’s company structure; (ii) the customer having ties or other connections of concern to a sanctioned entity; and (iii) the customer being located in, near to or otherwise maintaining connections with countries where Russia operates procurement networks;
- Transaction red flags, such as: (i) unusual payment terms, payment amounts, and/or routes (including payments from third country entities unrelated to the transaction); (ii) the country of the stated end-user and the country from which the order was placed differing; and (iii) false, inaccurate or missing trade, financial and supporting documentation, including indications that the documents are fraudulent; and
- Export destination red flags, such as: (i) the destination country being on the list of countries OTSI recommends in the guidance conducting enhanced due diligence on (including, among others, certain CIS and neighbouring countries to Russia, the UAE, China, India and Vietnam); (ii) the destination country being actively engaged with a sanctioned country; and (iii) abnormal shipping routes or export patterns, such as an increase in demand of a specific product to a third country where trade was previously limited or non-existent.
The guidance also sets out some suggested best practice due diligence and compliance procedures, including:
- Undertaking a strategic risk assessment by reviewing business activity to identify areas of priority for enhanced review and enable the deployment of a controls framework tailored to identified specific business risks (including enhanced due diligence, end-use and end-user verification and additional safeguards for highest-risk products).
- Implementing enhanced due diligence for both new and existing customers targeting transactions involving higher-risk products and destinations. This could include by verifying the legitimacy of end-users and associated parties and considering adding a “no Russia” clause to contracts. Additional measures for new customers specifically could include considering their purchasing motives in the context of their business activity and undertaking further reviews such as screening and cross-checking company details against internal customer databases (to identify previous trading with companies linked to the same details).
- Utilising screening tools to support in conducting due diligence checks, including by providing links to several third-party screening tools and databases.
- Ongoing monitoring for emerging signs of circumvention in trade flows and customer behaviour and periodic refreshes of reviews undertake, including due diligence undertaken on customers and the of business areas identified as most susceptible to evasion risks. More generally, exporters should also ensure they are keeping written records of due diligence and compliance activity undertaken.
This guidance is available in full here.
“No Russia” clauses guidance
The guidance on “no Russia” clauses provides guidance on including clauses in export contracts and other documents prohibiting the re-export of certain critical items to or for use in Russia, for those exporters that wish to do so. EU businesses are required to include such clauses in certain export contracts. While not a legal obligation in the UK, the guidance indicates that a “no Russia” clause can nonetheless be useful in reducing the risk of a breach of UK trade sanctions. This is particularly relevant for exporters involved in the export and making available of Common High Priority Items and other items critical to Russian weapons systems and its military development to Russia, which are of heightened sensitivity.
In particular, the guidance includes a template clause that exporters may consider including in their export contracts to restrict buyers from re-exporting relevant goods to Russia. While the template text is similar in certain respects to the EU’s template version of this clause (available in European Commission guidance here at FAQ 6), there are a number of key differences, including in the suggested remedies, the scope of the items covered, and that the UK version includes a specific right for the exporter to notify the UK authorities of any suspected breach. This template is not binding (just as the EU equivalent is also not binding) and UK businesses remain free to draft their own “no Russia” clauses (or indeed to choose whether to include such clauses in their contracts at all).
The guidance also emphasises the importance of thorough due diligence on counterparties, including regular refreshes of such diligence. In other words, including a “no Russia” clause in contracts does not excuse exporters from also conducting appropriate due diligence and implementing robust internal compliance procedures.
This guidance is available in full here.
