Authorities across the G7 have issued first-of-its-kind guidance to exporters, banks and logistics companies in a crackdown on Russian sanctions evasion for imports of military-use technology.
Western governments restricted technology exports to Russia in the immediate aftermath of its invasion of Ukraine in February 2022, and there has been a steady stream of alerts and advisories since, including from government agencies in the US and UK.
But the G7 guidance, published in September, is the first such document issued jointly by all member states and the European Union, and follows concerns over the techniques used by Russian entities to continue importing sanctioned goods.
“Russia has demonstrated that it relies on deceptive tactics capable of evading established export controls and sanctions enforcement,” it says. “Russian proliferators operate as transshipment agents and divert dual use technologies and controlled goods from third countries to Russia.
“Therefore, it is critical that all parts of the supply chain… are aware of the diversion risks posed by Russia’s illicit procurement efforts and adopt appropriate measures to mitigate any risks.”
The guidance singles out exporters and re-exporters, as well as financial institutions, transportation providers, freight forwarders, manufacturers and warehouse operators as companies expected to ensure risk mitigation measures are in place.
Goods highlighted include integrated circuits, wireless communication technology, and mechanical and electronic components used in weapons systems.
It sets out a series of potential red flags, such as sudden changes in a customer’s business activity after February 2022. Examples include a company newly engaged in importing or exporting high-priority goods, or beginning to ship to new parties outside Russia.
The guidance also warns of false, inaccurate or missing documentation, efforts to conceal the true end user in a transaction, the circuitous routing of goods or financial flows, and inconsistencies in trade documentation.
“When you encounter these or any other red flag indicators, you should conduct additional risk-based customer and transactional due diligence to possibly clear these red flags,” it says.
Washington, DC-based Opher Shweiki, a partner at Akin Gump law firm and former chief counsel at the US Bureau of Industry and Security (BIS), says the publication reflects that G7 governments are enforcing controls in a more streamlined and operational way.
For companies, he says: “What’s notable about this guidance is that it’s pretty specific, and it’s useful in terms of setting the governments’ due diligence expectations. Companies are interested in where the diversion risks exist, and are aware they have to take notice, because the government certainly is.”
The red flag indicators listed are “more concrete in terms of best practices”, Shweiki tells GTR. “If there’s an issue that comes up, these are the kind of questions that government regulators are going to be asking when it comes to whether there was enough prevention on the front end.”
Maritime analytics firm Windward, which specialises in sanctions compliance tools, says: “The guide shows stakeholders that regulators and nations are united in this approach, and are putting a very strong focus on loopholes that enable circumvention around existing sanctions and regulations.”
Researchers have warned that Russia has continued to find ways to import restricted technology since 2022, including goods originating in the EU and UK.
Imports of critical items for military equipment increased 10% in 2023 compared to the year before, according to a July report by S&P Global Market Intelligence.
The report found 92% of these goods – known as common high-priority items – are now imported from China, Hong Kong, Thailand, India, Turkey and Kazakhstan.
However, in 2021, exports of tier-one high-priority items from three of those markets – India, Turkey and Kazakhstan – were close to zero.
The Financial Times reported last year that between February and December 2022, more than US$1bn of exports effectively disappeared while in transit to countries with economic or trade ties to Russia, based on an analysis of public import and export data.
The G7 guidance notes that today, Russia’s “military industrial complex relies heavily on technology originating from [western] countries to manufacture advanced weaponry”.
Authorities have also adapted controls to respond to specific techniques used to evade detection.
In the US, Akin Gump’s Shweiki gives the example of BIS now listing addresses, as well as individuals and companies, on its Entity List – an index of parties considered a national security concern.
“They’re worried about what they call service providers, which provide addresses for goods to be delivered to an address that’s not clearly associated with a particular individual or entity,” he says.
