G7 Issues Joint Guidance on Evasion of Sanctions and Export Controls on Russia

On September 24, 2024, for the first time, the United States, Canada, France, Germany, Italy, Japan, the United Kingdom, and the European Union (collectively, the G7) published joint guidance for industry on preventing the evasion of export controls and sanctions imposed on Russia. The joint guidance outlines (i) Russian efforts to obtain Common High Priority List (CHPL) items; (ii) red flag indicators of possible export control and/or sanctions evasion; and (iii) best practices for industry to use to try to address red flags through additional due diligence and compliance measures.  The guidance reflects the G7’s continued emphasis on preventing diversion of CHPL items to Russia.  Accordingly, parties involved in the export, reexport, or transfer (in-country) of CHPL items should be aware that these items are an enforcement priority in these jurisdictions.

Below is a summary of the G7’s guidance document.

Items that pose a heightened risk of diversion to Russia

In July 2023, the G7 Members published a list of high-priority items sought by Russia for its weapons programs known as the Common High Priority List.  The CHPL is divided into four tiers, ranked according to their degree of importance for Russia.

• Tier 1: Items of the highest concern due to their critical role in the production of advanced Russian precision-guided weapons systems, Russia’s lack of domestic production, and limited global manufacturers.
• Tier 2: Additional electronics items for which Russia may have some domestic production capability but a preference to source from the United States and its partners and allies.
• Tier 3.A: Further electronic components used in Russian weapons systems, with a broader range of suppliers.
• Tier 3.B: Mechanical and other components utilized in Russian weapons systems. 
• Tier 4.A: Manufacturing, production and quality testing equipment for electric components, circuit boards and modules.
• Tier 4.B: Computer Numerically Controlled (CNC) machine tools and components.

As explained in our blog post dated July 17, 2024, the US Department of Commerce’s Bureau of Industry and Security (BIS) expects parties involved in the export, reexport, or transfer (in-country) of CHPL items to screen transaction parties against a list that has been published on the Trade Integrity Project (TIP) website.  The TIP includes data on parties with a history of exporting CHPL items to Russia since its invasion of Ukraine.  We expect that the diversion of CHPL items will also be an enforcement priority for the United States and other G7 Members.

Red flag indicators

The G7 document includes a list of red flag indicators to help industry identify potential signs of evasion of export controls and sanctions on Russia.  The red flag indicators include, among others:

• Sudden changes in business activities after Russia’s invasion of Ukraine, especially relating to imports and exports of CHPL items;
• False, inaccurate, or missing documentation, including misclassification of goods to conceal CHPL items;
• Actions to conceal the end user, for example, by circumventing shipments through a third country or multiple third countries or listing a freight forwarder as the end user;
• Inconsistencies in the transaction, such as abnormal shipping routes for the product and/or destination;
• Vague details and/or incomplete information, especially regarding the end user and/or end use;
• Suspicious customer information such as addresses that do not appear consistent with the business (e.g., a business address is a residence);
• Last-minute changes to the parties involved from an entity in Russia or Belarus to an entity in another country;
• Payments from entities located in third countries that are not otherwise involved with the transactions; and
• Customers unwilling to certify that they will not sell items to Russia or sanctioned parties in third countries.

Parties involved in exports, reexports, or transfers (in-country) of CHPL items should consult the list of red flag indicators in the guidance document, which are more extensive than those listed in Supplement No. 3 to 15 CFR Part 732.  As explained below, when red flags are present, parties should conduct additional due diligence to try to resolve the red flags, and, if they cannot be resolved, should not proceed with the transaction.

Best practices

The guidance document sets forth best practices for industry to use to address these red flags and conduct enhanced due diligence.

As an initial matter, the names and addresses of all parties to the transaction (including but not limited to exporters, reexporters, distributors, resellers, and service providers such as financial institutions, logistics companies, and freight forwarders) should be screened against applicable public sanctions lists. The guidance document includes resources for G7 Members’ screening lists – namely, the Consolidated Canadian Autonomous Sanctions List, the European Union (EU) Consolidated List of Financial Sanctions, the United Kingdom Sanctions List, and the United States Consolidated Screening List.  Although there is significant harmonization between these lists, there are important differences with respect to sanctions targets.  Accordingly, it will be important to assess which country or countries could have jurisdiction over the transaction and to screen transaction parties against all potentially applicable lists.

Where a “hit” occurs against a company name or address, additional due diligence is recommended.  This could include requesting additional information about the party and transaction, including the end use, end user, and/or ultimate destination country; requesting that customers sign written certifications that items will not be transferred to parties in Russia or Belarus or sanctioned parties in third countries; and updating distributor agreements to require distributors implement heightened due diligence measures. If the red flags cannot be explained or justified, then the party should refrain from the transaction.

Conclusion

The G7 guidance document reflects the continued focus of the multilateral export control coalition on combatting evasion of sanctions and export controls on Russia, and heightened expectations that members of industry are proactively addressing risks of diversion.  We expect that evasion of sanctions and export controls, particularly diversion of CHPL items to Russia, will be a continuing enforcement priority for G7 Members.

For more information or assistance, please contact a member of our Economic Sanctions and Export Controls practice.