The Department of Commerce’s Bureau of Industry and Security, the Treasury Department’s Office of Foreign Assets Control, and the Department of Justice issued March 2 a joint compliance note on the use of third-party intermediaries or transshipment points to evade Russian- and Belarussian-related sanctions and export controls.
The compliance note highlights one of the most common tactics used to evade Russia-related sanctions and export controls: the use of third-party intermediaries or transshipment points to circumvent restrictions, disguise the involvement of Specially Designated Nationals or parties on the Entity List in transactions, and obscure the true identities of end users. According to the note, the following common red flags can indicate that a third-party intermediary may be engaged in efforts to evade sanctions or export controls:
- use of corporate vehicles (i.e., legal entities, such as shell companies, and legal arrangements) to obscure ownership, source of funds, or countries involved, particularly sanctioned jurisdictions;
- a customer’s reluctance to share information about the end use of a product, including reluctance to complete an end-user form;
- use of shell companies to conduct international wire transfers, often involving financial institutions in jurisdictions distinct from company registration;
- declining customary installation, training, or maintenance of the purchased item(s);
- IP addresses that do not correspond to a customer's reported location data;
- last-minute changes to shipping instructions that appear contrary to customer history or business practices;
- payment coming from a third-party country or business not listed on the End-User Statement or other applicable end-user form;
- use of personal email accounts instead of company email addresses;
- operation of complex and/or international businesses using residential addresses or addresses common to multiple closely-held corporate entities;
- changes to standard letters of engagement that obscure the ultimate customer;
- transactions involving a change in shipments or payments that were previously scheduled for Russia or Belarus;
- transactions involving entities with little or no web presence; and
- routing purchases through certain transshipment points commonly used to illegally redirect restricted items to Russia or Belarus (such locations may include China, including Hong Kong and Macau, and jurisdictions close to Russia such as Armenia, Turkey, and Uzbekistan).
In addition, the note states that entities that use complex sales and distribution models may hinder a company’s visibility into the ultimate end-users of its technology, services, or products.
Best practices in the face of such risks can include screening current and new customers, intermediaries, and counterparties through the Consolidated Screening List and OFAC Sanctions Lists, as well as conducting risk-based due diligence on customers, intermediaries, and counterparties. The note also advises companies to regularly consult guidance and advisories from Treasury and Commerce to inform and strengthen their compliance programs. Additionally, companies should review BIS and OFAC enforcement and targeting actions because they often reflect certain tactics and methods used by intermediaries engaged in Russia-related sanctions and export controls evasion.
For more information on U.S. sanctions and export controls and how to ensure compliance, please contact attorney Kristine Pirnia at (202) 730-4964 or via email.
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