Practical Tips to Prevent Involvement in Sanction Evasion and Circumvention

Sanction evasion and circumvention have become pressing concerns for businesses, as the legal and reputational consequences can be severe. The European Union is targeting evasion and circumvention of sanctions, by recently introducing a new anti-circumvention tool, that allows the EU to restrict the sale, supply, transfer or export of specified sanctioned goods and technology to certain high-risk jurisdictions. Additionally, competent institutions of Lithuania, Finland, Estonia, Latvia, Poland and Norway have issued a joint guidance on how to detect and prevent circumvention of sanctions. ECOVIS ProventusLaw provides a summary of a mentioned document and practical tips on how to investigate and detect cases of sanctions evasion and circumvention.

Circumvention of Sanctions Red Flags

The Joint Guidance provides for a non-exhaustive list of red flags that may indicate circumvention of sanctions, such as:

  • Redirection of exports to known circumvention-prone third countries (countries identified by the Financial Crime Investigation Service), such as: Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Crimea, Moldova, Russia, Georgia, Tajikistan.
  • Domestic/European companies with a history of extensive trade with Russia, recent shifts in operations to third countries, or connections to entities under sanctions.
  • Recently established business partners or those involved in mergers with entities related to sanctions.
  • Companies working in transport and logistics sector.
  • Business partners sharing addresses with numerous other companies (e.g., it is likely a shelf company).
  • Communication with a CEO/manager primarily through a regular employee, family member, or representative, rather than directly.
  • Use of Russian or Belarussian domains for electronic communications, and a preference for encrypted messaging platforms without apparent justification, e.g. WhatsApp.
  • Involvement in the trading of High Priority Battlefield Items, Economically Critical Goods, Crypto mixing services or crypto services that are linked to Russia, sanctioned persons.

How to Lower the Risk of Circumvention of Sanctions

The Joint Guidance highlights the importance of having internal sanctions compliance policies and procedures tailored to your company’s business model, geographical areas, and the characteristics of your business partners and customers.

In addition, the risk of circumvention of sanctions can be lowered by performing a thorough due diligence on your customers and business partners, for example:

  • Gathering basic information about the company, such as its full name, legal form, registration number, key contacts, management, shareholders, and ultimate beneficial owners. Additionally, check for ties to Politically Exposed Persons (PEPs) and sanctioned individuals.
  • Performing sanctions and open-source checks: screening business partners against sanctions lists and performing online research on their associations to illicit activities. Companies should also check the sanctions status of their own products and services.
  • Asking additional questions to fully understand your customers’ and business partners’ provided services and products, their business partners, used routs for transported goods, end users, etc.

Circumvention of sanctions is a prohibited activity under the Republic of Lithuania Law on Sanctions and may be subject to administrative and (or) criminal liability. Any information on possible or detected sanctions evasion or circumvention should be reported to the Financial Crime Investigation Service.

ECOVIS ProventuLaw prepares the policies, processes and standards needed for the organization to succeed in sanctions compliance as well as provides consultations on further sanctions compliance issues. If you need a help managing these issues, do not hesitate to contact us.

Prepared by Vilius Neverdauskas, Associate of ECOVIS ProventusLaw

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