UK exporters get Russian sanctions evasion risk guidance

Sanctions compliance specialists Stacy Keen and Rebecca Devaney of Pinsent Masons were commenting after OTSI issued two new sets of guidance to help UK exporters identify and counter attempts by third parties to evade or circumvent trade sanctions on Russia.

The first guidance note is designed to “support UK exporters in understanding Russian circumvention practices and in reducing the risk of their business being targeted by those seeking to evade sanctions”, OTSI said, and follows on from guidance issued by the G7 in relation to Russian sanctions evasion and diversion last autumn. The second guidance note is focused specifically on helping UK exporters that wish to include a so-called ‘no re-export to Russia’ clause into export agreements.

Keen and Devaney said the guidance highlights that the tactics and methods used by Russia to evade sanctions continue to develop and adapt at pace and underscores the need for UK businesses, and their supply chains, to be aware of diversion risks and where these could lie within their business.

Devaney said: “Both guidance notes emphasise not only that sanctions evasion will continue to remain a priority in 2025, but also that it is crucial that businesses understand their exposure to the risk in and outside of Russia of being targeted by those seeking to circumvent sanctions to allow businesses to implement appropriate procedures and controls.”

“While the required controls will differ between businesses depending on the risks faced, both guidance notes highlight the need for businesses to regularly review their sanctions procedures and controls to ensure they remain fit for purpose as the methods used to circumvent sanctions develop,” she said.

According to OTSI, certain goods are at a higher risk of sanctions evasion. These include items on the Common High Priority List, from ball bearings to a range of electronic and communications equipment, while OTSI has also outlined a non-exhaustive list of items from UK companies and goods in particular sectors that are also likely to be targeted, from a wide range of industrial machinery, plant and laboratory equipment; instruments for aeronautical and radio navigation; and motor vehicles, engines, and vehicle parts.

The guidance also flagged the risk of goods being purchased within third countries and subsequently re-exported to Russia. A non-exhaustive list of third countries has been set out and UK businesses are encouraged to conduct enhanced due diligence when exporting at-risk items to or from, or to third parties, in these countries. The list includes China, India, the UAE, Türkiye and countries in central and south-east Asia.

OTSI has highlighted how risks might materialise in a typical procurement cycle, including from the use of front companies and intermediaries. It said: “The true end-users of goods procured with the intention of circumventing sanctions are unlikely to approach international suppliers directly or be named as end-users on paperwork. Instead, organisations often use a layered approach to conceal their procurement activities. Closer scrutiny of intermediary companies and apparent end-users can uncover discrepancies.”

The guidance builds on the sanctions evasion red flags detailed in the G7 guidance, including product red flags, customer red flags, transaction red flags, and export specific red flags. OTSI has emphasised that businesses should be alive to other potential red flags and that all red flags should be assessed as part of a thorough due diligence process.

Though it is for businesses to determine their sanctions exposure and to implement risk-based sanctions procedures and controls, the guidance includes some suggestions to assist in mitigating the risk of sanctions circumvention, including conducting a strategic risk assessment, implementing enhanced due diligence, use of screening tools, and ongoing monitoring. OTSI said UK businesses should ensure that their sanctions procedures and controls extend to any overseas subsidiaries and factories, as there is a risk that these could be targeted in order to circumvent sanctions.

OTSI also addressed contractual controls. In the UK, there is no legal requirement under the UK’s Russia (Sanctions) (EU Exit) Regulations 2019 to include ‘no re-export to Russia’ clauses in export agreements – unlike in the EU – but OTSI has nevertheless suggested a template clause in its guidance and said it considers these can serve as a deterrent against the redirection of goods to Russia.

OTSI said: “Where contracting parties are non-UK persons conducting business from jurisdictions that continue to trade goods with Russia, or where goods are relevant to Russian military operations, use of such clauses should be considered.”

Keen said “The template clause mirrors guidance provided by the EU. However, the template in OTSI’s guidance includes an additional section in the template clause to allow UK exporters to notify the relevant UK authorities where they have reason to believe that sanctioned goods have been sold, exported or re-exported into Russia, irrespective of any confidentiality agreement between the parties.”

According to the OTSI guidance, the use of ‘no re-export to Russia’ clause is only one component of a compliance approach and does not negate the need for businesses to conduct due diligence on counterparties and to have internal governance in relation to sanctions to mitigate against sanctions risk.

Karien Scribante, a corporate intelligence analyst at Pinsent Masons, said: “Those engaging in evasion risk being designated as sanctions targets themselves. This is most recently shown by the US’ Office of Foreign Assets Control (OFAC) designating Chinese entities on 15 January 2025 for their involvement in an alleged cross-border payments sanctions evasion scheme. OFAC additionally designated entities and individuals in Türkiye and the UAE. A designation essentially cuts those targeted off from the economies of the targeting country. Such consistent actions taken by relevant authorities further entrenches the importance of scrutinising entities outside of Russia as part of sanctions procedures and controls.”