G7 Nations Call on Traders to Boost Export, Sanctions Due Diligence

The Group of 7 nations and the EU issued a first-of-its-kind joint guidance, which aims to help companies prevent Russia-related sanctions and export control evasion. The guidance includes a list of red flags that may indicate a company is trying to evade the measures and a set of best practices for companies to follow.

The document gives industry “the information necessary to identify and respond to Russia’s changing evasion tactics,” said Matthew Axelrod, assistant secretary for export enforcement. The guidance, issued after a Sept. 24 meeting of the G7 sub-working group on export control enforcement in Brussels, was endorsed by the U.S. along with Canada, France, Germany, Italy, Japan, the U.K. and the EU.

Companies across those countries should look out for a host of red flags that might show a possible customer or supplier may be trying to illegally ship to Russia, including customers that provide false or incomplete shipping information, including through the misclassification or undervaluation of goods; companies that hide the true end-user, including by first sending the item through a third country or that list a freight forwarder as the end user; and companies that use an “abnormal” shipping route, or have volume mismatched to volume of payment or that list “unusually high quantities of goods” for a transaction.

Other red flags to monitor include vague information about the end user; companies that divide an invoice value into smaller amounts to remain under the value limit for certain controlled items; a customer that has connections to Russia or a sanctioned entity; last-minute changes to parties involved in the transaction; and a customer unwilling to provide an end-user certification.

Companies that encounter these red flags should “conduct additional risk-based customer and transactional due diligence to possibly clear” them, the guidance said. It also stressed there is no “one-size-fits-all” approach and “no single red flag is indicative of illicit or suspicious activity.”

The G7 members said they are calling on “responsible traders to improve export compliance systems and exercise enhanced due diligence.” They said traders should:

• run transaction parties against public sanctions lists, including both their names and addresses
• conduct “additional” due diligence, including by asking for more information about the end use or ask customers to certify the goods won’t be transferred to Russia, Belarus or sanctioned parties in other countries
• analyze the risk of export control and sanctions circumvention, including by determining whether a red flag can be explained or justified and whether the transaction can be confirmed as legitimate
• “refrain from the transaction” if a company continues to be concerned about a transactions after doing due diligence, and disclose it to a government agency.