Trade Sanctions Due Diligence
The UK Sanctions Regime includes the Russia (Sanctions) (EU Exit) Regulations 2019 (Russia Regulations), which came fully into force on 31 December 2020. These Regulations contain both Trade and Financial Sanctions. This blog will look at due diligence in respect of trade sanctions, when exporting Common High Priority List (CHPL) items, which are items that are at risk of illegal diversion to Russia, for use in military equipment.
Common High Priority List Items
The CHPL includes 50 items which Russia is looking to obtain through third countries. This list contains 4 main sections as follows:
| Section | Description |
| 1 | Integrated circuits |
| 2 | Electronics components including communications modules and passive electronic components |
| 3A | Further electronic components used in Russian weapons systems, with a broader range of suppliers |
| 3B | Mechanical and other components utilised in Russian weapons systems |
| 4A | Manufacturing, production and quality testing equipment of electric components, circuit boards and modules |
| 4B | Computer Numerically Controlled (CNC) machine tools and components |
The UK government advises enhanced due diligence when exporting CHPL items to the following countries, although this is not an exhaustive list. These countries are at risk of goods diversion to Russia.
- Armenia
- China, including Hong Kong and Macau
- India
- Kazakhstan
- Kyrgyzstan
- Malaysia
- Serbia
- Thailand
- Turkey
- UAE
- Uzbekistan
- Vietnam
Many CHPL items are also listed in Schedule 2A of the Russia Regulations as ‘Critical-industry goods and critical-industry technology’. Under these Regulations, ‘Critical-industry goods and critical-industry technology, are included in the definition of ‘Restricted Goods’, and unless properly licenced by the ECJU, it is not permitted to:
- export restricted goods to, or for use in Russia, or;
- directly or indirectly supply or deliver restricted goods from a third country to a place in Russia, or;
- directly or indirectly make restricted goods available to a person connected with Russia, or;
- directly or indirectly make restricted goods or restricted technology available for use in Russia.
Due diligence & red flags
Military end-users in Russia may use front or shell companies in third countries, or may purchase CHPL items and/or Restricted Goods through resellers in third countries, thereby using a layered approach to conceal their activities, and circumvent sanctions.
Due diligence helps reduce the risk of sanctions circumvention. There are many issues to consider when carrying out due diligence, including the customer, destination country, type of goods and transaction details.
For example, a reseller of microelectronics in India (originally exported from the UK) may offer delivery (on their website) to customers in many countries including Russia, Belarus, Iran, Syria etc., This is a red flag in need of further investigation.
Other red flags, may include the following, although this is not an exhaustive list:
- Payments from entities located in third countries which are not otherwise involved in the transaction.
- An email enquiry from a customer containing details (in the email trail) of another third-party enquiry from a sanctioned country or person (e.g., Iran).
- Country codes of customer telephone numbers do not match those of the destination country.
- The end-user delivery address is a freight forwarder or hotel.
- The customer is vague about the product’s ultimate destination and purpose, including, the product’s end-use and end-user;
Know Your Customer
Exporters should know their customer (Know Your Customer -KYC), including ultimate beneficial ownership of the customer company, and should carryout screening, including sanctions screening. It is the responsibility of UK exporter to ensure that they are fully compliant with UK export control laws and sanctions.
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