Sanctions Compliance: What You Need To Know Now
by Emma Frisch
International Trade Law
As February comes to an end, the flurry of sanctions surges on. The new sanctions, and related rules, create a vast shadow over many industry sectors. This information is crucial if your company engages in cross-border trade (e.g. import/export of items or software), financial transactions (e.g. receives payments from customers) or accepts investment (e.g. including pre-existing ownership of company shares) from any person or entity that is a national of a sanctioned country or is targeted by sanctions. Note, the sanctioned target does not have to be located within a restricted country, they can be anywhere. If any of these activities sound (too) familiar, consider obtaining a second opinion on compliance before the Office of Foreign Asset Controls (OFAC) comes lurking with its investigators and enforcement officers. Read on to learn about four things to keep in mind which may prevent your business from getting ensnared by sanctions.
1- Using Third Country Facilitators
Using a Third Country Facilitator or a proxy company will not exculpate you from liability if your product reaches a blocked end-user. Here is an example to illustrate this:
Company X needs to export to Blue. Blue is a sanctioned entity located in China. Company X has been unable to obtain an export license from the Bureau of Industry and Security (BIS). Consequently, Company X decides to export the product to Japan instead since Japan has good trade relations with the US. The purchaser in Japan will then forward the product to Blue in China under a separate transaction so it is less traceable to US authorities.
OFAC will see this as sanctions evasion and circumvention, which is punishable as a threat to national security. Further, Customs and Border Patrol (CPB) will likely seize the goods before they leave the country.
2- Punishments and Mitigating Risks
Punishments for sanctions evasion include monetary fines and up to 30 years in prison. We recommend obtaining letters of reassurances from parties involved in the transactions such as an Import/End-User Certificate (BIS-711) or an End-User Statement. However, necessary supporting documentation needs to be evaluated on a case by case basis, there is no one size fits all solution (see Supplement No. 2 to Part 748, Title 15). Nevertheless, obtaining letters of reassurances can be both required by the government, and useful for demonstrating good faith and due diligence in business dealings.
3- Perform Proactive Due Diligence
On February 23 2024 alone OFAC added approximately 300 new individuals and entities to the sanctioned list (see Recent Actions to Counter Russian Evasion). These can be people or companies with any nationality and located in any country – not just Russia or China. Be proactive by performing due diligence before engaging with new potential clientele by checking the digital OFAC Sanctions List. Further, a recent Ukrainian intelligence report concluded that there has been a rise in proxy companies successfully obtaining electronic parts from western manufactures and incorporating these parts into military equipment in Russia (see CBC News: How a Russian arms maker targets unknowing Canadian Companies to get around sanctions). This underscores the importance of corporate compliance and due diligence in all export related transactions including those perceived as low risk.
4- Obtain a License
In some circumstances, an export license or a General License (“GL”) can be obtained to carry out an otherwise restricted activity. GLs allow US companies to legally engage in financial transactions with blocked entities, offering a glimmer of hope in some circumstances. GLs often operate from limited periods of time and can be revoked by the US Government. Hence, it is important to keep up with their applicability! Below are four GLs that were added in February 2024.
General Licenses for Russia
| General License | Area Affected | What It Authorizes |
| GL 88A | Transactions | Wind down of transactions involving certain entities blocked on February 23, 2024 through 12:01 a.m. Eastern Daylight Time (“EDT”), April 8, 2024, subject to certain conditions. |
| GL 89 | Financial Transactions | Wind down of transactions involving certain financial institutions blocked on February 23, 2024 through 12:01 a.m. EDT, April 8, 2024 subject to certain conditions. |
| GL 90 | Divestment Related Transactions | All transactions ordinarily incident and necessary to the divestment or transfer, or the facilitation of the divestment or transfer of debt or equity of, or derivative contracts involving, certain entities blocked on February 23, 2024, as well as all transactions ordinarily incident and necessary to facilitating, clearing, and settling trades involving such debt or equity, until 12:01 a.m. EDT, April 8, 2024, subject to certain conditions. |
| GL 91A | Blocked Vessels | Certain designated entities, transactions related to the safe docking and anchoring of any vessels in which the specific designated entities have a property interest (“GL Blocked Vessels”), the preservation of the health or safety of the GL Blocked Vessels’ crew, emergency repairs of the GL Blocked Vessels, and environmental mitigation and protection activities relating to any of the GL Blocked Vessels, until 12:01 a.m. EDT, May 23, 2024, subject to certain conditions. |
In sum…
Sanctions compliance is serious and complex. It is important to be proactive about checking the sanctions list, performing due diligence, and obtaining licenses where possible. If you have questions about sanctions compliance, the international trade team at Centre is happy to help you. You can also contact the author directly at [email protected].