Sanctions Screening Key to Russia Sanctions Compliance

The United States, European Union, and United Kingdom have clamped yet more sanctions on Russia following Moscow’s invasion of Ukraine, and, under the G7 grouping, announced the establishment of an initiative aimed at countering would-be sanctions evaders.

The White House described the measures imposed on Russia, Belarus and breakaway regions of Ukraine since the outbreak of hostilities in late February as “unprecedented”. That prompted business observers to emphasize the importance of sanctions screening to reduce the risk of inadvertently dealing with – or continuing to deal with – newly-named denied parties and their operations in Europe and around the world.

The latest developments came as the war entered its second month, with no signs of diplomatic peace overtures, not even prospect of a ceasefire, between the two sides.

Sanctions screening is the process by which companies reduce the risk of unwittingly interacting with entities that have been identified in watchlists maintained by governments and world bodies as being involved in nefarious activities such as criminal enterprises, money laundering, terrorist financing, human rights abuses, international trade breaches and sanctions busting, among others.

To be on the safe side, businesses need to consistently and continually screen against sanctions lists (also known as restricted, denied, debarred and blocked lists) which identify the bad actors – individuals, groups, companies and countries – we have to find and remove from customer databases and supply chains.

The latest tranche of sanction targets the 328 members of the Duma, Russia’s legislative branch of government, as well as the Duma as an organization.

Separately, the U.S. also slapped restrictions on 48 state-owned defense enterprises, including Tactical Missiles Corporation, High Precision Systems and NPK Tekhmash OAO as part of widening measures aimed at what the White House described as the suppliers of Russia’s war effort and their supply chain.

More of the country’s elites were also added to sanctions list, chief among them the head of Sberbank, Russia’s largest financial institution, which itself is already named on numerous international denied and debarred parties lists.

New British actions included 65 sanctions, targeting strategic industries such as the national railway operator and defense firms, plus more banks and business elites. So far, London has sanctioned more than 1,000 individuals and businesses since the invasion of Ukraine.

Meanwhile, the EU announced prohibitions on all transactions with certain state-owned enterprises, facilitating credit rating services, new investments in the Russian energy sector, plus the addition to restricted parties lists of more individuals connected to the Kremlin’s defense and industrial base.

For a broader perspective, read our article on previous sanctions imposed on Russia, Belarus and breakaway regions of Ukraine, or visit the Russia-Ukraine Sanctions Resource Center.

The U.S., EU, and G7 nations also announced an information-sharing and coordinated response initiative to effectively police and enforce the Russia trade restrictions. The objective is to quickly spot and stop sanctions evaders in their tracks.

The White House said: “We will not allow sanctions evasion or backfilling. As part of this effort, we will engage other governments on adopting sanctions similar to those already imposed by the G7 and other partners.”

The intention is straightforward: the U.S., EU and G7 want to dissuade other countries from aiding Russia, and instead support sanctions against Moscow. Observers said that the targets are not nations overtly pro-Russia, but those which appear to be taking a neutral stance and sitting on the fence.

Russia and its allies have extensive business interests around the world, especially in oil and gas, mining, agriculture, precious stones and minerals, aerospace and defense, pulp and paper, automotive and transport.

The country’s top three exporting partner countries are China, the Netherlands and Switzerland, according to figures from Descartes Datamyne. (Refer to Figure 1, below). Going the other way, its top three importing partner countries are China, Ukraine and Turkey. (See Figure 2). The global reach of its business network is evident, making sanctions screening all the more important wherever your operations are around the world.

Figure 1. Russia’s Main Exporting Partners

Partner Country	Value (USD)	%	Weight (Kg.)	%
CHINA	41,147,414,869.47	11.8	128,965,221,601.75	12.7
NETHERLANDS	26,352,298,499.33	7.53	52,920,213,223.50	5.21
SWITZERLAND	13,892,914,188.85	3.97	48,468,684,159.41	4.77
POLAND	9,896,964,340.98	2.83	31,442,162,997.53	3.1
SINGAPORE	11,624,096,225.49	3.32	29,132,222,509.71	2.87
KOREA (REPUBLIC OF)	9,681,742,295.47	2.77	27,916,505,695.76	2.75
GERMANY	17,111,129,883.79	4.89	24,829,144,153.37	2.45
UKRAINE	4,830,812,953.98	1.38	24,025,032,013.53	2.37
JAPAN	5,828,892,217.88	1.67	19,184,556,405.86	1.89
UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND	15,233,236,460.81	4.35	16,703,785,880.39	1.65
Total	350,315,060,281.72	100	1,017,295,304,017.82	100

Source: Descartes Datamyne

Figure 2. Russia’s Main Importing Partners

Partner Country	Value (USD)	%	Weight (Kg.)	%
CHINA	31,634,501,109.65	20.2	5,262,833,112.57	16.5
UKRAINE	1,945,786,961.78	1.25	3,283,696,792.44	10.3
TURKEY	62,101,890.51	0.04	2,043,369,706.58	6.42
PERU	3,476,450,351.69	2.23	1,518,870,754.65	4.78
GERMANY	14,223,573,456.73	9.1	1,503,893,839.94	4.73
AZERBAIJAN	411,452,733.20	0.27	1,215,945,122.49	3.82
KOREA (REPUBLIC OF)	5,433,101,895.89	3.48	910,092,209.57	2.86
BRAZIL	1,125,203,046.98	0.72	789,342,034.96	2.48
NETHERLANDS	3,745,109,060.78	2.4	694,358,567.60	2.19
POLAND	3,471,005,702.73	2.22	693,738,505.31	2.18
Total	156,389,902,090.13	100	31,839,966,500.04	100

Source: Descartes Datamyne

The biggest challenge is keeping up with the continual regulatory updates as well as taking into account the numerous watch lists that need to be complied with, not only from a single nation, but from multiple jurisdictions. There’s also the need to screen continually, or periodically, because an entity not sanctioned today, might be tomorrow, as the escalating restrictions on Russia clearly demonstrate.

Some might argue that they would just stop doing business with Russian organizations. Or those from Belarus and certain parts of Ukraine. The counter argument is that while it is potentially easy to spot majority or wholly-owned Russian enterprises, it isn’t so easy to discern the ownership structure of companies whose Russian shareholding is 50 per cent or less.

This is an important point which comes under sanctioned ownership screening rules, such as those of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) 50 per cent rule, also simply referred to as “OFAC 50”, which states that we cannot do business with a company, which has denied parties making up 50 per cent or more of that organization’s shareholding. Other jurisdictions have similar thresholds. In the EU, for example, the trigger point is more stringent.

The challenge here is that unlike most other denied and restricted party lists, sanctioned ownership regulations come only with guidance but no official lists to screen against. To effectively screen in this regard, companies need to turn to third-party risk management software solutions.

The burgeoning regulatory trade and other restrictions on Russia and its allies create significant challenges for companies seeking safe and predictable operating conditions, especially those still recovering from COVID-related disruptions and those struggling with the global supply chain congestion crisis.

Compliance with sanctions screening rules needs in-depth understanding of both the legal framework and fine print details for multiple jurisdictions. Because of the complexities in keeping up with the flood of legal promulgations, it is critical to leverage all the tools at your disposal and reduce the potential risk exposure to your supply chain. Appropriate steps include:

1. Screen current customers, suppliers, resellers and other business partners against denied party lists maintained by governments and world bodies.
2. Screen entities against sanctioned ownership lists.
3. Screen IP addresses to make sure the business entity you are dealing with are where they say they are.
4. Accurately classify goods and technology for import and export, and obtain licenses where required.
5. Request an end-use/end-user certification from your buyers to make sure your products don’t end up in a sanctioned country.

In a rapidly-changing environment, organizations need to stay on constant alert to ever-evolving rules and requirements. Or they can save time and resources by relying on proven software solutions that keep the compliance process moving forward like clockwork, with up-to-date screening, classification and related compliance content.

To meet evolving compliance requirements, Descartes adds new entities to its screening lists as government and other official sources update theirs. Lists related to the Ukraine crisis have been updated within our application, and any further additions will similarly be made promptly to help keep our customers in compliance with sanctions and embargoes programs. Appropriate, timely updates are also made to classification and other compliance content.

Descartes is a provider of an industry-leading suite of denied party screening, 3rd party risk management solutions, as well as trade content for leading business systems, that can be integrated with minimal disruption.

Descartes Visual Compliance and Descartes MK solutions are flexible and modular, allowing organizations to pick the specific and exact functionality and content they need for their particular compliance needs and scale up later as and when necessary.

Looking to talk to an expert?

---

Contact Us