About sanctions

Russia and related European Union and third country companies have deployed various techniques to avoid sanctions. Sanctions evasion may be deliberate, but also due to a lack of information.

I would like to draw your attention to the risks and due diligence obligations to protect your business from the possible risks of sanctions circumvention, as well as for the consequences of non-compliance of the sanctions.

European Union imposes individual and economic sanctions

Individual sanctions¹ target individuals and entities responsible for supporting, implementing or financing actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine. Individual sanctions apply to more than 2100 individuals and entities.

The aim of the economic sanctions² is to raise the price of aggression for Russia and to prevent Russia from continuing its war of aggression. Economic sanctions include import and export restrictions to reduce Russian revenues and block its access to goods and technology used in the military industry and on the battlefield. The battlefield items have been grouped into a list of Common High Priority Items. Goods which could contribute to the enhancement of Russian industrial capacities are grouped to the Economically Critical Goods List for which anomalous trade flows through certain third countries to Russia have been observed. Trade restrictions do not only concern battlefield and industrial goods, but also many other economic sectors.

Individual and economic sanctions must be implemented in parallel. This means that even if the export is not prohibited by economic sanctions, the company should apply individual sanctions and ensure that the exported goods or technology do not benefit individuals or entities under sanctions or entities owned or controlled by them.

The European Union has also adopted sanctions against Belarus, in response to its involvement in the invasion of Ukraine and against Iran in relation to the manufacture and supply of drones.

The clause of „No re-export to Russia“

Since December 2023, there is a new clause which applies to European Union exporters and contractually prohibits re-exportation to Russia and re-exportation for use in Russia of a limited number of goods, when selling, supplying, transferring or exporting to a third country, with the exception of partner countries³. The clause covers prohibited dual-use goods, high priority items, advanced technology items used in Russian military systems found on the battlefield in Ukraine or critical to their development, production or use of those Russian military systems, aviation goods, jet fuel, firearms and ammunition.

Contracts, concluded from 19 December 2023 onwards for selling, supplying, transferring or exporting to a third country goods or technology mentioned above, must contain the „no re-export to Russia“ clause as of 20 March 2024. Contracts concluded prior to 19 December 2023 benefit from a one-year transition period until 19 December 2024. Contracts concluded with business partners in third countries must also contain adequate legal remedies in case of breach of the clause.

The risk of sanctions circumvention

Due to the scope of sanctions, Russia and individuals and entities under sanctions have been constantly seeking for possibilities to circumvent sanctions and using diverse methods to do so. For instance, using complex financial schemes, falsifying the nature or origin of the goods traded, and using third countries willing to supply Russia with goods and technology prohibited by sanctions, thereby enabling Russia to continue its war against Ukraine. Economic operators must be especially vigilant when doing business with third countries for which there is public information that they have systematically and consistently enabled the re-export or transfer to Russia of goods and technology exported from the European Union. Individuals and entities under sanctions have also made efforts to conceal their assets and transactions.

Circumvention of sanctions has increased the risk of European Union operators to find themselves in a position where they may facilitate prohibited activities involving Russia, thereby reducing the impact of sanctions, possibly violating European Union Regulations and helping Russia to continue its illegal war of aggression.

European Union Regulations imposing sanctions apply to any legal person, entity or body, inside or outside the territory of the European Union, which is incorporated or constituted under the law of a Member State and to any legal person, entity or body in respect of any business done in whole or in part within the European Union.

According to Article 12 of the Council Regulation (EU) No 833/2014, it is prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent sanctions imposed by the Regulation.

U.S. and other sanctions

Several other countries have also imposed sanctions on Russia, including the United States, the United Kingdom, Canada, Australia and Japan. Although those sanctions are not legally binding in the European Union and in Estonia, it needs to be taken into account that the Office of Foreign Assets Control (OFAC) under the U.S. Department of Treasury imposes secondary sanctions on entities outside of Russia that help to circumvent sanctions imposed on Russia.

The U.S. has already imposed sanctions on about a dozen company registered in Estonia and this has led to cessation of business activities. Financial institutions do not make payments or provide other products or services to companies on the OFAC list. 

Due-diligence for businesses 

Estonian companies and businesses need to be aware of the potential risks of sanctions evasion and take the necessary measures to mitigate this risk.

Among other things, we encourage you to check the following in your business activities:

• Has your business partner been active in the field before 24.02.2022?
• Has there been any changes to your business partner's management board, supervisory board or list of beneficiaries within the last two years?
• Is your business partner's management structure transparent?
• Is your business partner on the list of sanctions or owned or controlled by listed individual or entity?
• What are your business partner's interests and activities in Russia?
• Are the exported goods or similar CN codes on the list of goods under sanctions?
• Who are the parties to the transaction, including the beneficiaries, owner of the goods, supplier, carrier, etc.?
• What is the substance and purpose of the transaction (who is the owner of the goods, whether the transaction involve financing, loan, prepayment etc.)?
• Are you certain that your goods will reach the destination and will be used as declared?
• Does your contract contain “no re-export to Russia” clause, circumvention clause and liability clause?
• Is there a logical and customary way of paying for the transaction of goods?
• Is there a logical route for the movement of goods?

Notify the national competent authority of the application of a sanction, its infringement or suspected infringement.

Please note that the breach of obligations set out in the legislation imposing the international sanction is a criminal offence under § 93¹ of the Penal Code. We advise you to refrain from activities and transactions that involve the risk of sanctions violation.

¹Individual sanctions are imposed by Council Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.
²Economic sanctions are imposed by Council Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia´s actions destabilising the situation in Ukraine.
³Annex VIII of Council Regulation (EU) No 833/2014, list of partner countries: USA, Japan, United Kingdom, South Korea, Australia, Canada, New Zealand, Norway, Switzerland.