European Commission Issues Guidance on Enhanced Due Diligence to Counter Russia Sanctions Circumvention Risks

On September 7, 2023, the European Commission released long-awaited guidance on implementing enhanced due diligence to address the risk of sanctions circumvention related to Russia. These guidelines are aimed at European Union (EU) operators and provide a framework for identifying and mitigating the risks associated with efforts to evade EU sanctions imposed on Russia in response to its actions in Ukraine.

Key highlights and takeaways from the European Commission’s guidance on enhanced due diligence for Russia sanctions circumvention risks include:

Identification and Assessment of Sanctions Circumvention Risks:

1. Identification of Risks: EU operators should proactively identify products, transactions, and economic activities that may be involved in circumvention activities. This includes considering potential risks related to specific sectors, products, and economic activities.
2. Evaluation of Risks: A risk assessment process should be conducted, taking into account risk indicators, typologies, and any relevant information. The risk assessment should be specific to the operator’s sector and activities.
3. Design and Implementation of Mitigation Measures: EU operators should incorporate the identified risks and their mitigation measures into their internal risk management practices and internal controls.
4. Regular Updates: Given the evolving nature of sanctions circumvention techniques, risk assessments should be regularly updated. This includes staying informed about new sanctions, circumvention techniques, and trade flows.

Triggers and Scope of Enhanced Due Diligence:

1. Enhanced Due Diligence Scope: Enhanced due diligence should be applied to activities that are most critically exposed to sanctions circumvention risks.
2. Circumvention Red Flags: The guidance provides a list of circumvention red flags that should trigger enhanced due diligence. These include indirect transactions through intermediaries, transactions involving “circumvention hubs,” complex corporate structures, changes in ownership, and more.

Anti-Diversion Prevention Policy:

1. EU operators should establish due diligence procedures to prevent the diversion of goods subject to Russian sanctions to Russia or Belarus. This includes including sanctions compliance clauses in contracts and conducting post-export verifications.

Vigilance with Regard to the Use of Correspondent Accounts:

1. Transactions involving correspondent accounts can pose a higher risk of sanctions circumvention. Financial institutions should monitor transactions related to correspondent accounts to detect and prevent potential sanctions breaches.

These guidelines emphasize a risk-based approach to due diligence and highlight the importance of ongoing monitoring and updates to risk assessments. EU operators are urged to stay informed about evolving sanctions measures and circumvention techniques.

EU Member States are responsible for implementing and enforcing EU sanctions, and non-compliance with sanctions measures can lead to legal consequences. Therefore, EU operators need to take these guidelines seriously and adapt their compliance programs accordingly.

The release of this guidance coincides with the EU’s increased focus on preventing and addressing sanctions circumvention related to Russia. EU operators should consider these guidelines as part of their broader sanctions compliance efforts, including risk assessments, internal controls, and ongoing monitoring.