Subjects to Integrity Due Diligence within the extended sanctions regimes and regulations imposed against entities and individuals amid the Russian aggression
As a consequence of a war of aggression initiated by the Russian Federation against Ukraine, sanction regimes have been significantly extended against entities and individuals related to the Russian government. Due to the fact that the Russian economy and the overall political system has long been characterized as a kleptocracy where oligarchic business orbits are tightly interconnected with politicians, and government officials of all levels, numerous smaller businesses have also been sucked into the larger ecosystems and are now considered as toxic.
With the exodus of nearly every responsible and compliant international company from the Russian market, the problem of toxic Russian elements among their third parties has not been fully eliminated.
It is crucially important that identifying Russian links within your third-party ecosystem is not limited to first level shareholding checks, but is conducted through a thorough due diligence all the way to the ultimate beneficial owners. Those who still close their eyes to nominal UBOs and shell firms in non-disclosing jurisdictions should reconsider their approach from “tick the box” way of doing things, and take it seriously. If not the ethical side of the issue can make businesses do this, the upcoming wave of sudden revelations, much stronger than the recent “leaks”, should. Resorting to intermediaries, “neutral” states and re-export is not a good idea in a transparent world with a toolset much stronger than one got used to.
Such enhanced due diligence should include all existing and future customers and suppliers, but also other third parties including, but not limited to, joint venture partners, distributors, agents, etc.
Firms should consider how they go about understanding their exposure not only to sanctioned entities, but also the wider nexus around them.
Compliance is doing the right thing when no one is watching. But the world is watching this time.
To avoid the toxic effect, the following Subjects should be checked based on the extended sanctions regimes:
The Russia Sanctions Regulations 2022
Third parties: investors, including actual and beneficial owners of investing entities, customers, contractual counterparties and other third parties against applicable restricted party lists, candidates for the post.
Companies that have significant business dealings with Russia, their transactions, beneficial ownership structures and limits on ownership and control, identification of clients physically based in Russia or connected to sanctioned individuals and entities, reviewing terms of securities, money market instruments, loan and credit agreements.
Military goods, dual-use goods, critical-industry goods, including the following sectors:
- telecommunications and information security
- sensors and lasers
- navigation and avionics
- aerospace and propulsion
- dual-use technologies
Analysis of the supply model, including all third parties and intermediaries, ownership structure of the counterparties, including any financial institutions (banks) involved: identification the origin, classification, designation and end users of supplied goods, technology and/or services, payment terms and currency of payment.
Maritime sector: ownership structures, vessel flag information, third parties in supply chain, restrictions on cargoes, details of home ports and recently visited ports.
Business relationships and transactions with natural and legal persons from Russia, their transactions and licenses.
Aircraft ownership, identification the customers of aircraft operators and charter companies, client base, supply chain on the sale, supply, transfer or export of aircraft and aircraft parts and technology to Russia or to Russian persons and entities.
Executive Order 14024 of April 15, 2021
Obligations for senior foreign political figures, private banking accounts, ownership structure of entities, analysis of the supply model, including all third parties and intermediaries, investigation of the origin, classification, designation and end users of supplied goods, technology and/or services, payment terms and currency of payment, possible special sanctions/export control compliance clauses, sanctions list check, asset tracing, identification the source of funds.
Executive Order 14066 of March 8, 2022
All third parties and intermediaries across the supply chain on the sale, supply, transfer or export of crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products.
Executive Order 14068 of March 11, 2022
All third parties and intermediaries of supply chain on the sale, supply, transfer or of the following products: fish, seafood, and preparations thereof; alcoholic beverages; non-industrial diamonds; luxury goods.
Regulation (EU) 833/2014
Regulation (EC) 765/2006 with amendments
Sanctions list persons, investors, beneficial owners of investing entities, source of funds, all third parties and intermediaries of supply chain on the sale, supply, transfer or export of the following products: military goods and technology, equipment which might be used for internal repression, equipment, technology or software intended primarily for use in the monitoring of the internet and of telephone communications on mobile or fixed networks, goods and technology suited for use in aviation or the space industry, luxury goods, maritime navigation goods and technology, goods and technology suited for use in oil refining, certain equipment listed in Annex II of Council Regulation 833/2014 , goods used for the production or manufacturing of tobacco products, origin of arms and related materials, iron and steel products, cement products, mineral products, potassium chloride (“potash”) products, rubber products, wood products.
Foreign Exchange and Foreign Trade Act
Individuals and entities, capital transactions, third parties of exports of general goods that could strengthen the military capacity, technology transfer, items and relevant services subject to Multilateral Export Control Regimes to Belarus
Ordinance on measures in connection with the situation in Ukraine
Individuals and entities, assets, funds, transactions, supply chain on sell, deliver, export, transit and transport of dual-use, military goods, high-tech and spacecraft, aircraft-related goods (this includes items for the electronics sector (e.g., microprocessors, semiconductors), and information security, sensors, lasers, navigation/avionics, marine and aerospace/propulsion items) as well as oil/gas equipment, maintenance, repair or inspection services of aircrafts and aircraft parts, services related to Arctic offshore, deep-water and shale oil projects, dealings in transferable securities or money-market instruments, sale, supply, transfer, or export of Swiss franc or euro-denominated banknotes, financial services, brokerage, technical advice and the granting of financial resources.