The EU Publishes a New Sanctions Program against Russia

On October 8, 2024, the EU Council adopted a new sanctions program against Russia in response to its “destabilizing” actions outside its territory. The Official Journal of the EU published EU Council Regulation No. 2024/2642 and Decision No. 2024/2643, which outline restrictions under the new sanction mechanism. The grounds for imposing blocking sanctions are detailed in Article 2 of the Regulation.

This new mechanism allows the EU Council to impose sanctions on individuals involved, according to the EU, in actions and policies of the Russian government that undermine the fundamental values, security, independence, and integrity of the EU and its member states, as well as international organizations and third countries. The EU Council will consider such actions as hybrid threats, including:

❗️ undermining electoral processes and the functioning of democratic institutions  

❗️ threats and sabotage of economic activities, public services, or critical infrastructure  

❗️ spreading coordinated disinformation, foreign information manipulation, and interference  

❗️ malicious actions in cyberspace  

❗️ facilitating the entry and transport of migrants into the EU

In this way, the EU Council has significantly expanded the list of grounds for imposing sanctions on Russian individuals.

More information:

EU Council Regulation No. 2024/2642

EU Council Decision No. 2024/2643

aml.plus team

G7 Issues New Guidelines to Prevent Circumvention of Sanctions Against Russia

On September 24, 2024, the G7 countries released new joint guidelines for the industrial sector. This document is crucial in helping businesses identify risks associated with circumventing export restrictions targeted at Russia’s defense industry.

The goal of the guidance is to protect common high-priority list items from misappropriation, prevent reputational harm, and mitigate liability risk, all while supporting the continued success of coordinated export controls and sanctions. This approach has been vital since February 24, 2022.

The document highlights the following key areas:

– Goods at high risk of re-export to Russia

– Updated “red flag” indicators for potential evasion of export controls and/or sanctions

– Best practices for industries to address these “red flags”

– Tools and resources for screening that assist in exercising due diligence

The guidelines clearly explain regulators’ logic and their expectations for companies under their jurisdiction. Manufacturers in Canada, Japan, the UK, the US, and the EU should consider integrating these recommended practices into their operations to meet regulatory requirements and avoid potential violations of sanctions.

Information source.

aml.plus team

[email protected]

Who Needs to Get an OFAC License and How to Obtain One

An OFAC (Office of Foreign Assets Control) license is required for individuals or entities planning to engage in transactions with individuals or entities subject to U.S. sanctions. This applies to both U.S. and foreign companies and persons, as long as their activities fall under U.S. jurisdiction.

When is an OFAC License Required?

It’s required when:

1. Trading with Sanctioned Countries

   If you plan to do business or engage in transactions with companies or individuals from sanctioned countries (e.g., Iran, North Korea, Syria), an OFAC license is required.

2. Financial Transactions

   Banks and financial institutions must obtain an OFAC license if they want to conduct financial transactions involving sanctioned persons or entities.

3. Exports and Imports

   Companies involved in exporting or importing sanctioned goods and services must have an OFAC license.

4. Investments and Partnerships

   Investors planning to invest in sanctioned businesses or projects also need to obtain an OFAC license.

5. Service Providers

Providers of services such as legal, consulting, or other professional services require a license if their activities involve sanctioned persons or entities.

Types of Licenses

OFAC grants two types of licenses:

– General Licenses – Applicable to certain broad activities.

– Individual Licenses – Tailored to specific transactions or activities.

How to Apply for an OFAC License

License applications are submitted through the OFAC Licensing Portal. The application process follows these steps:

1. Submission of the application

2. Management review

3. Interagency review

4. Approval by the U.S. Department of the Treasury

5. Final approval by the applicant

6. Issuance of the license

Applicants can check the status of their submission through the portal. For additional support, a callback from OFAC is also available for license applications. You can learn more at their recent actions page.

If you’re unsure whether you need an OFAC license, consult a specialists at [email protected]

Additional Reading

For more insights on U.S. export controls, read this article.

aml.plus team

How to determine who controls a company?

The EU has updated best practices on sanctions and, in particular, clarified the definition of control 

The EU has clarified the ownership criterion as follows: ownership of a company occurs if the sanctioned person owns 50% or more of the capital. The previous version of the EU Best Practices referred to ownership of more than 50 %.

In addition, the document now explicitly states the principle that the interests of several sanctioned persons in an entity should be aggregated when determining whether such an entity is owned by sanctioned persons.

In particular, the EU Best Practices provide the following example: if an organisation is 30% owned by one sanctioned person and 25% by another, such an organisation is considered to be owned by sanctioned persons.

The EU Best Practices have also been expanded to include examples of what may be indicative of control by a sanctioned individual or organisation over another organisation. 

The following examples are included:

a) Majority shareholding. A designated person is the largest shareholder of a company compared to other shareholders. For instance, the designated person has 40%, whereas the other shareholders each have 10%. Such situation may warrant further analysis whether the designated person fulfils any of the abovementioned control criteria (for instance, the power to appoint the majority of directors in the management board).

b) Buyback option. A management buyout took place, whereby the designated previous owner can buy back the company under favourable conditions. Especially where these conditions could easily be invoked, this may warrant further analysis whether the designated previous owner has control.

c) Transfer of shares at a time close to the designation. A transfer of a relevant number of shares in the non-designated entity to a new owner shortly before or after (if allowed for by the relevant Council Regulations) a person has been designated may also suggest retained control by the designated person and could trigger further investigation as to the previous owner’s influence over the new owner. A “relevant” number of shares is not only a large number thereof, but also smaller numbers which enable the listed seller, for instance, to fall below the ownership threshold.

d) Use of front persons. A new owner is closely connected to the designated previous owner, e.g. a family member or former employee/business partner, and, possibly, the sale price was too low or otherwise abnormal, or the entity has an advisor (or a board of advisors) with ultimate decision power over the activity of the entity, even though from the title or function this does not seem self-evident, or there is a written agreement from which it is clear that a non-shareholder or a shareholder with minor shareholdings is given the authority to solely decide on the business of the entity, or the persons who are supposed to be in charge of an entity have their decisions made by designated persons.

e) Use of trusts, shell companies and limited liability companies. An entity is part of a needlessly complex corporate structure, potentially involving entities such as shell companies, limited liability companies and/or trusts linked to a designated person. Some of these entities were set up or changed their identity shortly before or after (if allowed by the relevant Council Regulations) the adoption of the sanctions regime or the person’s designation, and/or have no credible business activity. One or several trusts are used as receiver(s) of assets from an entity owned or controlled by a designated person. The management of the trusts involves professionals from the jurisdiction where the trusts was/were formed.

Source.

aml.plus team

USA Strengthening Export Controls: New Measures and Historical Precedents

On 1 July, the U.S. Department of Commerce’s Bureau of Industry and Security published a new compendium on criminal and administrative export control enforcement actions. This document is an important resource for all members of the export community.

The compendium contains case examples of individuals who have been held administratively and criminally liable for violations of U.S. export laws. The second chapter is particularly notable because it presents 15 cases in which liability was imposed based on violations of sanctions against Russia. The first case mentioned is how the operator of a Latvian corporation conspired with the operator of an Estonian company, By Trade OÜ, as well as individuals in Russia and a Russian company, to violate U.S. export laws and smuggle a Connecticut-made jig grinder into Russia, for which they received serious penalties, including time served and forfeiture of funds.

This publication, aptly titled “Don’t Let This Happen to You!” serves as a reminder to exporters of the serious consequences of failing to comply with U.S. export control laws. The document also notes that in 2023, BIS efforts resulted in a record number of indictments, underscoring the effectiveness and severity of the enforcement efforts.

BIS strongly encourages exporters to read the published document to avoid similar violations and minimise risks in their operations.

Source here.

Atbilst team

EU guidelines on identifying PEPs

It is important for compliance officers to keep up to date with the latest regulatory publications, in particular in the fight against money laundering and financial crime. For example, last week the European Union published a valuable document providing a list of public officials (politically exposed persons or PEPs) of Member States and EU institutions.

This publication is an important resource for identifying important public functions at national level, at the level of international organisations and at the level of the institutions and bodies of the European Union. It provides detailed descriptions of public functions. This is very important when dealing with PEPs, as understanding who public persons are helps to monitor transactions and activities that may pose increased risks of money laundering, sanctions evasion and other financial crimes.

Key aspects:

– Detailed lists of public posts in EU countries.

– Information on public posts in the EU institutions.

– Explanations of what constitutes a “public figure” in different contexts.

List of prominent public functions at national level, at the level of International Organisations and at the level of the European Union Institutions and Bodies Confusion, questions?  Feel free to contact us.

AML.Plus team

Additional sanctions against Belarus

On June 29, 2024, the EU Council has introduced additional restrictive measures against Belarus.

Main points:

1. A ban is introduced on the supply of dual-use goods and technologies, luxury goods, and maritime navigation technologies.

2. Import of gold, diamonds, helium, coal and crude oil from Belarus is prohibited.

3. Prohibition on the provision of auditing, consulting, architectural, engineering, marketing and advertising services.

4. The ban on the transportation of goods by trailers and semi-trailers is expanding in relation to Belarusian carriers.

5. European exporters are required to include provisions in contracts prohibiting further re-export of sensitive technologies, weapons and ammunition to Belarus.

The purpose of the restrictions is to combat the sanctions evasion by Russia

Council of the EU press release.

Atbilst team

Refusing or Terminating a Customer

Refusing to onboard a customer can take place at different points in the customer cycle. The company may choose to not accept a new customer because after conducting customer due diligence, you discover the customer is outside of your organization’s risk appetite. Or the customer might have raised enough red flags for financial crime or for violation or circumvention of sanctions

The company may also decide to reject an existing customer after a standard review cycle, either because their activities look suspicious, or because your organization’s risk appetite has changed.

If, for example, the company does not accept online casinos as customers, it is safe to say and document the reason. If there are underlying suspicions of financial crime, violations or circumvention of sanctions, you must take care not to tip off the customer.

Potential new customers who fail your organization’s CDD (Customer Due Diligence) or are outside of the stated risk appetite are the simplest to reject. If it is a risk appetite matter, such as not accepting certain sectors, it is safe to tell the potential customer. If it is because of financial crime suspicions, care must be taken not to tip off the customer. A simple explanation of “outside of risk appetite” should be sufficient. If you do reject a new customer, you must keep a file stating your reasons. If you suspect financial crime, your company must make the necessary suspicious activity reports.

Rejecting an established customer requires additional steps. If your company has decided to exit a sector or jurisdiction, there might be a press release or standard statement and customer communications that can be used to inform the customer of the decision.

Rejecting a customer because of suspicious activity is more difficult. You should follow your organization’s policies and procedures. It should be followed by a very generic letter or communication saying the organization wishes to discontinue the relationship. Your company might have a template for this communication. Unless legally required to do otherwise, you must allow your customer a reasonable amount of time to make alternative arrangements before terminating the cooperation.

Atbilst team

“No re-export to Russia” clause

In order to reinforce the sanctions against Russia and to prevent circumvention of the export bans, a requirement as part of the twelfth sanctions package adopted on 18 December 2023, namely Annex I to Council Regulation (EU) No 258/2012, entered into force on 20 March 2024.12.Article 12(g) requires and obliges EU exporters to contractually prohibit the re-export of certain goods to or for use in Russia when exporting, selling, supplying or transferring those goods and technology to third countries (other than the “partner countries” listed in Annex VIII of the Regulation, which are currently Australia, Canada, Japan, New Zealand, Norway, South Korea, Switzerland, the United Kingdom and the United States of America. These countries are considered to have adopted export bans similar to those of the EU, thereby reducing the risk of prohibited re-exports to Russia.)

Article 12g applies only to goods and technology listed in Annex XI (goods and technology suitable for use in the aerospace sector), XX (jet fuel) and XXXV (firearms), common high priority goods listed in Annex XL (plugs and sockets for voltages up to 1 000 V, ball bearings, electronic integrated circuits, etc.). 

In the event of a breach of a contractual obligation by a third-country counterparty, exporters shall, as soon as they become aware of the breach, immediately inform the competent authority of the Member State in which the exporters are resident or established. Any delay may be considered as a breach of the sanctions, which is punishable by criminal penalties.

Please note that in Latvia, the competent authority for sanctions matters from 01.04.2024 is the Financial Intelligence Unit (FIU). The status of national competent authority means that any person will be able to apply to the FIU for any sanctions issues. The FIU will also issue authorisations for exemptions from 1 April.

The obligation to include a “no re-export to Russia” clause depends on the date of conclusion of the contract. For contracts concluded before 19 December 2023, a transitional period of one year until 19 December 2024 inclusive or until the expiry of the contracts, whichever is the earlier, applies. In order to comply with these contracts on 20 December 2024, they should be amended to include a clause “no re-export to Russia”.

Useful information:

EUR-Lex – 02014R0833-20231219 – EN – EUR-Lex (europa.eu)   

https://www.consilium.europa.eu/lv/policies/sanctions/restrictive-measures-against-russia-over-ukraine/sanctions-against-russia-explained

FAQ: “no re-export to Russia” gudaince

New features for FID

AML.Plus team

Sanctions against Russia. What are the forecasts for 2024?

What will be the sanctions policy towards Russia in 2024? This can be seen from the key decisions on sanctions already built into the current sanctions policy.

Expect to see an expansion of economic and trade sanctions, an improvement in the mechanisms for confiscating Russian assets, and more systematic attempts to force third-country companies to refuse to cooperate with Russia, in particular in the areas of industrial supplies and technological cooperation. These three areas constitute the basic scenarios for the 2024 sanctions against Russia.

The extension of economic sanctions is a regular process that underpins each new wave of restrictive measures against Russia. So far, the European Union has blocked 335 legal entities and 1 645 natural persons in connection with the Ukraine conflict. This does not include those assets sanctioned under the “50% rule” – subsidiaries, branches and the like.

Discussions have already started on the 13th EU sanctions package against Russia. EU Member States are expected to approve it by 24 February. So far, it is known that the lists will be expanded to include new natural and legal persons, as well as additional trade restrictions and measures to combat the circumvention of existing sanctions through third countries.

The same applies to trade sanctions. Dual-use goods are already almost completely banned from Russia. However, the lists of industrial goods and “luxury goods” banned from Russia, as well as those banned from Russia, may be extended. Restrictions on the prohibition of supplies of Russian origin to third countries are being actively pursued.

Another regular topic of public discussion is the confiscation of assets of sanctioned Russian persons and the subsequent transfer of funds to Ukraine. Canada has developed a mechanism for such confiscation. There is a precedent in the US for transferring part of the assets of a Russian blocked person to Ukraine, but these are assets involved in criminal cases of sanctions evasion. However, a mechanism similar to the Canadian one has not yet been developed in the US.

Pressure on business from Russia-friendly countries and the fight against sanctions evasion promises to become more visible. These measures were already very active in 2023. Almost all US sanctions against Russia included sanctions against individuals from third countries – Turkey, UAE, China, Singapore, Kyrgyzstan, Cyprus and others – that the US authorities considered to be involved in circumventing export control and other sanctions regimes. It is worth noting that the US regulator’s sanctions were previously limited to transactions denominated in US dollars, but the amendments adopted last December allow secondary sanctions to be applied also to transactions denominated in other currencies. A similar mechanism for secondary sanctions already appeared in the EU last year, although it was applied only on a very limited scale, and EU export controls on third countries through which goods from the EU are shipped to Russia to circumvent sanctions have not yet been applied at all. However, prosecutions of sanctions violators in the EU are rapidly gathering pace and are already comparable to those in America.

AML.Plus team