Syed Rahman and Ulrich Schmidt outline the third country risks regarding making goods available to Russia.
HM Revenue and Customs (HMRC) has announced that it has concluded a compound settlement with a UK exporter that made goods available to Russia in breach of The Russia (Sanctions)(EU Exit) Regulations 2019.
The settlement involved a £1,160,725.67 penalty being paid to HMRC in May. While not releasing many details about the case, HMRC has emphasised that it should serve as a warning that Russian companies operate in third countries, and UK businesses can be breaching sanctions by exporting sanctioned goods to such companies.
Any UK business that exports sanctioned goods to Central Asia - or other regions where Russian companies operate - needs to check the identity and origins of whoever is scheduled to receive those goods.
A key lesson to be learnt from this settlement is that ignorance is not an excuse. Businesses must stay informed of any new developments regarding sanctions measures and ensure that business partners that are or could be connected to Russia are continuously checked against the UK’s sanctions list. If and when any new sanctions are introduced, businesses must assess their current and potential trading relationships to ensure they will be compliant with the new measures.
Connected
Within the Russia Regulations, there are prohibitions on making certain goods, technology or software available directly or indirectly for use in Russia or to a person connected with Russia.
The Regulations state that a person is to be regarded as connected with Russia if they are:
- An individual who is, or an association or combination of individuals who are, ordinarily resident in Russia.
- An individual who is, or an association or combination of individuals who are, located in Russia.
- A person, other than an individual, which is incorporated or constituted under the law of Russia or is domiciled in Russia.
The criteria for defining an individual or company as being connected with Russia make it clear that they can be operating anywhere in the world.
The Regulations below contain the prohibitions on making sanctioned goods, technology and software available for use in Russia or to a person connected with Russia:
- Regulation 25 - relating to restricted goods and technology.
- Regulation 42 - relating to energy-related goods and technology.
- Regulation 46B - relating to luxury goods.
- Regulation 46L - relating to banknotes.
- Regulation 46N - relating to jet fuel and fuel additives.
- Regulation 46Y - relating to G7 dependency and further goods and technology. G7 goods refers to a range of items and related technologies that have been identified by the G7 nations (Canada, France, Germany, Japan, Italy, UK, US) as “key” or vital items and technologies that Russia relies on.
- Regulation 46Z30 - relating to Russia’s vulnerable goods and technology.
- Regulation 46Z34 - relating to sectoral software and technology.
- Regulation 30D - prohibits making restricted goods and technology available for use in non-government controlled Ukrainian territory or to a ‘person connected with non-government controlled Ukrainian territory’.
- Regulation 50 - prohibits making infrastructure-related goods available; including directly or indirectly making them available, for use in non-government controlled Ukrainian territory or to a ‘person connected with non-government controlled Ukrainian territory’.
Implications
The publicly-available details in this case are scant. But it reinforces what law firms have been telling clients since the Russia Regulations came into force – that it is imperative that businesses completely understand the implications of the sanctions rules and measures as they relate to them and stay up-to-date with all new developments.
The size of the fine imposed on the UK exporter shows that ignorance will not be bliss. The rules have to be understood properly. A simple excuse - such as that goods are not being sent to Russia directly - will not suffice. It may even lead to a heavier penalty as no mitigating factors will apply.
Businesses should ensure that they are fully aware of the entire supply chain when they are providing goods or services. End users as well as end destinations must be identified and checked against the sanctions rules, and trade restrictions complied with. This especially affects those businesses working with goods that qualify as “dual-use” goods and/or goods that could be used in the weapons industry.
