In the wake of sanctions this can cause difficulties, as seen in the wake of sanctions on Russia. In 2022, the Western World watched as Russia invaded Ukraine, responding with trade sanctions on goods through the Common High Priority Items List to counteract Russian aggression. Despite these measures imposed, sanctioned items still find themselves on the battlefield of Ukraine. The reason as to why this still occurs is due to trade sanctions circumvention tactics, which play a deciding role in the end impact that sanctions have on target states.

What is trade sanctions circumvention?

Trade sanctions circumvention refers to entities avoiding regulations or finding other routes to continue trade and thereby not comply with sanctions imposed. For example, this can occur through shipping methods, with the main facilitators coming from neighbouring and friendly jurisdictions of the sanctioned state. Third -country trading is another common tactic of exporting luxury goods. On items like chips and other military dual-use goods, entities may export such goods, often found on the Common High Priority Items List, into a neighbouring country that is not subject to the trade sanctions. However, instead of this being the final destination of the goods, these are further exported into a neighbouring sanctioned state, entering circulation.

Another major tactic to circumvent trade sanctions is through mislabelling the items being shipped. In this instance, an individual will ship an item to a sanctioned jurisdiction that may be on the Common High Priority Items List but will label it as an item that is not on the list and therefore avoids scrutiny around breaching trade sanctions. This had been the case of Dimitry Timashev, who on 7 June, 2024, pleaded guilty to violating the Export Control (Amendment) Regulations 2024 by exporting firearms into Kazakhstan with the intent to export them into Russia. Timashev had labelled the goods as non-restricted items and in return received monetary bribes. Timashev now faces up to 8 years in prison, highlighting the strict consequences that can occur if an individual or entity is caught attempting to circumvent trade sanctions.

What are the regulations?

From a UK perspective, the Russia (Sanctions) (EU Exit) Regulations 2019 set out the foundational prohibitions on Russian entities. Included in the regulations are the export prohibitions at Regulation 22 (restricted goods) which prohibit the export of specified goods to Russia. As a result, irrespective of whether the immediate destination is not Russia, the prohibition still applies, thereby, including third-country sanctions evasion trading.

As mentioned previously the Common High Priority Items List sets out strict guidance on the types of goods that cannot be exported into the Russian Regime as they can be dual-use (with both civilian and military applications) or are luxury items that should not be circulated in Russia in aims to limit its war economy.

Additionally, Regulation 46b in Amendment No.8 of the Russia (Sanctions) (EU Exit) Regulations 2019 further clarifies that an individual or entity must not directly or indirectly supply or deliver luxury goods from a third country to any place in Russia.

For firms seeking to comply, the National Crime Agency (NCA) provides guidance highlighting behavioural concerns that the financial sector should be aware of, including ‘red flags’ of possible trade sanctions circumvention tactics.

What can be done?

Circumvention is an ongoing problem, nevertheless, there are methods that nation-states and trade sectors can undertake to ensure that circumvention is prevented prior to the goods being delivered into a sanctioned jurisdiction. Following NCA advice, financial institutions should remain diligent when noticing a sharp increase in exports of specified goods which could be dual-use or are on the Common High Priority Items List. The exponential increase in demand from a nation-state that would not ordinarily require these items may indicate a tactic for circumventing trade sanctions.

Furthermore, cross-collaboration across trade sectors is essential to ensuring that circumvention is prevented. If due diligence and screening is periodically carried out this prevents entities from being able to circumvent trade sanctions with such ease, averting these items from reaching designated jurisdictions.

If circumvention is detected, comprehensive measures and thorough investigations, engaging with government agencies, can be undertaken to analyse how the breach occurred. This understanding will enable the implementation of stronger strategies, thereby significantly enhancing the overall effectiveness of trade sanctions.