Amsterdam/ Moscow, 2 September 2014
On 26 August 2014, the Dutch Ministry of Foreign Affairs has issued a so called “Handboek Rusland” (Russian Manual) with much needed clarifications regarding the sanctions.
The sanctions apply to all EU companies and citizens. This includes EU citizens who are the director of a Russian company and Russian branches of EU companies. Russian subsidiaries of EU companies are in principle outside the scope of the sanctions but will be included in practice. Firstly because the Russian Manual includes those subsidiaries where the parent company is involved in the preparation and coordination of the transactions of the subsidiary. Secondly because banks and insurance companies are seen to take a very conservative approach regarding any company dealing with Russian customers.
Destination and contract due diligence
There should be no deliveries to a relatively wide scope of companies in Crimea and no weapons of course. Dual use goods for full or partial military end use are forbidden, and the scope of dual use can be extended. For dual use goods which are not meant for military end use, an export license should be obtained. Obviously the risk of transfer of such goods should be excluded, which can be done as follows:
1.End user declaration – a clause in which the customer confirms that the goods are for his internal use only and will not be transferred to any persons falling under the EU sanctions;
2.Third party clause – the obligation to oblige consecutive buyers to also not deliver the goods to sanctioned persons and enforce an end user declaration from their customers.
Finally, specific goods for the Arctic (=above polar circle), deep sea (>150m) and share gas oil exploration can be exported only with a license from the CDIU (Centrale Dienst voor In- en Uitvoer), the Central Import-Export Agency.
The corresponding lists are very technical in character and for a wide scope of products it may be unclear whether they are or are not on the list. Exporters can obtain clarity as follows:
1.A categorization request (indelingsverzoek) which may result in a confirmation that the sanctions do not apply to the goods in question;
2.A trial export license application – a “dry run”, application for an export license without a contract being in place.
Customer due diligence
When delivering goods to a Russian customer, it should be documented that the company or person is not on the list of sanctioned persons. The difficult part is here the indirect supply: a sanctioned person is considered to own or control a company if he owns, directly or indirectly, more than 50% of the customer or otherwise controls it (for example by being a director). As a supplier, you are supposed to “know your customers” (“KYC”). In the financial and legal services industry, KYC is a well known concept which was introduced worldwide after 9/11 to combat international terrorism and money laundering. The EU Russia sanctions have now expanded this concept to any EU company doing business with Russia.
Ownership structures of Russian companies are, like in the rest of the world, a sometimes fiercely guarded secret. Or the purchase managers you are dealing with may simply not have the authority to disclose it.
If your customer is owned or controlled by a sanctioned person, or you are not sure about the ownership structure of your Russian customer, an assessment should be made of the risk that the goods end up in the hands of a sanctioned person or company. Goods may be transferred to such person only if it is sufficiently clear that they are for internal use. Money or similar assets may under no circumstance be transferred.
In order for you to implement the procedures, we have summarized the two required due diligence procedures in two questionnaires which we will send you free of charge upon your request.
You may also want to review existing contracts and relationships to ensure they are “Sanctions Proof”. There is no need to avoid doing business with Russian companies, quite on the contrary this is an opportunity to explore commercial possibilities in combination with sound business practice.
The information in this newsletter is of a general nature only and should not be relied upon as advise. If you need additional information or our assistance regarding any of the issues discussed, please contact Bauke van der Meer ([email protected]).