Exporters Should Consider 'No-Russia' Clauses to Protect Against Sanctions Risks, UK Says

The new U.K. recommendations come after the EU announced plans in 2023 to mandate the use of no-Russia clauses for European companies (see 2402270046). Inserting a no-Russia clause or other language in a contract that prohibits a buyer or importer from selling any restricted items to Russia “could help protect you as a seller,” the U.K.'s Office of Trade Sanctions Implementation said in guidance published Jan. 7.

“While the UK government does not require it, including such clauses or other statements in your export documents could reduce the risk that your customer involves you in what may be deemed a breach of sanctions.”

The EU also issued its own guidance in 2024 about the type of language that companies should include in their no-Russia clauses (see 2407150041), and some lawyers said the EU’s example language was "pretty extreme” (see 2411210009).

The U.K. this week released a no-Russia clause template that’s nearly identical to the one published by the EU. But unlike the EU guidance, the U.K. said British companies should also consider inserting language in their contracts that allows them to breach “any confidentiality agreement” with their customers if they need to report a suspected sanctions violation to U.K. authorities.

In its guidance, the U.K. said some British exporters already use no-Russia clauses, which “may represent a component of due diligence best practice.” The clauses can also “act as an additional deterrent” to non-U.K. customers that may be thinking about redirecting sanctioned goods to Russia, especially customers in nations that haven’t imposed sanctions against Russia.

“Where contracting parties are non-UK persons conducting business from jurisdictions that continue to trade goods with Russia, or goods are relevant to Russian military operations, use of such clauses should be considered,” OTSI said.

The agency said sanctions due diligence by British companies is “essential,” even if a sale involves a longtime, trusted customer. Due diligence needs to be “repeated at intervals to ensure that the risk has not changed,” it said, adding that a customer may have changed directors or begun trading new products.

OTSI also noted that Russia is looking to buy sanctioned goods through less-traveled routes, and it could be using entities with “complex and irregular corporate structures to hide their intentions and their ultimate beneficial owners.” Companies “are advised only to conclude deals where they are confident that a process of cross-checking these risks provide reassurance that compliance thresholds are met,” the U.K. said.

The agency, which was created in October to boost the U.K.’s powers to investigate, catch and penalize Russia-related sanctions evaders (see 2410100010), warned that it could pursue “large financial penalties or criminal prosecution” against violators. It also urged companies to submit voluntary disclosures “as soon as possible” if they discover they have traded goods or transferred technology without the required license.

OTSI also issued other guidance about which goods and countries face a higher risk of sanctions-evasion. It specifically said exporters of industrial machinery, vehicle parts, pumps, oil lubricants, computer parts and others should step up their due diligence, especially if they’re exporting to:

• Armenia
• China, including Hong Kong and Macau
• India
• Israel
• Kazakhstan
• Kyrgyzstan
• Malaysia
• Mongolia
• Serbia
• Thailand
• Turkey
• United Arab Emirates
• Uzbekistan
• Vietnam.

The UK said it’s “fully supportive of trade with these countries where the end destination is not Russia, or any other sanctioned destination,” but it still said companies should consider “conducting enhanced due diligence on customers” in those nations.

OTSI also published a new set of red flags that may indicate a product or customer is involved in Russia-related sanctions violations, including:

• The item being ordered is “incompatible with the technical level of the country to which it is being shipped,” such as semiconductor manufacturing equipment exported to a nation with no electronics industry
• A customer has previously been part of a joint venture or cooperation agreement with a sanctioned person or entity
• The customer’s address is a residential address, or it shares an address with multiple businesses trading in similar goods. This “may suggest the use of multiple front companies to obfuscate illicit trade in sanctioned and controlled goods"
• A new customer who is new to the market and seeking a high-risk product
• A customer who is unfamiliar with the product’s performance characteristics but still wants to buy it
• A customer who asks to divide an invoice value into smaller amounts to remain under export control limits
• A customer who declines routine installation, training or maintenance associated with the product.

The agency recommended that exporters put in place an “enhanced due diligence model to screen customers and business partners,” especially those involving higher-risk products and destinations. OTSI specifically said companies should have comprehensive know-your-customer data collection procedures to verify a customer’s background; investigate a product’s end-use and end-user; screen customers for inclusion on sanctions lists; consider a new customer’s “motives in initiating contact with you”; and more.

The guidance also includes a list of third-party sanctions screening tools for businesses.