Expectations for export in the new Sanctions Era. Why do companies and organizations need a due diligence check?

Expectations for export in new Sanctions Era

Freight forwarders play a key role in the export of goods overseas and, despite having to act on the instructions of another party, they must ensure they have robust processes in place to prevent the transportation of dangerous or dual-use goods to restricted countries.

It is a clear requirement of #BIS and #OFAC regulations that all parties involved in an export transaction subject to the Export Administration Regulations (EAR), must comply. There are no shortcuts to the screening of exported goods; the responsibilities of the forwarding agent include screening parties involved in the transaction, checking if export countries are on a restricted list and confirming that destination control is in accordance with the EAR.

Case study: Optima Freight OY Targets

Following Treasury’s designation of Divetechnoservices in June 2018 for procuring underwater equipment and diving systems for the FSB, Divetechnoservices utilized Optima Freight OY (Optima Freight), a Finland-based freight forwarding company, to acquire underwater equipment in an effort to evade U.S. sanctions. In July 2018, more than a month after its designation, Optima Freight facilitated the shipment of diving equipment on behalf of Divetechnoservices. Optima Freight had also assisted Divetechnoservices’ efforts to acquire underwater technologies prior to its designation. As of mid-January 2018, Optima Freight assisted Divetechnoservices’ efforts to acquire an underwater diving system valued at over $150,000. Optima Freight is being designated pursuant to E.O. 13694, as amended, for having materially assisted Divetechnoservices.

September 23, 2020

https://home.treasury.gov/news/press-releases/sm1133

Throughout the course of this activity, Optima Freight was managed and controlled by Nikita Gennadievitch Kovalevskij (Kovalevskij)

“Nikita Kovalevskij, and his company, Optima Freight, through an illicit scheme, violated U.S. export laws in the acquisition of sensitive, controlled U.S. maritime technologies,” said Stacey R. Moy, Special Agent in Charge of the Counterintelligence Division, FBI Washington Field Office. “The FBI remains committed to aggressively investigate and stop Russia from covertly pilfering U.S. innovation.”

Let's analyze this case and try to draw conclusions on being proactive in projects related to chains of intermediaries in international trade

A transport expedition is an intermediate link in freight traffic. The cargo can be delivered, for example, to the Helsinki-Vantaa airport, from where it needs to be transported to Russia through the Vaalimaa border checkpoint. For the delivery of the cargo, the services of a forwarding company are required, which will cooperate with the border service and prepare all the necessary documents.

Kovalevsky's company Optima Freight specialized in transportation to Russia.

The company's page says that it delivered 300 tons of air cargo in 2017. The cargo arrived not only to Russia, but also, for example, to Europe, South Africa and Australia.

In the summer of 2018, the United States added Divetechnoservice, a Russian supplier of underwater equipment, to the sanctions list.

According to the US, the company supplied equipment for the Russian security services. The company has also been linked to a naval research ship that has been spotted near submarine communications cables. Tracking information transmitted over these cables is of great interest to the intelligence services of large states.

According to Kovalevsky, his company was engaged in transportation, including industrial equipment and construction goods.

DTS used the services of a Finnish logistics company to order deepwater equipment in the United States. The logistics company turned to Optima Freight for services to deliver the cargo to Russia.

In the fall of 2018, the US Bureau of Industry and Security contacted Kovalevsky.

Representatives of the US Bureau of Industry and Security (BIS) spoke with Optima Freight customers in 2012 and 2014. The interest can be explained by the fact that American goods are delivered to Russia via Finland.

“BIS representatives were in our office for three days. They said that due to the fact that we are transporting American cargo, I and my activities must obey American laws." he said to journalists

BIS demanded data on where the Optima Freight cargo went further in Russia.

After Divetechnoservice was on the sanctions list, Optima Freight continued to fulfill forwarding orders to Russia, but DTS stopped working. Orders were placed by two other firms, but the cargo was of the same type.

Optima Freight needed to intervene in the summer of 2018. This was noticed only later.

This case proves the need to conduct detailed due diligence of foreign clients, customers, recipients, analyzing what happens with your goods at the 2nd and 3rd levels of the foreign market. Standard sanctions screening, unfortunately, shows pronounced red flags, but as we see sanctions are imposed for actions committed in the past, which could only be avoided through a detailed study of the project

The BIS has issued a ‘Role of Freight Forwarders’ training document, which outlines the steps required to maintain compliance. This document raises the following best practices:

• The freight forwarder is responsible for determining and applying for an export license and for any export clearance documentation
• All parties to a transaction must be screened and screening should be undertaken continuously
• Special care must be taken to ensure that exports are not destined for an embargoed country
• Records and audits of all exported goods must be kept for a minimum of 5 years from the date of export
• A destination control statement must be completed for any goods that are exported
• A robust internal compliance program should be in place that allows practitioners to comply with EAR and other global regulations

You should keep in mind, that RESEARCH METHODOLOGY of top screening tools and due diligence services providers in the verification of a project or prospective counterparty does not include the factors of participation in certain competitions and tenders ( Government procurement) & affiliation of chains of shell companies with sanctioned projects, SDN end-users

You should use manual investigation of the connection of a Foreign legal entity with affiliated companies, dependent companies involved in the schemes of blurring the final end-use of the product

Rod Tuvaev

International Business

Export Control, Sanction & Trade Compliance expert

https://www.sanctionsadviser.com/

 #santions #BIS #OFAC #Russia #exportcontrol #exportcompliance