Growing use of intra-EU supply chains in Russian sanctions-busting

Russia is continually seeking new and more subtle ways to circumvent sanctions and export restrictions, with procurement increasingly concatenated within the EU internal market also.

Russia’s aim is to conceal supply chains more effectively as Western authorities become increasingly aware of its schemes to evade sanctions and export restrictions. The growing number of supply chain intermediaries makes it increasingly difficult for public authorities and enterprises to identify their ultimate business partners.

The extension of a supply chain into the EU internal market means that Finnish business contacts may come from Finland or from another EU country. No clear connection to Russia or to some non-EU country may be evident in such contacts.

Procurement chains use both individual enterprises and broader procurement networks as a front behind which Russia can secure access to required materials.

Chains that begin in the EU internal market often continue into third countries via some long chain of intermediaries.

The impact of sanctions is visible in Russia

Russia seeks to evade sanctions and export restrictions in order to procure the products and technology that it needs.

Finnish businesses, universities and research institutions have a great deal of internationally recognised expertise and sophisticated technology. Russian procurement efforts may target both cutting-edge technology and conventional components, such as printed circuit boards. Items of particular interest include various electronic components, measuring instruments, machine tools, materials technology, optics, maritime technology and quantum expertise.

Dual-use items subject to export control under an EU Regulation are also on the Russian procurement list. Dual-use items are technology or products with both civilian and military applications, or that can be used for developing weapons of mass destruction.

The sanctions and export restrictions imposed on Russia hamper and delay procurement of certain controlled products, and make them more costly. Russia needs these procurements in particular to maintain its military capability.

Attention should be paid to unusual contacts

Businesses may be unwittingly involved in circumventing sanctions and export restrictions as Russian procurement routes become more complex and increasingly linked to the EU internal market.

Enterprises should always pay particular attention to unusual procurement efforts or contacts. Such contacts may come from a business that was recently established, or is based in a country with a hitherto unfamiliar operating environment. This business may have a long history of trading with Russia, or it may have significantly modified its operations in such respects as exporting, importing and payment arrangements for purchases.

Enterprises should also be wary of business partners that only communicate through various intermediaries or authorised representatives. They should exercise caution with respect to unusual payment arrangements, such as those in which a buyer seeks to pay for a purchase through a third party, or using bank accounts based in tax havens. Effective contract management and good customer knowledge can help enterprises to reduce the risk of unwitting involvement in a network that evades sanctions or export restrictions.

Business operators are liable for complying with sanctions and export restrictions

Enterprises are required to know the parties with whom they transact business. They are ultimately responsible for verifying the final destination of the products that they sell.

All enterprises and private operators should be aware of the risks involved in circumventing sanctions and export restrictions. Corporate management is criminally liable for complying with EU sanctions and export restrictions. Engaging in business transactions with sanctioned operators can also negatively impact a company's own business operations and its payment or financing connections.

Besides criminal penalties, involvement in sanctions-busting can cause significant reputational damage that will not necessarily always be confined to the offending business alone. This damage may also affect the stakeholders and customers of any enterprise that circumvents sanctions or export restrictions.

Businesses may contact the Customs to discuss concerns about general customs procedures and offences. The Finnish Ministry for Foreign Affairs provides advice on issues of sanctions and their interpretation, and on export restrictions governing dual-use items and the need for export permits.

Supo is responsible for working with other public authorities to ensure that controlled technology or products are not exported from or through Finland. Businesses and organisations that are the target of any suspicious approach may contact Supo using the contact form on our website.

From Finnish vendor to the intermediaries within EU and then to the buyer within the EU. From the buyer within the EU to intermediaries outside the EU, then to the declared end user, and from there to the actual end user who is previously unknown operator outside the EU.