In response to growing criticisms of weak enforcement of export control and international sanctions, authorities worldwide have adopted stricter approaches. Especially, there is significant shift in sanction enforcement against violations related to Russia. This article highlights recent cases in the Netherlands, Europe and U.S. enforcement actions indicating how these actions impact the business landscape. Companies are now facing stricter scrutiny, heavier penalties and increased reputational risks if they violate sanction and export control regimes.

This article is written by Sefa Gecikli ([email protected]) and Lorena Velo ([email protected]). Lorena and Sefa are both part of RSM Netherlands Business Consulting Services with a specific focus on international Trade and Sustainability.

Background

Policymakers and the public have put pressure on companies that evade sanctions. In the context of Russia, global powers have unitedly imposed sanctions over its actions in Ukraine, while businesses across various sectors particularly those involved in international trade, defense and technology are being targeted.

Recent Enforcement Developments

1.EU and UK.

Recent enforcement actions highlight the increasing intensity of sanctions measures. For example, the CJEU recently upheld Romania’s confiscation of €2.98 million, representing 100% of Neves 77 Solutions SRL’s gross revenue in breach of sanctions. The court ruled that providing brokering services without the necessary license is prohibited by either facilitating the sale or transfer of military equipment and it applies even if this equipment has never been imported into the EU market. The court ruled that confiscation of gross revenue is necessary to deter future violations.

In a case from the Netherlands, on 23 June 2014, the European Union imposed sanctions due to the annexation of Crimea and Sevastopol by Russia and since then it is prohibited for companies to sell goods or provide technical assistance in Crimea or for the use in Crimea. Providing technical assistance under the export control and sanctions regime can include the transfer of technical knowledge, instructions or sending experts to work on-site on the equipment or products that fall under the regulation. A Dutch company was selling pile drivers and other parts, which were used to construct the Crimean Bridge throughout 2015-2016. The Dutch entity also provided technical assistance for the products supplied by having its technicians work on the site. Considering the entity’s violations, on July 11, 2024, the investigation was concluded with a settlement. Due to the company’s cooperation in the investigation the Netherlands Public Prosecution Service (NPPS) reduced the fine. However, the company did pay a total fine of 180,000 euros to the Dutch State in addition to confiscation of € 1,600,000 by the NPPS as a result of unlawful gains.

Not only in the EU but also in the UK, the enforcement is getting stricter. The Revenue and Customs Office (HMRC), which enforces export controls and trade sanctions in the UK imposed substantial fines as a result of Russian sanctions and export control infringement. The six most recent settlements made by UK companies concern the export of unlicensed military goods controlled by the Export Control Order 2008 or exports of dual-use goods which are controlled by the Retained Regulation 428/2009.

2. U.S. Enforcement

In addition to the EU sanctions, the U.S. sanctioned 400 entities and individuals for facilitating Russia’s prosecution of its illegal war in Ukraine. It recently introduced tougher sanctions to disrupt sanction evasion and target entities in third countries. The measures adopted focus on Russia’s defense and energy sectors placing heavier scrutiny on export controls and financial restrictions. The goal of such measures is to ultimately block critical supply chains that assist those military efforts and disrupt access and networks to key technologies. Specifically, measures target producers, importers and exporters of critical items to Russia’s industrial military base. Items include microelectronics and computer numerical control items (CNC) on the Common High Priority List (CHPL), as identified by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) together with the EU, UK and Japan. The U.S. also targets Chinese entities as third parties, as it continues support the network with CHPL microelectronics and CNC tools (machine tools) that are used to make weapons. In addition, the U.S. Department of State reached a settlement with RTX corporation for 750 violations of the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR) resulting in a civil penalty of $200 million. The fine concerned the unauthorized exports of defense articles including through the employees and the failure to properly determine the jurisdiction and classification with regards to those articles. 

Forward Thinking

As the enforcement of sanctions and export controls intensifies, businesses must adapt to a landscape where compliance is not just a regulatory requirement but a crucial component of strategic risk management. Companies should anticipate even stricter global enforcement and more complex regulatory environments, especially in light of geopolitical tensions and evolving international policies. 

Sanctions have far-reaching implications for global businesses. Violating entities may face substantial fines, asset seizures and reputational damage.  These enforcement practices indicate that companies need to determine if their products fall under export control and sanction regulations. If they do, companies should conduct thorough KYC and third-party risk assessments to avoid engaging in business with sanctioned entities or jurisdictions. Implementing an internal compliance program tailored to various regulatory requirements and business needs can effectively mitigate these risks.

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