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In an era of intensifying sanctions and global scrutiny, the reality is that attempts to circumvent export controls and trade restrictions are more likely than ever to be exposed. As recent cases have shown, no matter how complex the supply chain or indirect the route, companies dealing with sanctioned nations will eventually face consequences if they’re not diligent. Today’s regulatory bodies are well-equipped to track and uncover attempts to evade sanctions, which means that businesses cannot afford to cut corners. Now more than ever, companies must be exceptionally thorough in their due diligence, especially when working with partners in high-risk or opaque jurisdictions. Failing to understand the true nature and connections of these business relationships can lead to legal penalties, reputational damage, and a loss of trust in global markets. In our article we have focused on two aspects which RSM believes to be most relevant in the current context regarding U.S Sanctions. The first example explores the evasion of U.S. sanctions with regards to high-tech products and the second example explores the constant struggle in the maritime sector with regards to monitoring cargo, vessels and shipping firms engaged in sanctions evasion activities
This article is written by Sefa Gecikli ([email protected]) and Marius Ungureanu ([email protected]). Marius and Sefa are both part of RSM Netherlands International Consulting Services with a specific focus on International Trade and Supply Chain Management.
Background: Global Reach of US Sanctions with Extraterritorial Impacts Across Borders
U.S. sanctions often extend beyond its national boundaries, affecting businesses, financial institutions, and individuals worldwide. Known as "extraterritorial sanctions," these measures seek to enforce U.S. foreign policy goals by restricting access to American markets, technology, and financial systems, even for non-US entities. US primary sanctions generally apply to any transactions that have an U.S. nexus to the United States’ jurisdiction, this includes:
- U.S. citizens and permanent residents (located anywhere in the world)
- Persons of any nationality that are physically located in the U.S.
- Entities that are organized in the U.S.
- Entities incorporated in the U.S. (along with any foreign branches)
- Transactions that are processed via the financial system of the United States and any transactions in U.S. dollars.
Evasion of US Sanctions and Implications
A recent enforcement action showcases the extraterritorial impact of US sanctions and how enforcement authorities are well-equipped to track and uncover attempts to evade sanctions. An Indian pharmaceutical company based in Mumbai, has drawn international scrutiny for its role in exporting high-tech goods, particularly Dell servers with Nvidia AI chips, to Russia—despite U.S. and EU sanctions aimed at limiting Moscow's access to such technology. Trade data analyzed by Bloomberg News shows that the company shipped 1,111 of Dell's PowerEdge XE9680 servers, valued at $300 million, to Russian firms between April and August 2024. These servers, containing dual-use technology with potential military applications, are restricted by western governments.
The US Department of State and US Treasury, subsequently sanctioned the Indian firm and its Russian counterpart alongside other 400 individuals and entities for the involvement in sanctions evasions and export control circumvention on Russia’s behalf.
India, which has not joined the U.S. and EU sanctions on Russia, has increasingly become a transshipment point for restricted technology. The Indian firm sourced the servers from Dell's Malaysia subsidiary, highlighting Malaysia’s role as the original supplier. The Indian government has faced pressure from western officials to curb these exports, though it maintains that all dual-use exports comply with national regulations.
Despite the efforts to avoid a direct U.S. nexus in their transactions with Russia, the widespread use of U.S. technology in high-end products creates an almost inevitable link. For instance, the Dell servers shipped to Russia contained AI chips manufactured by Nvidia, creating an indirect U.S. link despite the companies' attempts to bypass American jurisdiction. This highlights the obligation of large multinational corporations, to go beyond mere compliance at the C - level; they must ensure that their subsidiaries and partners worldwide adhere to the same restrictions. A “hands-off” approach from headquarters is insufficient, as regulators expect companies to actively monitor and enforce compliance throughout their entire network.
Parent entities cannot credibly claim ignorance when their own subsidiaries facilitate transactions that enable sanctioned entities to access restricted technology. This accountability gap underscores the need for robust internal oversight mechanisms across all subsidiaries to prevent potential sanctions breaches.
OFAC Guidelines for Maritime Sector with Case Studies
Many now go beyond basic compliance, intensifying due diligence on vessel ownership and deploying tracking systems to keep tabs on ships and cargo, aiming to stay one step ahead in the face of ever-present challenges.
In its latest guidance for the maritime sector, the Office of Foreign Assets Control (OFAC), guardian of US sanctions, states that the sector is a battlefield in the fight against sanctions evasion, with participants like commodities brokers, insurers, ship managers, shipbrokers, and port authorities constantly facing off against sophisticated schemes designed to slip through regulatory cracks. As deceptive tactics such as, tampering with vessel location data, forging documents, and hiding true ownership become more advanced, industry stakeholders are forced to adapt.
Common themes in OFAC’s guidance include the importance of early detection, proactive counterparty vetting, and the use of advanced data systems for real-time monitoring. In one case, a European shipowner discovered falsified certificates of origin that masked a cargo’s Iranian origin, an issue only detected after a port agent flagged suspicious discrepancies in vessel data. In another case, the use of technology is highlighted in order to identify red flags, such as unusual voyage patterns or prolonged periods without Automatic Identification System (AIS) transmission, as seen when an insurer uncovered that a tanker transporting Iranian-origin oil was hiding its ship-to-ship transfer location through data manipulation. Furthermore, OFAC suggests that companies include strong sanctions clauses in contracts, enabling them to terminate relationships if violations occur, as was the case with a U.S. reinsurer that exited an agreement upon finding Russian state ownership in a vessel’s chain of custody.
OFAC emphasizes that the maritime sector’s compliance measures should reflect the sector’s unique vulnerability to deceptive practices such as manipulated documents or concealed ownership structures. The guidance also puts forward the need for comprehensive compliance protocols that span the entire chain of operations, from brokers to port authorities, ensuring alignment and accountability.
Ultimately, attempts to evade sanctions will be uncovered, as both governmental and industry enforcement mechanisms continue to improve. Maritime sector stakeholders are under increasing scrutiny, RSM urges companies to maintain strict internal controls and consistently apply compliance measures. These steps are not only essential for avoiding costly penalties but also for maintaining long-term reputability and business security.
Forward Thinking
Based on the examples brought above, it becomes clear that the first steps a company should take is to establish a Sanctions Compliance Programme (SCP) or if it already exists, to determine whether it is relevant, adequate and efficient in the context of the current state of International Trade.
Organizations must establish comprehensive systems that effectively monitor transactions and business relationships, ensuring compliance with national and international sanctions regimes. This includes clearly defining roles and responsibilities within the organization, assigning compliance officers, and setting up appropriate reporting lines to detect and address potential violations early on. A sanctions compliance framework that lacks depth or clarity, or is left to operate in isolation, will expose the company to significant legal and reputational risks, as seen in the examples of evading U.S. sanctions on high-tech products and maritime sanctions violations. Furthermore, sanctions compliance must be woven into the fabric of the organization, extending beyond the compliance team to every department, from procurement to logistics. As in the case studies of transshipment through India and deceptive maritime tactics, companies cannot afford to operate in silos or adopt a passive approach to sanctions compliance. The organization must promote a culture where compliance is actively managed at every level, and not just a concern for the legal or compliance teams.
It is also crucial that adequate resources, both in terms of technology and personnel, are allocated to support compliance efforts. This may involve investing in real-time tracking systems, advanced data analytics, and continuous staff training to keep pace with increasingly sophisticated evasion tactics. Only through these dedicated efforts can a company effectively mitigate the risks of sanctions violations and maintain its standing in global markets.
RSM is a thought leader in the field of International Trade and Supply Chain Management. We offer frequent insights through training and sharing of thought leadership based on a detailed knowledge of industry developments and practical applications in working with our customers. If you want to know more, please contact one of our consultants.