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Starting from September 30, 2023, the European Union added an additional ban on importing or buying, directly or indirectly, iron and steel products (that are listed in Annex XII of the Council Regulation no 833/2014) when processed in a third country incorporating Russian-origin iron and steel. This additional ban not only requires internationally active companies to comply with the regulation but also to prove their compliance. What does this actually mean for internationally active companies?
THIS ARTICLE IS WRITTEN BY HERMAN ANNINK AND SEFA GECIKLI. HERMAN ([email protected]) AND SEFA ([email protected]) ARE FOCUSED ON FINANCIAL ECONOMIC CRIME, SANCTIONS AND INTERNATIONAL TRADE COMPLIANCE WITHIN RSM NETHERLANDS BUSINESS CONSULTING.
Are you importing manufactured steel, like car parts, into the European Union? Be mindful of the updated sanctions regulations in response to the 11th European Sanctions package regarding the restrictive measures in view of Russia’s actions destabilizing the situation in Ukraine. Not only is it prohibited to import raw iron and steel products, importing manufactured products is also subject to additional compliance requirements, such as obtaining certificates in case of import from a third country.
Article 3g(1)(d) of the Council Regulation no 833/2014 mandates a prohibition on the direct and indirect import into the European Union of iron and steel products listed in Annex XVII from Russia, as well as purchasing or transporting these products. Starting from September 30, 2023, an additional ban applies on importing or buying iron and steel products as listed in Annex XVII, even if processed in a third country, if they incorporate Russian-origin iron and steel. Specific restrictions on products with CN codes will be enforced from April and October 2024.
What does this mean for you?
At the time of importation, evidence must be furnished by importers to verify the country of origin of the iron and steel components used during processing in a third country. The European Commission made a clear list of documents that may be considered as sufficient evidence of the country of origin of the iron or steel used as inputs. To be able to provide sufficient evidence of the country of origin of the iron or steel used inputs, companies can consider Mill Text Certificates (MTCs). For semifinished products, the MTCs should state the production facility's name, the country associated with the heat number, and the product's six-digit classification code. For finished products, if all details cannot be consolidated into one MTC, multiple MTCs may be used. Importers must ensure the accuracy of the information in the MTCs when submitting to customs. Customs authorities can request additional evidence in case of doubt, and all MTCs should be consistent. Importers are expected to practice due diligence to guarantee the correctness of the details given.
Furthermore, if you import iron or steel products from a European country, it is important to consider whether you want to investigate what the origin of the iron and steel components are. Interpreting the Sanctions Act 833/2014, especially when we look closely at Article 3g (1)(d), reveals that all importers -whether directly sourcing or going through another route including an EU country- must have proof regarding the origins of their iron and steel products.
Already, it is the best practice to know the origins and the compliance status of goods within the supply chain. Certain products, depending on their origin, might be subject to specific safety, environmental, or other regulatory standards. For example: The EU has regulations to ensure that the import of minerals (like tantalum, tin, tungsten, and gold) from conflict zones is done responsibly. For instance, minerals originating from the Democratic Republic of Congo and surrounding regions are subject to specific due diligence requirements under Conflict Minerals Regulation (Regulation (EU) 2017/821).
What about non-compliance?
Even indirect association with a violation of sanctions can have significant reputational consequences for a business. Such associations may tarnish a company's reputation and erode stakeholder confidence. In this light, guaranteeing compliance up front is not only a legal requirement, but also a strategic imperative that mitigates these risks. Additionally, it may help businesses position themselves favorably in the views of regulators and other stakeholders by fostering a culture of transparency and ethical conduct. Non-compliance with sanctions extends beyond reputational harm, potentially resulting in administrative fines and criminal prosecution.
The sanctions of the European Union (EU) are transposed into Dutch laws and regulations via the Sanctions Act. Already, the Rotterdam District Court is examining a case of illegal export of sanctioned and dual-use goods to Russia amid the Russia-Ukraine conflict. The accused allegedly falsified documents to disguise shipments to Russia as sales to the Maldives. These shipments, including microchips found in Russian military equipment in Ukraine, took place over three months.
The EU had implemented sanctions on Russia since March 2014, intensified after Russia's 2022 aggression. The prosecution highlights the broader impact of such illicit activities in supporting war. The court will decide on a proposed 36-month prison term for the accused and a €350,000 fine for his company with rulings expected on 31 October and 28 November 2023.
Conclusion
Navigating the intricate landscape of the EU's sanctions, particularly regarding imports associated with Russia, requires businesses to exercise diligent attention. It's evident from the 11th European Sanctions package that sanctions can evolve, bringing forth new conditions. Staying updated is crucial to remain compliant. Also, evidence is paramount. Businesses must not only obtain but also validate documentation verifying the origin of imported iron and steel.
The repercussions of non-compliance extend beyond just monetary penalties. Therefore, in times of uncertainty, it is wise to consult with professionals well-versed in sanctions and international trade compliance to guide your decisions.