Putting sanctions policy into practice

Aamar Ahmad examines the practical ways compliance professionals can seek to frustrate sanctions evasion.

The unprecedented economic sanctions imposed on Russia following its invasion of Ukraine represent a watershed moment in modern financial statecraft. Designed to cripple Russia’s military-industrial complex and strategic economy, these measures have demonstrably reshaped global trade flows. Official statistics reveal a stark narrative: UK direct exports of critical goods like machinery and vehicles to Russia have collapsed by nearly 95%.

Such a dramatic decline is a testament to the formal power of sanctions. However, a parallel, murkier story is being written in the trade data of Russia’s neighbouring states – a story of diversion, deception and the systematic exploitation of reexporting and transhipment hubs to keep sanctioned goods flowing. This is the new frontline in trade-based financial crime (TBFC), where the circumvention of sanctions has become a primary, high-stakes objective.

The sanctions gap

Sanctions regimes, by their nature, create a price differential and a powerful incentive for evasion. When a high-value good is prohibited in one market, a lucrative black market typically emerges to serve it. Traditional TBFC techniques – including mis-invoicing, falsification of documents, and the use of shell companies – have been seamlessly repurposed from laundering money to laundering goods’ origins and destinations.

Modern sanctions evasion is primarily achieved in two ways.

• Re-exporting: no longer merely a legitimate logistical choice, re-exporting has been weaponised as a primary circumvention tactic. Goods are shipped from a sanctioning country (e.g. the UK) to an intermediary jurisdiction (e.g., Kyrgyzstan, Armenia, Azerbaijan) with a lower risk profile. There, often with only nominal ‘processing’ or repackaging, the goods are re-exported to their true, sanctioned destination: Russia. The documentation is ‘washed’, with the intermediary nation listed as the country of origin, allowing the goods to bypass origin-based sanctions and enter Russia via its porous land borders.
• Transhipment: similarly, transhipment ports in the Caucasus, Central Asia, and the Middle East have become critical choke points, not for logistics, but for obfuscation. Container ships carrying sanctioned dual-use goods can discharge cargo at hubs like Dubai or Baku. The containers are then reloaded onto different vessels or overland transport, with their bills of lading and manifests altered to erase the original UK origin and obscure the final Russian consignee. This creates a ‘plausible deniability’ layer for all parties involved in the initial, legitimate leg of the journey.

The statistical red flag

The UK’s own export statistics provide a compelling, data-driven map of this circumvention network. The near-total cessation of direct exports to Russia is the expected, visible outcome of sanctions. However, the exponential, simultaneous surge in exports of the exact same sanctioned categories to Russia’s neighbours is the tell-tale signature of TBFC-driven evasion: 

• a 1,379% increase in UK exports of mechanical machinery to Kyrgyzstan
• a 1,463% surge in UK exports of road vehicles to Azerbaijan 
• a 397% rise in UK exports of electrical machinery to Armenia, and
•  a 503% jump in UK exports of ‘other transport equipment’ to Latvia.

These figures are not merely anomalous; they are economically irrational in the absence of a massive, sudden industrial boom in these specific countries, a boom not reflected in their broader economic data. 

The correlation is inescapable: goods once sent directly to Russia may now be being shipped to neighbouring jurisdictions, from where they are highly likely being re-exported across Russia’s largely unmonitored land borders. This  triangulation of trade is a classic, if brazen, evasion pattern, turning entire nations into giant transhipment zones for sanctioned goods.

The correlation is inescapable: goods once sent directly to Russia may now be being to neighbouring jurisdictions.

The official response

Recognising the scale of this challenge, the UK government has moved decisively to provide actionable intelligence to the private sector. Its recent detailed guidance on countering Russian sanctions evasion explicitly identifies the geographic and commodity-based vectors of risk, transforming statistical anomalies into a clear due diligence mandate.

1. High-risk jurisdictions

The guidance explicitly names 12 countries and territories as posing a higher risk of being used for sanctions circumvention, advising businesses to perform enhanced due diligence on transactions involving Armenia, China (including Hong Kong and Macau), India, Kazakhstan, Kyrgyzstan, Malaysia, Serbia, Thailand, Türkiye, the UAE, Uzbekistan and Vietnam.

This list directly corresponds to the observed export surge patterns and identifies major global logistics hubs with known connectivity to Russia.

2. High-risk goods

Parallel to this, the Office of Trade Sanctions Implementation (OTSI) has detailed specific categories of goods at heightened risk of diversion. This list targets the Kremlin’s wartime industrial needs and includes: 

• industrial machinery, plant and laboratory equipment
• instruments for aeronautical and radio navigation
• motor vehicles, engines, parts, tractors and excavators
• turbojets, gas turbines and centrifugal pumps
• critical technology: semiconductors, integrated circuits and manufacturing apparatus, and
• key inputs: oil lubricants, paints, varnishes, and catalytic preparations.

When a transaction involves a high-risk good destined for a high-risk country, it creates a confluence of risk indicators that demands the highest level of scrutiny.

When a transaction involves a high-risk good destined for a high-risk country, it creates a confluence of risk indicators that demands the highest level of scrutiny.

The due diligence imperative

This official mapping of risk must be operationalised through dynamic and rigorous compliance frameworks. OTSI provides foundational guidance on the necessary processes to identify, evaluate and mitigate sanctions risk exposure, emphasising that compliance is not a static exercise but a continuous duty.

• Regulatory vigilance: firms must establish processes to stay up to date with any amendments to The Russia (Sanctions) (EU Exit) Regulations 2019 and proactively assess how additions and changes affect their compliance obligations. The fluid nature of sanctions, with new designations and commodity bans introduced frequently, makes this essential.
• List-based screening integration: the UK Sanctions List should be regularly reviewed to ensure business arrangements involving any designated persons or entities are identified and terminated immediately. Screening must be real-time and capable of identifying partial name matches and complex ownership structures.
• Risk-informed decision making: crucially, decision-making processes should take account of the risks associated with sanctions. When a business identifies a sanctions risk – such as a transaction involving a high-risk good to a high-risk jurisdiction – it must take steps to fully address that risk. As OTSI advises, this could include conducting your own research, requesting further information from the entity, and taking legal advice if unsure about your obligations. This moves compliance from a box-ticking exercise to an investigative and judgement-based function.

This OTSI framework directly supports the ‘good practices’ highlighted in the Financial Conduct Authority (FCA) Thematic Review on trade finance, which appreciates financial institutions deploying the minimum standards of transactional
due diligence to include:

• know the end-use
• know the end-user
• know the destination country
• clarify if the beneficiary is an intermediary or end-user, and
• verify if an export license is required.

These practices are powerfully reinforced by the Joint Money Laundering Steering Group (JMLSG) Guidance, Chapter 15, which stresses that knowing the true end-user and end-use is critical because ‘many proliferation networks are known to have employed front companies to conceal the true end-use of the goods being traded’.

Furthermore, OTSI guidance on the ‘no re-export to Russia’ clause in contracts may well become a tangible output of this due diligence process, providing a contractual lever against diversion once risks are identified.

The path forward

Armed with precise official intelligence and clear procedural guidance, the path forward requires building a dynamic, intelligence-led defence.

1. Establish a live risk assessment framework. Compliance programmes must integrate the government’s high-risk country and goods lists as live data points. Transactions triggering these indicators must automatically escalate, mandating the investigative steps OTSI outlines: independent research, information requests, and, if ambiguity remains, legal consultation.
2. Implement holistic transaction monitoring. Screening must extend beyond static lists to analyse behavioural patterns. Does a customer’s order history suddenly align with the OTSI high-risk goods list? Are shipping routes illogical? Systems should benchmark internal trade flows against national export data to spot suspicious macro-trends within a firm’s own portfolio.
3. Conduct end-to-end supply chain due diligence. For high-risk scenarios, due diligence should extend to verify the entire supply chain – the freight forwarder, the vessel, the intermediate consignees. This is the practical application of ‘knowing the end-user and end-use’, requiring corroborating evidence beyond a single document.
4. Foster a culture of proactive compliance. The OTSI guidance underscores that identifying a risk obligates a firm to address it. This requires empowering compliance officers to halt transactions, seek external advice, and make risk-based decisions without commercial pressure. Regular training on the evolving Regulations and Sanctions List is fundamental.
5. Specialist training for trade sales, operations and compliance staff. Generic training on AML, sanctions screening and transaction monitoring is not enough, with investment in specialist training for staff members required by firms to ensure they are able to identify, evaluate, and effectively mitigate the financial crime risks within complex international trade.

The UK government provides guidance that identifies high-risk countries and goods, outlining the landscape of sanctions evasion. OTSI’s directives on due diligence serve as a practical guide for navigating this issue. The significant increase in UK exports to these high-risk areas tests whether this guidance is being effectively applied.

The combination of statistical data, official risk advisories and clear procedural instructions from OTSI, the FCA, and JMLSG creates a clear compliance requirement. To effectively counter trade-driven sanctions evasion, businesses must implement this guidance into a proactive and risk-aware compliance culture. This involves not just checking lists, but also understanding the context; not just processing transactions but examining supply chains. The success of the sanctions regime relies on translating policy into consistent and vigilant practice.