How Can Importers Avoid Getting Caught in the New US-Russia Sanctions?
Complying with US sanctions rules is easier said than done. Many companies are still trying to determine what products and services are prohibited and what activities would trigger a sanctions violation. Consider the following examples:
A US company is looking to do business with a Russian company, but the Russian company is on the US Treasury Department's Office of Foreign Assets Control (OFAC) sanctions list for US sanctions on Russia. The US company would need to obtain a license from OFAC before engaging in any business dealings with the Russian company.
A US company is trying to place an order from a longstanding Russian supplier. The supplier is not on the OFAC sanctions list, but the supplier's bank is, so you’ll need to understand what sanctions are on Russia from the US before proceeding. The US company might need to find an alternative way to pay for the goods, such as using a US-based bank.
A US company is looking to do business with a Chinese company. The Chinese company is not on the OFAC sanctions list, but the US company knows that the Chinese company does business with a Russian company that is on the OFAC Russia sanctions list. The US company would need to take measures to ensure that it does not indirectly engage in business dealings with the Russian company through the Chinese company.
Of course, in the compliance world, you only get credit for following the rules if you maintain documentation to show that you took the necessary steps to comply. In the examples above, the US company would need to keep records of its research into the Russian and Chinese companies, as well as any steps taken to ensure compliance with US sanctions rules. This can involve research into the ownership structure of the companies, as well as their business dealings with other entities.
The US government has taken steps to make compliance with sanctions rules easier, such as by publishing guidance on what activities would trigger a violation. However, companies are still responsible for ensuring that they do not engage in prohibited activities. Taking steps to increase transparency in your supply chain can help to mitigate the risk of sanctions violations. For example:
Requiring your suppliers to disclose their ownership structure
Asking your suppliers for information on their business dealings with other entities
Conducting due diligence on your suppliers before entering into business dealings with them
Maintaining documentation of your compliance efforts
Let's consider a complicated scenario demonstrating the complexity of obtaining the data necessary to prove sanctions compliance. You are buying products from a producer in a third country like Bulgaria, but you are concerned that the goods might have originally come from a blacklisted Russian manufacturer. You need to track the provenance of the goods so that you can be sure that they are not subject to sanctions. Theoretically, you should be able to do this by looking at the bill of lading, which would show the port of origin, and then tracing the shipment back to its point of origin. However, in practice, this is often not possible, as the bill of lading is frequently inaccurate or unavailable.
In order to track the provenance of the goods, you would need to obtain data from the producer in Bulgaria, the shipping company, and any other companies involved in the supply chain. This data would need to be collected, organized, and transmitted in a way that would allow you to track the goods back to their point of origin.
Typically, this data is collected via email and PDF attachments, often by subject matter experts who are hired at high hourly rates. This data is then manually entered into a compliance system, which is often expensive and not scalable. As a result, companies end up spending a lot of money on compliance without being able to guarantee the accuracy of the data.
In summary, the key to proving sanctions compliance is lowering the cost of obtaining, evaluating and recording data about your goods. This requires novel approaches that go beyond email and PDFs, and that can automate data entry into compliance systems by utilizing open standard, APIs and new compliance technology.
Now for the sales pitch! KYG Trade™ offers a solution to this problem by providing a decentralized platform for the collection, exchange, and auditability of trade data. Our software facilitates the global digital collection, exchange and auditability of the product attributes needed for ESG and trade compliance claims. This eliminates redundancy and reduces the cost of compliance for our users while accelerating the cross-border movement of $20 trillion in manufactured goods globally.
But we don’t just give our customers the muscle and tools to build defensible compliance claims… By employing open standards, including W3C decentralized identifiers and verifiable credentials, we also provide an unprecedented degree of transparency for government regulators to see for themselves that our clients’ claims are supportable and valid. By providing an open, interoperable, decentralized platform for trade + ESG data, using the new global standard for product compliance attributes, OriginBX™, we can facilitate secure, permission-based ownership and data sharing down to the individual field level. And when you need extra help, third-party experts on our marketplace can assist with transforming the data into a structured attestation engineered to survive scrutiny.
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