AS SANCTIONS AGAINST RUSSIA INCREASE – CUSTOMS BROKERS AND FREIGHT FORWARDERS NEED TO CAREFUL
Just as international trade was starting to become a little more predictable, conflict has erupted in Eastern Europe bringing with it supply chain disruptions and international sanctions against Russia. With the likelihood of increased sanctions it is necessary for freight forwarders and customs brokers to take steps now to warn clients of the impact on their trade and, as importantly, ensure that they are not involved in any breaches associated with the sanctions.
What are the sanctions
Australia has had sanctions in place against Russia since 2014. In terms of trade in goods, the sanctions prohibit the direct or indirect supply, sale or transfer of arms or related material or items for use in certain oil exploration or oil production projects in Russia. It is importation to appreciate that arms or arms related material is not merely weapons but can extend to any item with an intrinsic military utility.
In addition to restriction on supply (the commercial transaction), the importation into Australia of arms or related material originating in Russia is also prohibited. The export of any arms or related material to any country is prohibited without a permit.
The main new sanctions on Russia are restrictions on doing business with a number of Russian banks and financial restrictions on 8 members of Russia’s Security Council. Where appropriate, question from which bank your client will be making payment to you.
The Donstsk and Luhansk Regions
In addition, Australia has extended sanctions to the Donstsk and Luhansk regions of the Ukraine. These sanctions are wider than the Russian sanctions and prohibited the supply of infrastructure for the transport, telecommunications or energy sectors or for the exploration of oil, gas or mineral reserves in Donstsk or Luhansk.
In a more extreme measure, the purchase or import of any goods that originate in, or are exported from, Donstsk or Luhansk is prohibited. This is subject to goods which have been presented to Ukrainian authorities for examination.
These new sanctions apply from 28 March 2022.
Need for caution
Customs brokers and freight forwarders need to ensure that their clients understand the above restrictions and undertake their own due diligence on at risk imports. While the Russian sanctions involving goods have been in place for some time, those sanctions are likely to be enforced with renewed enthusiasm over the coming months. This means not only greater efforts to detect breaches, but also a harsher response.
It will be relatively easy to identify goods that have been reported as having a Russian or Ukrainian origin or destination and check that those goods are not prohibited. It is harder when the overseas supplier or Australian customer is seeking to hide the connection of the goods with the sanctioned countries.
It is important to remember that the sanctions apply to indirect trade and also to goods of Russian, Donstsk or Luhansk origin exported from other countries. Particular care should be taken with any new trade lanes that involve countries in Eastern Europe. With direct trade to the sanctioned countries more difficult, suppliers are likely to use an Eastern European port.
In our experience, an individual that is looking to flout international sanctions, will also likely provide false information in respect of the goods. Customs brokers and freight forwarders should be very suspicious of:
low value airfreight that has a weight or product description that is inconsistent with the declared value;
generic descriptions of goods;
poor or incomplete commercial documentation;
suppliers or clients where it is hard to identify their identity;
goods labelled with, or containing documents in, Cyrillic script.
Readers should refer to our article on generic customer red flags.
As of 28 February 2022, it is still legitimate to trade with Russia in respect of most goods but clients need to be warned of the following:
new wider sanctions could be introduced with very little warning (even if 30 days’ warning is given, this will be insufficient for sea freight from Russia). This could mean that goods purchased from Russia legitimately can not be imported by the time they arrive in Australia.
routes out of, and into, the affected areas wills be disrupted and it is possible that goods could be stuck at ports for prolonged periods. This could lead to very large detention charges.
The need to follow not only the development of the Australian sanctions but also those of other countries, particularly the US. The US attempts to extend its sanctions to any company that uses US banks or has some connection to the US. Other countries may extent their sanctions to entities that have a permanent residence in their country. This could become particularly problematic if sanctions extend beyond Russia to those countries that support Russia.
In addition to warning at risk clients, it is also important to ensure those clients have accepted your terms and conditions and you are confident of being paid, even if their consignment is seized or delayed.