Companies Turn to End-Use Statements, Frequent Screening to Comply With Russia Sanctions, Lawyers Say
As the U.S. continues to tighten Russia export controls (see 2203110056), more companies may ask customers to sign end-use statements as a way to document their due diligence, said Marwa Hassoun, a trade lawyer with ArentFox Schiff. Businesses must also make sure they are taking certain minimum compliance steps to comply with U.S. sanctions, said ArentFox Schiff sanctions lawyer Matthew Tuchband, including more regular screening of restricted party lists.
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Hassoun, speaking during a March 16 event hosted by the Massachusetts Export Center, said more of the firm’s clients are turning to end-use statements “even when they never have before” or doubling down on those statements if they have already incorporated them into contracts. Hassoun said the statements don’t have to be as “formal” as the Bureau of Industry and Security’s 711 form to show effective due diligence.
“They don't have to go into doom and gloom,” Hassoun said. Companies can simply insert statements into contracts that state what the product shouldn’t be used for, she said, and can specifically mention Russia if the other party has business ties in the country. “I think there are a lot of ways to get at the end-use statement,” Hassoun said, “which is really a very nice piece of diligence and tells a good part of your narrative should something go wrong.”
She also said some companies that have never used end-use statements may be hesitant to do so because they don’t want to alienate their customers. “The real issue here is if the customer is going to get annoyed and not sign an end-use statement,” Hassoun said. “That's a red flag in itself.”
Although Hassoun recommends that companies check their contract terms and conditions to ensure there's “some export controls and sanctions language,” she stressed that contract language alone doesn’t offer full protection. “It shows an extra level of diligence,” she said, “but it doesn't absolve you from export control violations.”
Similarly, companies looking to comply with Russia sanctions administered by the Office of Foreign Assets Control may also want to increase their due diligence, Tuchband said, specifically surrounding OFAC’s 50% rule. Because the rule imposes prohibitions on any companies owned 50% or more by a sanctioned party, the current Russian designations extend further than they appear.
“That means that there are hundreds, probably thousands of entities around the world in a broad array of commercial sectors that are now off limits for U.S. persons and off limits for U.S.-dollar denominated funds transfers,” Tuchband said. “It may be obvious for some, but many” are probably unsure if “they have any Russian or Belarus exposure because of the expansion of the [Specially Designated Nationals] List.”
Tuchband, a former OFAC deputy chief counsel, said the agency is expecting companies to, at the minimum, search for any publicly available information on customers before doing business with them. For clients that a company is “doing a lot of business with,” he suggested hiring an “investigatory firm” to make sure they aren’t subject to U.S. sanctions against Russia, including the 50% rule.
But he also said that extreme level of due diligence likely isn’t necessary for most customers. “You should be looking for what's publicly available,” Tuchband said. “But hiring another entity for every possible client, especially if you have many clients coming through on a regular basis for just short-term things, I don't think OFAC’s looking for that level of due diligence all the time.”
Companies should frequently screen customers against OFAC’s SDN List, Tuchband added, which is becoming more important as more sanctions are rolled out. “Since OFAC is adding new individuals and entities to the SDN list every week, sometimes several times a week,” he said, “this screening really needs to be continuous and evergreen to stay updated.”