The European Union (EU) has implemented a series of restrictive measures as part of its sanction regimes aimed at Russia. Notwithstanding these efforts, a substantial volume of sanctioned goods continues to be diverted to Russia. To combat this, the EU introduced legislative obligations to minimize circumventions.

This blog examines the role of the Internal Compliance Program (ICP) in the EU Russian Sanctions Regulations, focusing on due diligence and circumvention.

The Internal Compliance Program (ICP) is a comprehensive framework that defines the process and procedure for the exporters to adhere to the legislation and mitigate risks. A robust ICP consists of key components, including management commitment, personnel training, risk assessments, effective procedures, recordkeeping, and regular training.

Although not explicitly required, an ICP is ‘implied’ as a necessary component for authorization under Russian Sanction Regulations, due to references in provisions such as Article 2 (6) and Article 2a (6) that link to the EU Dual-use Goods Regulation. Under the EU Dual-use Goods Regulation, global export authorizations require an ICP. If an exporter's business model for Russia falls within the scope of a global license, the competent authority may request an ICP. This is especially relevant for repeated exports to dealers (dealer networks).

According to Article 8a of the Russian Sanctions Regulation, EU operators must use their best efforts to prevent entities they own or control outside the EU from undermining sanctions. This can be achieved through measures such as internal compliance programs, sharing compliance standards, staff training, and setting up reporting procedures, tailored to the operator's specific characteristics and circumstances. [1]

The EU Russian Sanctions Regulation prohibits intentionally participating in activities that circumvent sanctions (Article 12). To mitigate risks, the Commission recommends a risk-based due diligence approach that involves screening all parties involved in a transaction, controlling goods and services (i.e. dual-use, military), and conducting a risk analysis of the transaction, including contractual documentation, rationale and financial flows, shipment route and end-use, and assessing the risk of diversion. [2]

EU operators are expected to enhance their due diligence practices to prevent re-exportation of common high-priority (CHP) items (Art. 12gb, Annex XL) including dual-use goods and advanced technology items, to Russia. To fulfill this requirement, operators should develop internal policies and procedures incorporating best practices in risk management, such as customer due diligence, product life cycle monitoring, compliance reporting, accurate recordkeeping, and internal controls. [3]

Overall assessment

The German competent authority BAFA emphasizes that the core components of an ICP can serve to promote awareness of sanctions compliance within a company and encourage measures to prevent sanctions violations, including circumvention. Key criteria to consider in the context of sanctioned goods include: [4]

• Management commitment: Demonstrate a clear commitment to sanctions compliance, documented and communicated to employees.
• Organizational structure: Establish a suitable structure with clear responsibilities and a professionally independent sanctions monitoring unit.
• Staffing and training: Adequately staff the sanctions monitoring department with qualified representatives and provide continuous training and awareness-raising.
• Documentation: Maintain complete and traceable documentation of all control activities, including training records and licensing decisions.

In summary, an ICP may become mandatory when a license is required under Articles 2 and 2a of the Russian Sanctions Regulation. Furthermore, certain ICP elements are obligatory under due diligence, circumvention, and common high-priority item provisions.

The implementation of a "micro ICP" has evolved from a non-essential task to a critical necessity for companies exporting to Russia and dealing with sanctions. As sanctions regulations expand, ICP has become a vital component of risk management, making compliance a top priority to avoid penalties and reputational damage.

How Tradewin Can Help

Tradewin can assist you with validating if you require an ICP for the licensable shipments you have and support with compliance being our top priority. Our global trade experts can help you stay ahead of these regulatory changes and avoid costly penalties or overpaid duties. Whether it’s accurate valuation, Country of Origin determinations, import requirements, or product classification, we tailor solutions that meet your business needs.

Tradewin is here to help. Contact us today to learn more about how we can optimize your supply chain.