In the IOE&IT Daily Update’s latest round-up of sanctions news, we cover a minister’s warning on cars being indirectly exported to Russia, a “turning point” for sanctions investigations in Switzerland and new export controls on semiconductors and 3D printers.
A UK minister has warned the UK’s car sellers that they should avoid doing business with third party nations that are then re-exporting the goods into Russia.
Following an investigation by Sky News into how Russia was indirectly importing UK-made cars via neighbouring countries, foreign office minister Anne-Marie Trevelyan gave evidence to parliament’s Foreign Affairs Committee.
Sky reported that Azerbaijan in particular saw its UK car imports skyrocket since the Russian invasion of Ukraine, with a similar “unprecedented” increase of auto exports to Russia.
Replying to a question from Labour MP Neil Coyle on the report, Trevelyan acknowledged the challenges of companies selling to third-party countries.
The minister said she expected businesses to follow trade guidance, which she said made it clear that companies “shouldn't be doing business obviously with Russia or potentially with a third country that might support Russia”.
Trevelyan added:
“If it appears that there is a diversionary activity to sell goods that have a potential both dual use and value, then there is a need for those businesses to consider their position.”
New UK strategy
The former trade secretary also gave evidence on the government’s sanctions strategy.
Last month (22 February), foreign secretary Lord Cameron launched the UK’s sanctions strategy, setting out how the UK was planning to use its powers to support its foreign policy objectives.
The same day, the Foreign Office unveiled more than 50 new sanctions aimed at munitions, manufacturers, electronics companies, and diamond and oil traders. There were also new measures to strengthen the existing oil price cap.
Trevelyan said that she hoped the strategy will set out a “clear picture of all the tools that we now have, where we're investing” and the “broad-brush” approach.
Alicia Kearns, Conservative MP and chair of the foreign affairs committee, noted that the policy didn’t set any outcomes or metrics.
Swiss sanctions investigation
Switzerland has opened its first ever criminal investigation into Russian sanctions evasion.
The Swiss attorney-general said that an unnamed company was using subsidiaries to circumvent sanctions.
Patrick Eberhardt, partner and international trade lawyer at Eversheds Sutherland, told the FT the decision represented a “turning point” in sanctions enforcement in Switzerland.
The news follows earlier reports that Switzerland was cracking down on sanctions evasion, with Reuters reporting that the State Secretariat for Economic Affairs (SECO) had set up a specialist sanctions enforcement team.
At the beginning of March, the SECO announced it was implementing the EU’s 13th round of sanctions on Russia.
Restrictions on tech equipment
The Export-Joint Control Unit (ECJU) has announced a number of changes to UK dual-use and export controls legislation.
In a notice to exporters, the ECJU said it had amended both the Export Control Order 2008 and Council Regulation (EC) No 428/2009. The EU regulation has now been assimilated into UK law.
The changes include a restriction on equipment used in emerging technologies industries, including quantum, additive manufacturing (also known as 3D printing) and semiconductors. Under the 2008 rules, the export of this equipment now requires an export license for all destinations.
There are also additional changes to the dual-use regime, including an amendment to the rules on “commercial cryptography applications”.
The rules will come into force on 1 April 2024, under the Export Control (Amendment) Regulations 2024. The ECJU said it will be updating its list of dual-use items to reflect the changes.
Insurance and sanctions
A specialist financial court in Dubai has issued an important ruling on US-Iran sanctions and insurance.
Lord Glennie, sitting as a judge in the Court of First Instance in the Dubai International Financial Centre (DIFC), ruled that insurance companies could not avoid payment to a bank under reinsurance contracts for payment to sanctioned individuals.
The original dispute arose when Alpine, a company based in Hong Kong but owned by Iranian nationals, sued the bank for misappropriation of funds following criminal action by the bank’s employees. The bank settled the claim and sought indemnity from the claimants.
The claimants tried to argue that, under the terms of re-insurance contract, they could not pay out claims because sanctioned entities would ultimately benefit from these payments.
“The question is: what is meant by the word ‘expose’ in in the context of a payment exposing a (re)insurer to a sanction?” Lord Glennie wrote in his opinion, saying that the issue was whether payment was prohibited under US law.
He ultimately found that the payment would not expose the claimants to liability for sanctions, as the funds would not go to Alpine, but instead go to the bank itself.
Lord Glennie, a UK-qualified barrister, accepted expert evidence that the US Office of Foreign Assets Control would not regard this as a “a benefit or payment to the Bank, whether directly or indirectly, still less as a payment or benefit to the Bank’s customer”.
The DIFC is part of a free zone set up in Dubai, with an independent court system largely modelled on English law.
The case was AIG International Group Ltd and others v Qatar Insurance [2024] DIFC CFI 3 and the judgement was handed down 26 February.