Practical recommendations for cross-border risk management

Mainstream

Cross-border risk management is not about filling out a compliance questionnaire. It is a strategy to preserve business, assets and the ability to continue cross-border operations.

The question is not whether the deal meets the formal requirements of today. The main question is whether it will lead to asset lockdowns, secondary sanctions or criminal prosecution tomorrow.

Effective risk management is based on three key factors:

What sanctions regimes and export control rules are really applicable to the transaction and the parties.Who is the ultimate recipient of the goods, services or benefits.What protection mechanisms - legal and structural - are incorporated into the contract and corporate architecture.

If these three issues are not worked out, a company may win a commercial deal but lose its bank account, reputation, or access to a key market.

When there is a need for systemic cross-border risk management

Risk management is no longer an option and becomes an imperative if your business:

• conducts trade with Russia, Belarus or CIS countries
• Exports or imports dual-use goods
• Uses US dollars or euros in settlements
• has counterparties related to the subsanctions sectors
• Payments through correspondent banks in the US, EU or UK
• Manages supply chains that run through multiple jurisdictions
• attracts investment or loans abroad
• has beneficiaries or management with the nationality of countries applying extraterritorial sanctions
• works in the energy, military-industrial complex, technology, finance or maritime transportation sectors
• Planning M&A, restructuring or divesting assets in the region

The mistake most companies make

Many people start with the question:

Can this operation be carried out without being sanctioned?

That's the wrong first question.

The right question is:

How can we structure the deal so that it remains legal and enforceable under any sanctions regime?

Sometimes the best solution is to obtain an export license. Sometimes, we need to rethink the logistics route. Sometimes, it is necessary to change contractual obligations. Sometimes, it is necessary to create a compliance perimeter within a group of companies. Sometimes, it is temporary to preserve the project. Sometimes, they leave the contestants in a disputed jurisdiction.

Risk management does not require a single instruction, but rather a constant calibration of the strategy to meet the changing regulatory reality.

Step 1. Identify applicable sanctions regimes

The first step is to clearly understand whose rules apply. The US, EU and UK sanctions have different scopes, lists and extraterritorial effects.

Key modes for analysis:

• OFAC (SDN List, Sectoral Sanctions, Executive Orders)
• BIS (Export Administration Regulations, Entity List, Unverified List, Military End-User List)
• EU sanctions (EU Council regulations, extraterritoriality limited)
• UK sanctions (OFSI, UK Sanctions List, autonomous regimes after Brexit)
• other jurisdictions (Switzerland, UAE, Turkey, China) – risk assessment of circumvention

A transaction that complies with EU law may be illegal from the US perspective if it involves American persons, goods with American content or settlements in dollars.

Step 2. Conduct through due diligence of the counterparty

Identification of the counterparty is not a one-time check on lists, but a multi-level analysis.

What needs to be checked:

• SDN, SSI, EU Consolidated List and other lists
• subsanctions
• The ultimate beneficiaries (50 percent rule and its interpretation)
• Public Official Relations (PEP)
• the final recipient and end user of the goods
• Reputational Risks in Open Sources
• ownership structure up to a natural person
• signs of gaskets or circumvention schemes

It is especially important to identify situations where a formally clean counterparty is controlled by a sanctioned person. The risk of secondary sanctions is often realized through indirect chains of ownership.

Step 3. Classification of goods or services according to export control standards

Even if the counterparty is not sanctioned, the goods may require an export license.

It is necessary to determine:

• ECCN (Export Control Classification Number) by EAR
• Product code according to the EU regulations (Dual-Use Regulation)
• appointment - civilian or military
• scope of application – dual-use goods, IT, equipment for exploration and production, luxury goods
• Controlled Technology and Software
• Applicability of Exceptions (EAR license exceptions, OFAC general licenses)

A classification error can turn routine shipments into export control violations with criminal consequences.

Step 4. Analyze the payment route and financial compliance

The most sensitive element of a cross-border transaction is payment.

What to evaluate:

• currency of settlement (dollar, euro, yuan, ruble)
• Participation of correspondent banks of the United States
• the beneficiary’s bank and its sanction status
• Banks that have been subject to sectoral or full blocking sanctions
• Transactional risks (red flags – splitting payments, non-standard routes)
• Bank compliance policy (de-risking, overcompliance)
• Requirements for OFAC licenses to transfer funds

Even a completely legal transaction can be blocked by a correspondent bank. The route analysis allows you to anticipate and bypass the point of failure.

Step 5. Evaluate the possibility of obtaining licenses and permits

If a transaction is subject to restrictions, this does not always mean a ban.

Types of sanctions and export permits:

• OFAC general licenses (automatically available subject to conditions)
• OFAC Special Licenses (Individual Unblocking or Transaction Authorization)
• BIS export licenses
• Authorizations of national regulators
• license to unlock assets in the UK
• permissions for legal services, arbitration costs, etc.

Obtaining a license is a separate project, requiring detailed legal justification and often interaction with the regulator.

Step 6. Include in the contract mechanisms of protection against sanctions risks

A contract without a sanction clause in the current conditions is an open gateway for unenforceable obligations.

Key contractual clauses:

Sanctions clause – the right to suspend or terminate the contract without liability if the performance will lead to a violation of sanctions.Assurances about the absence of sanctions status – on the date of signing and throughout the term.The obligation to immediately notify the imposition of sanctions against the party or its beneficiaries.Indemnity – compensation for damages arising from sanctions risks, including blocking payments and fines.The right to change the payment route or currency in the event of sanctions obstacles.Special Force Majeure Clause – determining whether sanctions are a force-based risk under the corporation. Changes in the regulatory environment.

Without these mechanisms, the company risks being obliged to fulfill a contract that has become prohibited for it.

Step 7. Create an Internal Compliance System (ICP)

Regulators do not expect a one-time inspections from businesses, but internal compliance programs.

Effective ICP includes:

• Sanctions and Export Compliance Policy approved by the Management
• compliance officer
• Automatic screening of counterparties and payments
• red flag escalation
• Training of employees of sales, logistics and finance departments
• Periodic audit of the program by external consultants
• Documenting all decisions on high-risk transactions

Having a working ICP is both a mitigation factor and a tool to prevent violations before they occur.

Step 8. Develop a plan of action when imposing new sanctions

The sanctions lists and rules change quickly. The company must have response scenarios.

The plan should include:

• immediate suspension of transactions with the affected counterparty or asset
• Checking general licenses and wind-down periods
• Evaluation of the right to avoid or suspend contracts
• Interaction with legal advisers
• Communication with banks and counterparties
• Preparation of a license application, if necessary
• Reputational Risk Assessment and Disclosure

The speed of the reaction is important: Procrastination can lead to a violation with immediate consequences.

Step 9. Manage Structural Risks and Protect Assets

Risk management does not end in a transaction; it involves a corporate and holding architecture.

What's important to work on:

• jurisdiction of the holding company and operating companies
• independence of administration in different jurisdictions (lack of “control” of the sanctioned person)
• Separation of assets subject to different jurisdictional risks
• Protection of intellectual property and licenses
• inheritance and trust mechanisms that exclude blocking
• emergency sale or transfer of assets under the law

A properly structured business can protect against the cascading effect of imposing sanctions on one of its elements.

Step 10. Ensure compliance in cross-border disputes and recovery

Even a litigation or arbitration process must be screened for sanction risks.

What to consider:

• possibility of payment of arbitration fees and lawyers’ services (whether licenses are required)
• The place of arbitration should not create additional risks
• enforceability of future decision without breach of sanctions
• Participation of experts and witnesses from subsanctioned jurisdictions
• Discovery – will it not lead to a violation of export controls
• protection of confidential information

Sanctions do not suspend the right to a remedy, but they can make it much more difficult to exercise.

Comparison of key sanctions regimes: USA, EU, UK

Common Mistakes in Cross-border Risk Management

1. Verify only the direct counterparty, ignoring the end user and beneficiaries.
2. Consider that ruble settlements or payments in yuan completely eliminate the risk of secondary sanctions – they reduce, but do not eliminate the risk, especially if the company has ties with the United States.
3. Use standard force majeure, not adapted to the sanctions reality.
4. Do not receive your own ECCN by relying on the provider’s data.
5. Do not keep a documented compliance file for the transaction - there will be nothing to prove good faith during the verification.
6. Ignore the sanctions risks when choosing an arbitration institution and place of arbitration.
7. Allow managers on the ground to make decisions on sensitive deals without escalating to the legal department.
8. Do not update the screening of counterparties after the introduction of new sanctions packages – the status can change overnight.

Checklist for assessment of cross-border operation

Before you start a deal, answer 15 questions:

Who is the contractor and its ultimate beneficiary?Are there parties or beneficiaries in the sanctions lists SDN, EU, UK?What is the citizenship and residence of key owners and directors?Does the product or service fall under export control (ECCN/EU Dual-Use)?Who is the end user and the final destination?In what currency and through which banks will the payment be made?Are there correspondent banks in the route?Does the OFAC, BIS or national regulator license?Does the contract contain a sanctions clause, indemnity and the mechanisms for the contract? Force majeure, risk or other?What will happen to the obligations if the counterparty falls under sanctions after signing?Is there a documented compliance check procedure?Is all the employees involved in the transaction have been trained?Is there a plan of action in case of emergency imposition of sanctions?Is it possible to obtain a legal opinion to protect against allegations of violation?

What a strong cross-border risk management strategy looks like

A strong strategy usually includes five levels:

1. Regulatory Mapping: Definition of all applicable sanctions and export control regimes, their extraterritorial scope and intersection.

2. Counterparty & Product Vetting is a deep due diligence of the counterparty, product, end-use and payment route.

3. Contractual & Structural Armor: Implementing sanctions clauses, termination mechanisms, indemnity and building a secure corporate architecture.

4. Internal Compliance Engine: A working compliance program, regular screening, training, auditing, and documentation.

5. Crisis & Litigation Readiness Emergency Response Plan, access to licensing and litigation specialists, and willingness to engage with regulators.

Without a fifth tier, even the system that has been built could collapse when new sanctions are imposed.

FAQ

Is it legal to work with Russian companies that are not under sanctions?

Yes, but such work requires constant monitoring of the sanctions status, analysis of applicable bans (including sectoral and export restrictions), and careful verification of the final recipient. The nationality of the counterparty is not always the basis for the rejection of the transaction, but the risks of secondary sanctions require an assessment.

What if the contractor was sanctioned after signing the contract?

Applicable general licenses (e.g. wind-down periods) should be evaluated immediately, lawyers should be notified, execution and payments suspended, and contract terms should be checked. Actions must be documented to protect against allegations of infringement.

Does paying in rubles or cryptocurrency protect against sanctions?

Nope. The US sanctions are not just about dollar payments. For persons under U.S. jurisdiction or having U.S. involvement, a violation may be established even if the currency is different. Cryptocurrencies are increasingly being controlled by OFAC.

Do I need a license to pay for legal services?

If the recipient is a person under SDN or similar blocking sanctions, then a special OFAC license (or permission from the EU/UK regulator) is usually required. There are simplified mechanisms for paying for certain legal services, but their application must be checked individually.

More importantly: Is it a paper or a real asset protection?

Real asset protection is impossible without genuine compliance. Formal policies without practical implementation will not protect against either a fine or a lockdown. Risk management is a proactive strategy, not a set of documents.

Related services

• Sanctions, export controls and international compliance
• International regulatory risks and strategic advice
• Corporate and Regulatory Investigations, Business Integrity
• International Arbitration, Commercial Disputes and Cross-Border Litigation
• Commercial contracts
• International trade, distribution and cross-border transactions
• Asset tracing and protection

Related material

• Sanctions clauses for international contracts: What to include Export Control of Dual-Use Goods: practicalities
• How to conduct due diligence of a foreign counterparty in the conditions of sanctions Secondary sanctions: Real risks to business
• Licensing in OFAC and BIS: How to get permission
• Sanctions and international arbitration: Procedural Challenges Protection of Assets against Cross-border Risks Internal Compliance Program (ICP) construction and audit
• The risks of blocking bank payments and how to minimize them
• Managing Supply Chain Risks Affected by Sanctions

Conclusion

Managing cross-border risks under sanctions and export controls requires strategic thinking, not passive compliance with restrictions. It is a continuous process of identifying, assessing and debating threats, from the moment of contract conclusion to final payment and resolution of a possible dispute.

A strong position is based on a deep knowledge of regulatory regimes, end-to-end due diligence, contractual and structural armor, a working compliance system and crisis preparedness.

In today’s environment, it is not the person who tries to find a loophole that wins, but the person who builds a legitimate, sustainable and adaptive business model that can withstand the next round of sanctions pressure.