Recent actions: Russia-related sanctions
On October 30, 2024, the United States (“US”) Department of Treasury’s Office of Foreign Asset Control (“OFAC”) sanctioned 19 Indian companies and 2 Indian individuals under its Russia-related sanctions program under the Executive Order (“EO”) 14024. This action was in the nature of imposition of secondary sanctions on third-country actors to discourage non-US persons from engaging in certain transactions, even without a US nexus, that might be harmful to the objectives of the US sanctions programs.
India-US discussions
Following this action, the Indian Government engaged with the US Government to discuss the implications of these sanctions and the targeting of Indian companies and individuals. Basis public information, officials from the Bureau of Industry and Security (“BIS”) and OFAC arrived in India on December 20, 2024, to engage with and hear from industry bodies, sanctioned persons, and government officials, specifically those from the Ministry of External Affairs (“MEA”), on this.
We understand from news sources that in the meeting, US officials explained that they had imposed the sanctions in October on the entities allegedly engaged in the supply of dual-use technologies to Russia. They emphasised that they would maintain a strict position regarding the export of items listed in the Common High Priority List (“CHPL”) issued by the BIS to Russia. This list of 50 items includes semiconductors, machine tools, integrated circuits, and such, all of which are of high priority to Russia in its war against Ukraine. The intent of the BIS-issued CHPL of February 23, 2024, seeks to implement stringent controls on Russia’s procurement of these items to the detriment of US persons. The US officials further clarified that they would deem the export of any of these items, irrespective of whether it was for civilian use, as being diverted to Russia’s war efforts. The CHPL was developed by the BIS along with the European Union, Japan and the United Kingdom and hence, these countries are aligned with the US on the sanctions placed on the Indian entities as well as the other entities sanctioned on October 30, 2024, across 17 jurisdictions.
We understand that the sanctioned Indian entities present at the meeting clarified their positions but were informed by the US official that they must comply with the formal delisting process under the US laws for any relief from the implications of the sanctions imposed on them.
The Minister of State for External Affairs, Shri Kirti Vardhan Singh, explained in the Lok Sabha on December 20, 2024, that the MEA officials in the meeting reiterated that the Indian companies were within the bounds of Indian laws and the exports by these Indian companies were compliant with India’s international obligations. Indian officials conveyed that it has a legal and regulatory framework governing the export of controlled and dual-use goods and technologies (Special Chemicals, Organisms, Materials, Equipment, and Technologies – SCOMET). Further, India officials also clarified that there has not been any violation by these sanctioned companies of the multilateral non-proliferation export control regimes, including the Wassenaar Arrangement, Australia Group, and the Missile Technology Control Regime. They maintained that India ensures the effective implementation of the UN Security Council sanctions and the UN Security Council resolution 1540 on non-proliferation.
Current US position on these sanctions
The discussion indicates that the US is set on its position that adherence with CHPL and the US sanctions law regime is crucial to avoid exposure under the sanctions programs, which target the financial as wells as reputational well-being of the entities targeted thereunder. The discussions also indicated that this is not the end of US’s actions against exporters of the items restricted by the CHPL. Other companies (within India and in other jurisdictions) that deal in any of these are under the scanner and may be the target of sanctions.
Implications for Indian companies
Given that the only respite available for entities that are sanctioned is to file a delisting petition, which is a lengthy process with no strictly defined timelines, entire businesses may be crippled if caught within the quagmire of US sanctions.
It is vital, therefore, that Indian companies engaged in the export of any CHPL items to Russia engage Indian legal counsel for advice on US sanctions laws, especially considering the limited knowledge and awareness about these laws. With the aid of their legal counsel, such Indian companies must reevaluate their export strategies in a manner as to avoid red flags under the BIS and sanctions law regimes and institute sanctions compliance measures, including due diligence mechanisms and sanctions policies. The present sanctions landscape has put these companies at a high risk, and timely action is crucial to avoid exposure or limit exposure to US sanctions.
For further information, please contact:
Faraz Alam Sagar, Partner, Cyril Amarchand Mangaldas
faraz.sagar@cyrilshroff.com
