In a recent client engagement our firm advised a company headquartered in a South Asian country which has a U.S. based subsidiary on a case that involves the subsidiary sourcing heavy machine tools out of Ukraine for a client steel mill located in a Southeast Asian country. The Ukrainian origin machine tools were not produced with U.S. origin parts, components, software or technology and the equipment is not located in the United States, nor will it be shipped through the United States. Thus the machinery is not subject to the EAR (had it been U.S. origin it would be classified as 2B999 and controlled for AT reasons only). Nevertheless, our client had some concern about their obligations under U.S. regulation with regard to this transaction. Thank goodness they had some concern because it is warranted. We advised the client to use extra caution in screening the Ukrainian customer. Reason being, the United States maintains a comprehensive trade embargo with the Crimea region of Ukraine due to Russia’s annexation of Crimea which the U.S. does not recognize. What does that mean? It means that our client can source the machinery out of all areas of Ukraine other than Crimea (provided they have run a thorough compliance screen and no parties are listed entities), however, no banks or financial intermediaries headquartered or residing in Crimea can have a role in the transaction without authorization from OFAC. In addition, while the regulations lack clarity with respect to transshipment through Crimea, doing so would involve making payments to entities in Crimea that are providing services and such payments are prohibited, thus we recommend to avoid testing the waters and told our client they should inform their Ukrainian supplier to avoid shipment through Crimea. As a best practice they should take it one step further by getting a statement in writing from the supplier assuring that there will be no shipment through Crimea. To sum it all up, in order to ensure compliance with U.S. regulation and avoid potential EAR or OFAC fines and penalties for sanctions violations, the slogan should read “Ukraine O.K.– Crimea region of Ukraine STRICTLY PROHIBITED.” And yes, that includes exports of items subject to the EAR as well as sourcing foreign products that are NOT subject to the EAR. Stay clear of Crimea. For further information on the U.S.-Ukraine (Crimea) sanctions contact TSI Global Consulting, LLC.
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