Worldwide: The Baku Backdoor – Russia Exploiting Vulnerabilities In UK Sanctions Regime

New data suggests that car exports from the UK to Azerbaijan have soared since the imposition of sanctions on Russia. With Government ministers calling on car suppliers to take a closer look at their supply chains, UK companies must take steps to consider where their products are ending up.

In 2019 the UK imposed financial, trade, transport, and immigration sanctions on Russia intended to encourage Russia to cease destabilising Ukraine. The scope of this regime was further increased following Russia's subsequent invasion of Ukraine in early 2022.

The impact of these sanctions have been far reaching, with companies across the UK putting measures in place to ensure compliance. However, new data published by Sky News suggests that companies operating in the automotive industry have found ways to circumvent the sanctions regime and continue to sell hundreds of millions of pounds worth of cars to Russia.

While car sales attributed directly to Russia have, as expected, fallen to zero, HMRC trade data suggests that UK car exports to neighbouring countries have risen sharply.

Most notably, sales to Azerbaijan have risen by around 1,860% compared to figures in the five years preceding Russia's invasion. This issue is not limited to the automotive industry. Analysis by Sky News earlier this year identified that goods, including drones and heavy machinery, were finding their way to Russia via neighbouring countries in the Caucasus.

The UK sanctions regime imposes a wide range of prohibitions which are designed to tackle these issues. These prohibitions target not only the direct export of goods to Russia, but also the indirect export of these goods to Russia through other countries.

Individuals and companies who are connected to the UK are expressly prohibited from:

• exporting restricted goods from the UK to Russia;
• making restricted goods available for use in Russia;
• supplying restricted goods from a third country to a place in Russia; and
• making restricted goods available to a person connected with Russia.

Additionally, the UK's sanctions legislation contains general prohibitions on intentionally participating in activities in the knowledge that the object or effect of doing so is to circumvent the prohibitions or to facilitate the contravention of any such prohibition.

However, despite these restrictions, these statistics highlight the practical issues faced by regulators and enforcement agencies. Given the financial ties between Russia and several of the countries that border it, it is difficult if not impossible for manufacturers to track where their products go after they have been delivered.

However, UK companies should not become complacent. Sky's analysis has already resulted in the minister responsible for the UK's sanctions against Russia calling on car manufacturers to take a closer look at their supply chains.

Failing to consider where products may eventually end up could expose UK companies to significant fines and criminal prosecutions. Those found guilty of breaching the UK's sanctions on Russia may be subject on indictment to a maximum sentence of up to 10 years in prison, an unlimited fine, or both. Given that any individual guilty of committing an offence, and not just the directors of a company, can be subject to imprisonment, the implications have far reaching consequences for all individuals involved in the export of goods.