Sanctions and export controls have always mattered in logistics. Since Russia’s full-scale war against Ukraine, however, they have become much more complex, much more operational, and go way beyond dual-use or other sensitive items. Today, even the import of toilet paper from Russia to the EU is prohibited, and the export of second-hand clothing to Russia is not allowed.

Export controls and sanctions now go hand in hand. A shipment may be clean from a customs-code perspective but problematic because of end-use, end-user, ownership, control, routing, payment flow or US-origin content.

The Baltic region is now in a very specific position. It is not only a corridor through which goods move between Russia, Belarus, the EU and third countries. It is also a region where cargo is stopped, investigated and, in serious cases, linked to criminal proceedings and asset confiscation.

COBALT works actively with financial institutions, logistics companies, exporters and companies involved in criminal and asset-confiscation matters. Based on that work, several practical points stand out.

1. Sanctioned parties are still misunderstood

The first issue is not always whether a company itself appears on a sanctions list. Often the real question is ownership or control.

A simple example: a Belarusian company is not listed, but its director is sanctioned and the supervising minister is also sanctioned. Is the company itself sanctioned? Different market participants still answer this differently, but the answer here in the Baltics would be affirmative even though some EC explanations suggest otherwise, for example, with regard to Belarus Railways.

Latvia has taken a strict approach. The Latvian Financial Intelligence Unit maintains a public sanctions search tool, and Latvian practice has been particularly strict on indirect control and asset-freeze situations. The list is publicly available and useful for everyone.

False divestment remains a recurring problem. Still. A sanctioned person may “sell” shares in a non-transparent way but still retain influence through family members, trusted managers, financing arrangements or veto rights.

Thanks to The Court of Justice of the European Union, who confirmed that assets of a non-listed company may be frozen if that company is controlled by a sanctioned person based on ownership alone. Previously, some countries interpreted that only shares are subject to asset freeze.

The practical lesson is simple: screening the name of the contracting party is not enough. Companies must understand who controls the counterparty, who benefits from the transaction, and whether the ownership story makes commercial sense.

2. EU rules are common, but national practice is not

EU sanctions regulations apply across the EU, but implementation is still fragmented. In some countries it is not always obvious which authority can issue a licence or derogation. Even where the competent authority is clear, practice differs. Some authorities are conservative. Others are more willing to issue authorizations.

This matters in logistics. A transaction that looks possible in one Member State may be treated as too risky in another. Local legal advice is often necessary, and the answer may differ from country to country.

3. End-use and end-user checks cannot be reduced to a checkbox

Many companies still say: “We are not detectives.” That is partly true. An exporter or freight forwarder cannot investigate everything. But it must react to obvious risk indicators.

In practice, useful indicators are often basic:

  • the buyer’s website and real business profile;
  • the route and whether it makes commercial sense;
  • the goods and their possible use;
  • the size and urgency of the order;
  • third-country intermediaries with no clear role;
  • payment from an unrelated party;
  • links to Russia, Belarus, Iran or high-risk diversion hubs.

Too many end-use certificates remain weak. They say only: “We confirm the goods will not be used in Russia.” That is not enough. A useful certificate should explain the actual end-use, location, user, project, sector and reason why the goods are needed.

4. Incoterms do not decide sanctions liability

Incoterms are often misunderstood. They allocate contractual and civil-law responsibilities between seller and buyer. They do not decide sanctions liability.

A seller cannot assume that sanctions risk ends because the goods are sold EXW or FCA. A freight forwarder cannot assume that sanctions risk belongs only to the shipper. A bank cannot ignore obvious routing or payment red flags because it is “only processing payment”.

Sanctions analysis depends on the actual role of each party in the transaction chain: who sells, arranges, transports, finances, insures, brokers, pays, receives and benefits.

5. Goods classification remains difficult

A recurring issue is whether goods should be assessed as one set, a machine, a kit, spare parts or separate components. This can change the result.

Another problem is that authorities sometimes focus too narrowly on the customs code. In several restrictions, the code is only the starting point. The intended use also matters: industrial use, retail use, energy sector use, military end-use or use in Russia.

EU restrictions include, for example, goods that could contribute to the enhancement of Russian industrial capacities, as listed in Annex XXIII to Regulation 833/2014. There are still unresolved questions in The European Court of Justice. One important issue is whether a company can argue that, although goods fall within a broad restricted category, the concrete shipment will not in fact benefit Russian industrial capacity. For now, authorities generally apply a strict approach.

6. US rules matter more often than exporters think

For many European exporters, US export controls are an unpleasant surprise. The goods may be sold by an EU company, shipped from the EU and invoiced in euros. Still, US rules may apply if the goods, software or technology have sufficient US-origin content or fall under US export-control jurisdiction.

US BIS lists, red flags and diversion indicators are therefore highly relevant and helpful. This is especially important for electronics, industrial equipment, machinery, aviation-related goods, dual-use items and components with US technology.

A Baltic or EU exporter should not assume: “This is not our problem because we are not a US company.” That assumption is often wrong.

7. Iran and third-country routing remain red flags

Some companies still underestimate transit risk. Goods may not be allowed to transit certain jurisdictions, including where export-control or sanctions restrictions apply. Iran-related routing is a frequent blind spot due to proximity of Turkey and Azerbaijan.

We also see sanctions circumvention models where goods move through third countries while payments are deliberately kept outside EU financial flows. The purpose is obvious: keep the goods traceable only up to a “safe” intermediary and keep the money trail away from EU banks. Until the sanctions evader makes a mistake and is detected by the EU authorities or financial institutions.

For logistics operators, this means that route, payment and counterparty must be reviewed together. Looking at only one of them gives an incomplete picture.

8. Compliance quality should matter more

One weakness in the EU approach is that enforcement can sometimes look very formal. The question becomes: “Was there a breach?” Less attention is paid to whether the company had a serious compliance programme, acted in good faith, checked red flags, escalated doubts and made a documented risk-based decision.

The US approach is often more mature in this respect. Authorities look more closely at the quality of the sanctions and export-control programme, management commitment, internal controls, intent, voluntary disclosure and remediation. The EU should move closer to that model.

For companies, the lesson is still clear: documentation matters. If a shipment is later questioned, the company must be able to show what it checked, why it considered the risk acceptable, who approved the decision and what mitigation measures were applied.

9. Criminal proceedings are no longer a remote risk

Until recently, Article 84 of the Criminal Law treated any sanctions breach as a criminal offence from the first euro of the goods. The volume of suspected circumvention cases that followed was unmanageable. Under that pressure, the legislator introduced a EUR 10 000 threshold: shipments below it are now an administrative offence, and everything above it remains criminal violation. At the same time the applicable fines were tightened – apart from the lowest and administrative tier, most offences under Article 84 now carry deprivation of liberty as the primary penalty.

In practice, the confiscation track and the conviction track run separately, and they run at very different speeds. Confiscation proceeds as a standalone process directed at the goods or funds in the corresponding value of the goods. This process is comparatively swift, focused on the property and not evaluating the guilt of a person. The personal-liability case, by contrast, follows its own slower path, and convictions in cross-border schemes remain relatively rare.

For logistics operators and exporters the practical consequence is that a sanctions question is no longer only a regulatory or reputational matter. Latvian Customs engage in effective and thorough evaluation of the shipments and any shipment that crosses the EUR 10 000 threshold and raises red flags can become the basis of a criminal investigation, with asset freezes and confiscation proceedings running in parallel. What protects against it is documentary evidence of genuine due diligence at the time of the transaction: what was checked, what raised concern, and why the shipment proceeded or was refused.

Practical takeaway

Sanctions and export controls are no longer abstract legal rules. They are operational rules for logistics, sales, finance and management.

The companies that manage this well are not the ones that try to become intelligence agencies. They are the ones that identify obvious risk signals early, ask better questions, document their reasoning and refuse transactions that do not make commercial or legal sense.

Latvia has also moved from general warnings to practical expectations. The Financial Intelligence Unit has issued guidance for companies dealing with higher sanctions-risk countries. The key message is clear: companies in such trade flows should have a sanctions compliance programme – screening, ownership and control checks, end-use review, payment and routing checks, escalation rules and documented decisions. A checkbox approach is no longer enough. Companies who export Common High Priority Items must keep in mind that absence of such program is a sanctions breach itself, and this program must have clear rules on how checks on “No Russia” clause are carried out.

This article was first published in Trans.INFO.