Siemens and the importance of end-user certificates
In July 2017, it came to light that the gas turbines SGT5-2000E built by the German concern Siemens had been delivered to Crimea in violation of the EU and U.S. sanctions regulation.
According to the EU sanctions levied against Russia over Ukraine crisis, the Council Decision 2014/507/CFSP of July 30, 2014 has introduced the prohibition of the following actions in Crimea or Sevastopol for individuals and legal entities under the jurisdiction of an EU member state:
a) providing financing or financial assistance for infrastructure projects in the sectors of transport, telecommunications, and energy;
b) creating a joint venture relating to the above infrastructure projects;
c) acquiring or extending participation in enterprises that are engaged in infrastructure projects referred to in paragraph a);
d) selling, supplying, or transferring (separately mentioned are vessels flying the flag of an EU member state) equipment and technology related to infrastructure development as determined in paragraph a);
e) providing technical assistance, brokering services, or training related to the above projects. Afterwards, Siemens filed a lawsuit with the Moscow Arbitration Court against Technopromeksport and OOO Siemens tekhnologii gazovykh turbin, and more EU sanctions were subsequently imposed on the following persons and entities over their alleged involvement in the sanctions violation: ZAO Interavtomatika, OOO VO Technopromeksport, Andrey Cherezov, Evgeny Grabchak, and Sergey Topor-Gilka.
All of the above happened despite qualified specialists working for Siemens, contractual restrictions agreed upon, and respective assurances from Russian counterparties. At the stage of shipping goods and obtaining an export licence, it is usually required to provide an end-user certificate to verify that the buyer is the final recipient of the covered equipment. As a rule, end-user certificates include detailed information on end-use of goods and specify certain operations to be performed with such goods. An end-user usually has to confirm that the goods will only be transferred to the non-sanctioned persons, and that equipment and technology will be used exclusively for civil purposes and may be re-exported only with the prior approval of the competent authorities. The end-user certificates must be signed by the receiving company which will be using the supplied equipment and technology.
Putting aside the root causes of the above situation, it is important to determine the prospective impact of the scandal on interactions between Russian companies and their foreign partners, as well as identify which internal processes should be implemented and maintained by the companies, which are willing to demonstrate their commitment to comply with statutory and contractual restrictions.
In our opinion, we must expect tightened control and contractual liability for the sanctions and export violations between Russian companies and their foreign partners. It can also result in a requirement to provide additional assurances, as well as increased penalties for violation of the sanctions regulations.
Export control authorities of the EU member states may want to visit companies to make sure that they fulfill their obligations and maintain an adequate internal control system. Since this is required by regulatory authorities in the EU internal market, European or international companies will also strive for this; not least to demonstrate their own regulator that a company did everything possible to properly comply with legal requirements.
For companies which are willing to promote international cooperation and demonstrate their business partners that they, as importers, attach great importance to sanctions regulations and export control rules, it is advisable to build a respective compliance program. Such program, aside from implementing internal policies, designating responsible divisions, and creating control systems, will require proper and regular training of the company employees. But the most important requirement is real adherence of all employees and management to the accepted rules.