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The ban on the export of luxury goods to Russia and Practical Steps for Compliance


The ban on the export of luxury goods to an economy as large and as globally integrated as Russia is unprecedented; prior to March 2022, a similar ban on the export of luxury goods was introduced against North

Korea through the United Nations Security Council (UNSC) Resolution 1718.

A key difference between the two regimes is that

  • UN member states are obliged to implement UN sanctions against North Korea (although in fact global implementation of UNSC Resolutions on North Korea remains low),
  • while unilateral sanctions against Russia have been introduced by four countries and are not recognized as binding at the global level.

This means that countries that do not implement US, EU, Japan, UK, or Australia sanctions can continue to trade luxury goods with Russia, although there is a risk for companies and individuals based in those countries to unintentionally breach foreign sanctions, for example

  • when re-exporting luxury goods to Russia from countries that have imposed an export ban.

Some luxury brands have taken a stance against Russia's actions in Ukraine by

  • halting their business in the country and
  • introducing additional compliance measures, including self-declaration forms to ensure that Russian clients abroad are not resident in Russia and do not intend to export luxury goods to Russia.

While these measures are likely to protect the company to some degree from a regulatory and legal perspective

  • they are unlikely to be sufficient to deter sanctions evasion,
  • as both Russian nationals and foreign third parties may provide false information and de facto act as intermediaries to re-export luxury goods to Russia.

A more holistic approach (rather than a box-ticking approach) to the risk of sanctions evasion may be more effective in decreasing the risk of sanctions evasion in practice.

Another key challenge is the lack of a consistent definition of luxury goods.

Overall, the countries that have implemented a ban against the export of luxury goods to Russia are more aligned on the definition and scope of the restrictions than the countries implementing the UNSC Resolution 1718 on North Korea.

However, the table [attached] shows some discrepancies in the list of items classified as luxury goods in different jurisdictions.

For example,

  • The minimum value of a product to be classified as luxury-good changes from one country to another.
  • while the US and Japan have introduced an export ban only on watches that use precious metals, the EU and Australia have introduced a broader ban on clocks, watches, and their parts, independently from what they are made of.
  • This divergent approach may be due to various factors, including industry pressures and pre-existing trade relationships with Russia; however, it is unlikely to favour the consistent implementation of the luxury goods ban across countries.

Practical Steps for Compliance: What Does Your Organization Need to Do?

  1. Ensure that sanctions lists are promptly updated in the relevant sanctions screening systems
  2. Update compliance policies and procedures to reflect changes in sanctions legislation and ensure that front-line staff are made aware of the changes
  3. Enhance scrutiny of luxury goods supply chains with a link to Russia
  4. Identify clients with exposure to the Russian luxury market and ensure that they are aware of the existing prohibitions
  5. Collect and document information concerning the residence of clients and the intended use of goods when dealing with Russian nationals, individuals using the Russian language, payments with Russian bank or credit cards, presentation of Russian documents (e.g. Russian residence permit)
  6. Conduct enhanced due diligence and further investigations when the client has links to the Russian luxury goods market or mentions the transfer or delivery of luxury goods to Russia
  7. Be alert to the possibility of false shipping and customs declarations for shipments destined to Russia (e.g. wrong HS code input in the shipping documents to conceal the shipment of prohibited goods)
  8. Monitor the potential establishment of sanctions evasion networks engaging in trans-shipment or re-export through third countries that have not implemented sanctions against Russia (e.g. increase in demand for luxury goods without a clear business rationale)

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