Mitigating The Unique Sanctions Risks Of Singaporean Trade
In this article for Law360, Cori Lable, Nick Niles and Weng Keong Kok introduce the Russian sanctions measures enacted by Singapore, as well as the potential sanctions and export control risks that Singapore-linked transactions and trade flows present.
The Russian war against Ukraine in early 2022 saw the introduction of an extensive range of trade sanctions imposed by the U.S., European Union, U.K. and other like-minded jurisdictions. Such wide-ranging sanctions, targeting a G20 economy, were unprecedented and have permanently altered the sanctions' enforcement landscape.
Singapore, which historically has sought only to give effect to United Nations Security Council sanctions, departed from decades of precedent and opted to act in concert with Western jurisdictions, for the first time enacting its own targeted sanctions against Russia.
While introduction of this program represents a significant step in the development of Singapore's autonomous sanctions regime, it is worth drawing a contrast between Singapore's current regulations — which primarily apply to regulated financial institutions — and the broader sanctions regimes in the U.S., U.K. and EU that apply to all persons and entities domiciled there.
As the Russia-Ukraine conflict enters its second year, Singapore, along with most other major jurisdictions, continues to grapple with the challenges of unwinding its links to and ties with the Russian economy. Increasingly sophisticated sanctions evasion networks have exploited Singapore's global node status to route sanctioned trade flows through the nation-state, which in turn has led to increased enforcement against Singapore-linked individuals and entities.
Transparency International's Corruption Perceptions Index favorably ranked Singapore fifth in the world for having a low perception of public sector corruption. Yet regulators cannot rule out that bad actors may seek to carry out their illicit activities through Singapore-domiciled entities. Businesses transacting with Singapore-linked entities or persons should still be mindful of sanctions risks.
This column introduces the Russian sanctions measures enacted by Singapore, as well as the potential sanctions and export control risks that Singapore-linked transactions and trade flows present.
Singapore's Russia Sanctions
In March 2022, Singapore's Ministry of Foreign Affairs announced targeted financial sanctions and export control measures against Russia, aimed at constraining Russia's capacity to conduct war against Ukraine and undermine its sovereignty.
Subsequently, the Monetary Authority of Singapore issued notices targeted at MAS-regulated financial institutions in Singapore regarding asset freezes and financial prohibitions on four Russian institutions — VTB Bank; Vnesheconombank (Corporation Bank for Development and Foreign Economic Affairs); Promsvyazbank; and Bank Rossiya.
Among other restrictions, MAS-regulated financial institutions are also prohibited from financing: (1) the Russian government, Russian Central Bank, or any entity owned or controlled by either party, or acting on either party's direction or behalf — for e.g., Gazprom; (2) specific sectors in Donestk and Lunhansk; and (3) the transfer of controlled equipment to Russia.
Digital payment tokens which may be used to facilitate these transactions are also prohibited.
Contemporaneously, the MFA also announced export restrictions, pursuant to which applications to export military items, controlled electronics, controlled computers, and certain telecommunications and encryption items to Russia would be rejected.
Given these considerations, U.S., EU and U.K.-focused compliance programs should not overlook Singapore's unique requirements, especially when transacting or dealing with MAS-regulated financial institutions.
OFAC SDN Designations of Singapore Entities
On Feb. 1, the U.S. Office of Foreign Assets Control imposed blocking sanctions against 22 individuals and entities that it stated were affiliated with a Russian sanctions evasion network run by Russia-based arms dealer Igor Vladimirovich Zimenkov.
According to OFAC, the Zimenkov network relied on a Singapore shell company, Asia Trading & Construction Pte Ltd., as an intermediary to sell helicopters to a Latin American government on behalf of the Russian state-owned conglomerate Rostec.
Both Asia Trading & Construction and its director, Serena Bee Lin Ng, were placed on OFAC's Specially Designated Nationals and Blocked Persons List, along with other Zimenkov-affiliated entities that had engaged in funds transfers with Asia Trading.
Generally, an SDN list designation results in the blocking of the listed person's or entity's assets, a prohibition on U.S. persons engaging in direct or indirect business activities with the listed party, and other wide-ranging restrictions when dealing with financial institutions.
A handful of Singaporean individuals and companies have also been designated as specially designated nationals under various other sanctions programs, including OFAC's Burma, Iran, North Korea, Venezuela, counterterrorism and nonproliferation programs, underscoring the need to conduct sanctions screening even on Singapore-based parties.
BIS Entity List Designations
Sanctions and export control programs are often complex, and not congruent. For example, the implications of being listed on the U.S. Department of Commerce Bureau of Industry and Security's Entity List differs from an OFAC SDN designation.
Generally, a BIS Entity List designation results in the restriction of U.S. controlled goods or technology to that entity, with any transfer subject to BIS approval. However, other types of business transactions — e.g., financing, loans, or purchases from that entity — might still be permitted, making a BIS Entity List designation generally less restrictive than its SDN List counterpart.
Singapore's role as a major transshipment port, and the global nature of supply chains, make it a potentially attractive destination through which to route prohibited trade flows. To this end, certain noncompliant Singapore individuals and entities have been designated on BIS' Entity List.
In early March 2022, Singapore-based telecommunications wholesaler Alexsong Pte Ltd. was found to be involved in, have contributed to or otherwise supported the Russian security services, military and defense sectors, and military and/or defense research and development efforts, and therefore added by BIS to the Entity List. Later that same month, Alexsong was also put on OFAC's SDN List for facilitating transactions on behalf of the Russian Federation.
In December 2022, four Singapore entities — Falcon Trading International Trading Company, Hawk Electronic Supply, Merlin Trading Company and Pulse Tech International Company — were found to have transferred or attempted to transfer controlled items to Pardazan System Namad Arman, an Iranian specially designated national. Therefore, they were also listed on the BIS Entity List.
Transfers of U.S.-controlled items to these entities now require a license from the BIS, though applications for licenses will presumably be denied — and in the case of Alexsong, additional sanctions have now been imposed. The BIS advises additional diligence and caution when transacting with Entity List parties.
Singapore is a key financial center and trading hub for Southeast Asia and the Asia-Pacific region, where certain jurisdictions —e.g., Burma and North Korea — remain the subject of comprehensive sanctions. Notwithstanding, as a responsible member of the international community, Singapore is committed to implementing and enforcing U.N. Security Council sanctions and has a consistent track record of prosecuting Singapore-based businesses that transact with U.N.-sanctioned parties.
Singapore's own autonomous Russia sanctions program means that, practically, the jurisdiction also has more closely aligned itself with international sanctions regimes.
Notwithstanding, the unique features of the Singaporean economy, including its role as a global shipping hub and home to transnational wholesalers and resellers, means that Singapore-based transactions present their own set of sanctions risks, underscoring the need for international compliance programs to consider beneficial ownership verification and screening measures when transacting with Singapore-linked entities.
