Authors: Andrea Little Limbago, PhD, SVP, Applied AI and Mackenzie Clark, Senior Computational Social Scientist
Annual Tradition: End of Year Sanctions and Restrictions
Last week’s release of UFLPA and OFAC restrictions follows a recent trend where widespread export controls are released en masse prior to the new year.
For instance, in December 2023, the Departments of Treasury and State issued sweeping sanctions targeting Russia’s energy production and export capacity. This was followed a few weeks later by an Executive Order (E.O. 14114) that issued another round of sanctions against financial institutions supporting Russia’s military-industrial base. It was also preceded by two different rounds of Russia-related sanctions on December 1 and November 16.
Similarly, in December 2022, Treasury issued several sanctions targeting Russia’s financial sector, very much in alignment with those issued last Thursday. This continued the trend from December 2021, when Treasury issued distinct sanctions targeting Belarus and entities associated with human rights abuses.
The UFLPA also made some end of year additions in 2023, although those were much fewer than the 29 companies added last week, which increased the overall entity list to over 100 Chinese companies connected to forced labor.
We recently covered two of the latest additions and the potential impact it could reap on global steel and aspartame (a sugar substitute) supply chains (spoiler: tens of millions of companies could be impacted).
If the past week is any indication of what is to come, organizations should expect more restrictions to follow the path of the recent updates focused on Russian financial institutions and human rights abuses.
The following analysis will answer:
- How far do the OFAC and UFLPA-sanctioned companies reach globally?
- Which industries are most at risk for potential future sanctions?
- How do you react to these and prepare for future sanctions?
The Latest Round of OFAC Restrictions on Banks and Financial Services in Russia: Who is Impacted?
The latest sanctions announcements from the United States Department of the Treasury and Department of Homeland Security target a wide array of companies in Russia and China. The extended impact of these restrictions, however, have the potential to cascade to companies across the globe.
On November 21, the addition of Gazprombank — and almost 100 other international subsidiaries and affiliates — to OFAC’s Specially Designated Nationals (SDN) List marked the designation of “Russia’s largest remaining non-designated bank.”
With Russia’s largest financial institutions sanctioned by not only the United States, but other major countries such as Canada and the United Kingdom, it is important to understand where the risk of exposure to these sanctioned banks may still exist.
Using Interos data, we analyzed the extended supply chains of Gazprombank, VTB Bank, and Sberbank and identified over 7,500 companies across three tiers of supplier relationships that are either directly or indirectly supplied by one of the banks.
These numbers are relatively low compared to other supply chain propagation, likely due to decreasing integration of Russian banks with the Western economies since the invasion of Ukraine.
Nevertheless, the scale is by no means trivial and indicates the stickiness of these relationships.
Of the potentially exposed companies with supplier-buyer relationships linked to the new sanctioned entities, almost 60% of them are located either in the United States or the United Kingdom.
When leveraging Interos’ Industry Categories designations, we identified the top three sectors represented across the sanctioned companies as Software and IT Services, Banking and Financial Services, and Business Management Services.
29 Million Companies Could Face Fines from UFLPA Entity List Additions: Agricultural Products, Metals, and Polysilicon in China
Just one day after the new restrictions targeting the Russian banking industry, 29 new companies were added to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List, bringing the total number of companies on the list to over 100.
This action primarily targeted companies that produce agricultural goods, specifically tomato paste and tomato products, walnuts, red dates and raisins. Other newly restricted companies include exporters of materials and products derived from aluminum, nonferrous metals, and polysilicon.
Interos conducted an analysis on the extended supply chain of these companies and identified over 29 million companies across three tiers of supplier relationships that are either directly or indirectly supplied by one of the newly restricted UFLPA entities.
These companies could be subject to UFLPA fines.
Again, most of the companies that could be impacted — over 34% of them — are located in the United States, followed by the United Kingdom (9%), India (8%), Germany (4%), and Italy (3%) – and thus could be subject to UFLPA fines.
Leveraging Interos’s Industry Categories reveal the top three sectors among this group of exposed companies include Business Management Services, Software and IT Services, and Consumer Goods.
These two scenarios, while distinct, highlight the importance of continuously monitoring suppliers of both services and physical goods to avoid potential fines, seizure of imports and reputational damage.
Which Industries are Most at Risk Looking Ahead?
Given the ongoing implementation of export controls and industrial policy, organizations should plan for future additions to these and dozens of other restrictions lists. Fortunately, there are a few insights to help look ahead and begin de-risking from future regulatory risks.
For instance, in September, the Department of Commerce’s Bureau of Industry and Security (BIS) introduced worldwide export controls on critical technologies.
These include: additive manufacturing items, advanced semiconductor manufacturing equipment, quantum computing items, and gate all-around field-effect transistor (GAAFET) technology.
A presumption of denial affects countries deemed a national security concern, including Armenia, Belarus, Cuba, Iraq, North Korea and Russia.
Companies in these industries, as well as other critical and emerging technology industries, and from those countries are at immediate regulatory risk.
Similarly, BIS also has a high priority list focused on Russian products believed to fuel Russia’s military-industrial complex.
Companies associated with these products, as well as those across a wide range of critical technologies, are much more likely to appear on a restrictions list in the future than those in other product or industry categories.
Monitoring Risk Exposure with Risk Intelligence Data
Geography is another means for assessing future restrictions risk.
In addition to companies in those countries, the BIS Country Groups D and E, companies located in – or have a supply chain connection to – the XUAR are also at significantly greater risk of future restrictions inclusion.
Using Interos data, we identified over 231,000 other companies located in XUAR that may pose future compliance risks in global supply chains.
When analyzing three tiers of supplier relationships for these companies, Interos data shows the following industries at the highest risk for potential disruptions if restrictions on XUAR companies continue to expand.
These are the industries with the greatest frequency across companies in XUAR:
- Business Management Services
- Software and IT Services
- Consumer Goods
- Architectural, Engineering, and Design Services
- Building and Civil Engineering Construction
In short, last week’s additions to the OFAC and UFLPA restrictions lists are consistent with regulatory updates from the past few years.
Moreover, by leveraging industry, product, and geographic risk management information, organizations can be more proactive in preparing for export controls against companies that meet those criteria listed above.
Product and industry categories not only provide value for proactively addressing restrictions risk, but also have several other benefits, such as benchmarking and product tracing throughout supply chains.
Keep an eye out for a forthcoming blog that will detail these new features and how they impact the full lifecycle of supply chain intelligence.
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