Latin American Diversion Risks

September 2023 - Kaley Walker

Trade compliance risks are growing in the Latin America and Caribbean (LAC) region as more enforcement resources are being directed to detect Russian sanctions evasion efforts.

Russia, which seeks to circumvent multilateral sanctions and export controls, has sought to import dual-use and defense materials through third-party countries – often those with lax controls. Much attention has focused on diversion from countries bordering Russia like Kazakhstan or those nearby like Turkey or Greece. However, LAC countries have also been flagged as potential diversion destinations.

In June 2022, the U.S. Department of Commerce identified Brazil, Mexico and Nicaragua as transshipment points for controlled exports reaching Russia and Belarus. These and other LAC countries are at particular risk of involvement in Russia’s export diversion as most lack national export control systems covering dual-use goods (or if they do, they are poorly enforced) and most lack autonomous sanctions on Russia. Companies trading in the LAC region should remain vigilant to efforts by Russia-linked entities to divert items through these countries and others.

Although most LAC countries lag in implementing export control systems, several are taking steps to develop legislation. Panama is working on implementing regulations for a Presidential decree regulating dual-use trade. Chile has a draft export control law that is working its way through the National Congress and has amended its arms export regulations to implement in part Arms Trade Treaty (ATT) obligations.

Countries in the region are also being provided technical and legal assistance by the European Union and the United States. This support aims to tighten export controls. The Organization of American States (OAS) likewise is providing tools to help LAC countries implement the ATT and strengthen regional monitoring of the arms trade.

Most importantly, the U.S. has been signaling that companies in the LAC region that assist Russia may find themselves sanctioned or added to the Entity List.

So, what should companies that operate in LAC countries be doing?

  1. Strengthen due diligence measures on trade in the LAC region for controlled items.
  2. Be vigilant to the use of front companies in the region.
  3. Ensure compliance with evolving national control systems in the region (e.g., Mexico, Panama and Chile).

As the Russian invasion of Ukraine nears its third year, such diversion risks will remain high. TradeSecure will continue to monitor these developments to keep you informed.