Transacting in Russian-occupied territories in Ukraine has become riskier for western firms and financial institutions because Russia has been seizing businesses and schools in these jurisdictions and forcing them to register with Russian tax authorities. The new registrations and tax IDs of previously Ukrainian-owned entities make due diligence research, such as determining ownership, control, and location more challenging. US companies must ensure that they are not providing US-origin products and technologies to entities that are now controlled by Russia and that could support Russia’s operations and reeducation programs in Ukraine.

Certified FiveBy experts understand how to identify Ukrainian entities that may have been seized by Russia.

We have found that more than 2,000 entities in Ukraine have been registered as Russian companies, presenting regulatory, human rights, and reputational risks for US firms transacting in the region. Because Moscow considers these captured Ukrainian establishments to be “Russian,” software and other technologies supplied to an educational institution in Russia could be diverted to occupied Ukraine and used for military and “reeducation” activities.

  • The Russian government has seized existing Ukrainian government establishments and private businesses, as well as assets abandoned by fleeing Ukrainians, including buildings, computer equipment, and vehicles which Russian forces have used for military operations.
  • Russia has captured Ukrainian educational institutions and altered curricula in an effort to reeducate the populace. Russian administration representative in the Zaporizhzhie region, Elena Shapurova, this month signed a decree ending the compulsory study of the Ukrainian language in the region’s schools starting next fall. US-origin technologies, software, and equipment that end up in Russian-controlled schools in Ukraine could be used for reeducation purposes and to help eliminate the Ukrainian culture and identity.
  • Public procurement records reveal that Russian entities will redirect products to what appear to be other Russian entities that are registered with Russian tax IDs, but are in fact located in occupied Ukraine. The Tver government in February organized an order of laptops for educational institutions to be delivered to the Donetsk region. Supplier Gross Komp LLC is not subject to sanctions, is registered in Moscow, can purchase these laptops from western suppliers, and can forward them to the embargoed jurisdiction. Human-driven research into Russian government tenders will help catch these transactions and help prevent US goods and technologies from winding up in the hands of the Russian military or being used in human rights violations.

As Russia’s war in Ukraine rages into its second year, its military equipment has become damaged and depleted, and Moscow has turned to stripping civilian appliances for parts to repair and produce military gear. Western companies must examine their customers for possible connections to Russia’s defense sector and red flags that indicate possible diversion of dual-use components to Russia’s army.

  • Products with dual-use parts such as washing machines, refrigerators, and fans produced by western firms such as EBM, Schneider Electric, NMB-MAT, Siemens, GWE, and Ziehl-Abegg were purchased in December by Moscow-based Soyuzmetallservis LLC. Although the company’s main business activity is “wholesale trade in metals and metal ores,” its general manager Sergei Antonov also manages two metal producers in embargoed Donetsk that have a prewar history of producing metals and alloys for Russia. In addition, the company’s ultimate beneficial owner, Evgeny Yurchenko, has close ties to the Russian military-industrial complex.

Companies that sell seemingly innocuous goods such as education software, personal computers, and appliances to Russian entities could be penalized for violating export controls if they do insufficient research into end-users, and if their products wind up supporting Russia’s war in Ukraine. Significant reputational damage can also result from inadequate due diligence. FiveBy can help US companies conduct enhanced due diligence research on their business partners, customers, supply chains, and end-users to prevent financial penalties and reputational harm.

Contact FiveBy for a free consultation and reduce your risks.

FiveBy IntelSentry