How US Sanctions Against Russia Affect Indian Businesses

On 30 October 2024, the US State Department and the Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions on nearly 400 entities and individuals, including 19 Indian companies and two individuals, for supporting Russia’s military activities in Ukraine. On 1 November 2024, the US Department of Commerce added five Indian companies to its entity list for acquiring and redirecting US-made goods to Russia’s defence sector.

In India, the sanctioned companies were involved in exporting dual-use items—products with both civilian and military applications. Some of these companies exported not only US-origin goods but also locally produced items that were later sent to Russian military sectors. Notably, the US sanctions also apply to companies diverting US-made items, increasing scrutiny on Indian exporters.

A report by the Global Trade Research Initiative (GTRI) mentioned that Indian companies such as Shreya Life Sciences sent US-branded technology to Russia; Asha Electronics exported electronic parts that could be used in military applications; Soni Electronics supplied parts with potential dual-use purposes; Solex Electronics exported electronic components and S.M. Electronics involved in exporting electronic items.

Interestingly, this is not the first time Indian companies have faced sanctions. In November 2023, Si2 Microsystems was sanctioned for supplying US-integrated circuits to Russia without authorisation. In February 2024, Crynofist Aviation was sanctioned for exporting US goods to Russia through deceptive methods.

Notably, the US sanctions include blocking access to US financial systems, freezing assets, visa restrictions, and denying trade opportunities. Talking about the impact, the report revealed that companies in violation may face commercial isolation, even if their business dealings with the US are limited.

In response, India’s Ministry of External Affairs (MEA) emphasised that these entities did not violate Indian laws, but the government is working to ensure compliance with domestic export controls. Additionally, India’s stance opposes extraterritorial sanctions and aligns with international non-proliferation principles.

The MEA’s approach aims to balance national interests with external pressures, encouraging businesses to align with both Indian and international regulations. To prevent future sanctions, India may plan to tighten export controls, offer clearer business guidelines, and ensure stricter compliance, the GTRI report recommended.

It added, “Indian companies must adhere to both national and international export regulations, especially those involved in the export of dual-use goods. Failure to comply could lead to sanctions, affecting access to global markets and critical supply chains. India’s focus should be on strengthening internal compliance mechanisms and engaging diplomatically with the US to minimize disruption in trade relations while upholding non-proliferation standards.”

US Secondary Sanctions
The US sanctions encompass "secondary sanctions," which target non-US entities that help adversaries of the US, blocking their access to US financial systems and markets, and potentially freezing assets in the US. These sanctions began in 2014 under President Obama with specific measures for Russia and were updated under Executive Order 14024 by President Biden to address issues like Russian cyberattacks and military support.

Entities added to the US Treasury’s Specially Designated Nationals (SDN) list face asset freezes, visa bans, and possible denial of entry to the US. The US Commerce Department also requires export licenses for entities on its restricted lists, with most requests being denied, affecting global supply chains tied to US-made goods.

The recent US sanctions highlight the importance for Indian businesses to follow both local and international trade regulations, especially when dealing with sensitive or dual-use goods. Companies must stay vigilant to avoid inadvertently supporting sanctioned entities or countries.

“Businesses must have strong compliance programs and regularly check export control lists like India’s SCOMET list and US BIS regulations. Failing to comply can lead to serious consequences, including trade restrictions, frozen assets, and lost market access,” the report stated. 

GTRI in the report added that Indian companies should also monitor their supply chains, particularly in high-risk areas. Regularly reviewing the SCOMET list helps identify products that may face export restrictions. Non-compliance could isolate businesses commercially, as US sanctions not only block transactions with US companies but can also discourage global partners that have ties to the US.

Can India Approach Global Bodies?
India, which opposes unilateral sanctions not authorised by the UN Security Council (UNSC), has several options to challenge US sanctions. First, India could bring the issue to the World Trade Organisation (WTO) if the sanctions violate international trade rules or harm Indian businesses. Second, it could raise the matter at the UN General Assembly or the UNSC. However, since the US holds veto power in the UNSC, it is unlikely that a resolution against the sanctions would succeed.

The domestic firms could challenge the sanctions in Indian courts, though this is difficult because foreign sanctions often take precedence in the sanctioning country’s legal system. It could take the matter to the International Court of Justice (ICJ), but this requires the consent of both parties, so it’s a less common route for such disputes, the report added. 

In conclusion, while unilateral sanctions imposed by the US are controversial under international law, the practical reality is that countries like India must navigate these sanctions carefully to protect their business interests. It can engage diplomatically with the US and other international bodies to seek remedies, but the broader trend of extraterritorial sanctions poses a challenge to international trade law and the principle of state sovereignty.