When EU sanctions on Russia tightened through successive packages in 2025 and 2026, a number of European and non-European companies explored whether restructuring supply chains through Kazakhstan could provide a compliant route to continue legitimate commercial activity. This illustrative scenario – based on the type of matters our teams encounter, and presented without reference to any specific client, transaction or financial outcome – examines how such a restructuring might be approached, what complications typically arise, and what lessons practitioners and compliance officers can draw from the exercise.
Client Profile and Challenge
The entity in this scenario is a mid-sized European manufacturing group with longstanding supplier relationships in Central Asia. Its supply chain included components sourced via intermediaries whose ownership structures had become opaque following successive rounds of EU sanctions on Russian entities. Following the adoption of the EU's 20th sanctions package on 23 April 2026 – which among other measures introduced a ban on transactions involving the digital rouble and RUBx instruments, effective 24 May 2026 – the group's compliance team flagged that several contractual payment flows carried an unacceptable risk of indirect sanctions exposure.
The core challenge was not simply exiting Russian-connected arrangements, but doing so in an orderly manner while simultaneously establishing a legally defensible supply chain structure through Kazakhstan that could withstand scrutiny from both EU regulators and the company's banking counterparties. Concerns centred on three overlapping risks: asset freeze exposure if any counterparty was or became a designated entity; circumvention risk under the export controls provisions progressively tightened since 2022; and best-efforts obligations imposed on EU operators to ensure their non-EU subsidiaries and partners do not re-export controlled goods toward Russia.
If your organisation faces comparable supply chain questions, our team is available to discuss the specifics of your situation at ferrazwhitmore.com/contacts or via info@ferrazwhitmore.com.
Strategy and Rationale
The restructuring strategy rested on four pillars, each designed to address a distinct compliance risk while preserving the commercial value of the Central Asian supply relationships.
- Entity-level sanctions screening: Before any contractual novation or new engagement, each Kazakhstani counterparty was screened against EU, UN, OFAC and UK consolidated lists. Screening was documented and dated to create a defensible record, given that designation status can change between contract execution and performance.
- Contractual ring-fencing from Russian nexus: Existing contracts were reviewed to identify governing law clauses, currency of payment, and any provisions that routed economic benefit – directly or indirectly – toward entities subject to asset freeze measures. Where Russian law or Russian-currency settlement was embedded, contracts were renegotiated or replaced.
- Export controls compliance mapping: The goods at issue were classified against the common high-priority items list and the broader dual-use categories. Where items fell within controlled classifications, the group assessed whether Kazakhstan's national re-export commitments and its obligations under agreements with the EU were sufficient to support a defensible supply chain position. Best-efforts obligations under the relevant EU regulations were documented in supplier agreements with Kazakhstani counterparties.
- Dispute resolution and governing law realignment: New framework agreements were structured to fall under Kazakhstani law with dispute resolution at the AIFC Court or under AFSA arbitration rules, or alternatively under LCIA rules with a neutral seat. The Astana International Arbitration Centre (IAC) was considered for certain smaller commercial disputes given its procedural efficiency and neutrality for intra-regional counterparties.
The rationale for using Kazakhstan as a restructuring hub was not to obscure the supply chain – that would constitute circumvention under Article 12g of the consolidated Russia sanctions regulation and its successive amendments – but to create a transparent, auditable supply chain with a genuinely Kazakhstani commercial and legal character. The distinction between legitimate third-country sourcing and sanctions circumvention is fact-specific and depends heavily on documentation, beneficial ownership analysis and the ultimate destination of goods and services.
Milestones and Timeline
The restructuring unfolded against a rapidly shifting regulatory backdrop. Key milestones in this illustrative scenario aligned with the following external events:
- Late April 2026: Adoption of the EU 20th sanctions package (23 April 2026) triggered an internal triage of all active contracts with Central Asian intermediaries. Payment instructions referencing the digital rouble or RUBx instruments were suspended pending legal review, in anticipation of the 24 May 2026 ban.
- May–June 2026: New framework supply agreements with Kazakhstani counterparties were negotiated. Beneficial ownership declarations and ultimate destination undertakings were incorporated as material representations, with termination rights tied to any subsequent sanctions designation.
- July 2026: The EU 21st sanctions package was adopted on 23 July 2026 (Council Regulation (EU) 2026/1848), extending restrictive measures into energy, financial services and crypto-asset sectors. This required a second-wave review of any supply chain segments touching LNG-related logistics or cryptocurrency settlement. For contracts relating to Russian LNG, the applicable import ban – in force for most contracts from 25 April 2026, with a deferred date of 1 January 2027 for long-term contracts concluded before 17 June 2025 – was mapped against the group's energy procurement arrangements to confirm no residual exposure.
- August–October 2026: Compliance documentation was consolidated into a single audit file. Banking counterparties were provided with a structured compliance summary to support continued access to correspondent banking for Kazakhstan-routed transactions.
Complications Encountered
Three categories of complication arose in this type of restructuring and are consistently observed across similar matters.
Beneficial ownership opacity. Kazakhstan's corporate register provides ownership information, but tracing ultimate beneficial owners through multi-tier holding structures – particularly where Russian or Belarusian capital has been restructured following earlier sanctions rounds – requires active investigation rather than reliance on public records alone. In several instances, counterparties that appeared clean on list screening required deeper analysis before satisfactory comfort could be obtained.
Banking de-risking pressure. European correspondent banks applied their own, sometimes more conservative, interpretations of circumvention risk to Kazakhstan-routed transactions. Demonstrating that a supply chain has genuine Kazakhstani substance – physical presence, local management, inventory held in-country – rather than being a paper conduit became an operational requirement in addition to a legal one.
Evolving regulatory perimeter. The pace of sanctions package adoption – the 20th package in April 2026 and the 21st in July 2026 – meant that legal advice given at one stage of the restructuring required updating within weeks. The divestment derogation for Russia exits, extended to 31 December 2026, provided a degree of transactional runway but required active monitoring to ensure the group could act before the deadline if circumstances required a further exit step.
Outcome Category
This illustrative scenario represents an outcome category we term compliant repositioning with residual monitoring obligations. The group established a defensible, documented supply chain structure through Kazakhstan; existing Russian-nexus exposures were addressed within applicable derogation windows; and contractual arrangements with Kazakhstani counterparties incorporated the compliance mechanisms necessary to satisfy both EU regulatory standards and banking counterparty requirements. No outcome of this kind is permanent: sanctions regulations continue to evolve, and the group's compliance programme requires periodic review – particularly as further packages are adopted and as national implementations of EU obligations are confirmed by individual member states.
For organisations considering a similar repositioning, our sanctions and trade practice advises on EU, UK and US measures as they apply to transactions involving Kazakhstan and the wider Central Asian region. Details of our approach are set out at ferrazwhitmore.com/services/sanctions-trade/kazakhstan/.
Three Transferable Lessons
1. Transparency Is the Only Durable Strategy
The distinction between legitimate supply chain restructuring and sanctions circumvention turns on intent, documentation and substance. EU regulations impose best-efforts obligations on operators to prevent circumvention by their non-EU affiliates and counterparties. Companies that invest in transparent, auditable structures – genuine Kazakhstani counterparties, documented end-use undertakings, clear beneficial ownership chains – are significantly better positioned when regulators or banks seek assurance. Structures designed to obscure Russian nexus rather than genuinely remove it carry enforcement and reputational risk that outweighs any short-term commercial gain.
2. Sanctions Screening Is a Process, Not a One-Off Event
The pace of EU sanctions adoption in 2025 and 2026 illustrates why point-in-time screening is insufficient. A counterparty that was undesignated at contract execution may be listed before or during performance. Contracts should include sanctions representations and ongoing notification obligations, as well as termination rights triggered by designation. Compliance calendars should be aligned with anticipated package adoption cycles rather than treating screening as a pre-contractual formality.
3. Dispute Resolution Infrastructure Matters
Restructured supply chain agreements need dispute resolution mechanisms that are both practically accessible and credible to banking counterparties. The AIFC Court, AFSA and the IAC in Astana offer institutional frameworks suited to commercial disputes with a Kazakhstani seat, while LCIA and ICC arbitration with a neutral seat remain appropriate for higher-value or more complex matters. Choosing the right forum at the drafting stage – rather than defaulting to Russian or Ukrainian governing law for historical reasons – reduces enforcement risk materially and signals to counterparties and banks that the transaction structure is designed for durability.
Our analytics team has also published guidance on the impact of recent packages in other jurisdictions; EU operators with German nexus may find the overview at ferrazwhitmore.com/analytics/alerts/21st-sanctions-package-impact-germany/ relevant to their broader compliance picture. For Portugal-related sanctions and trade matters, further information is available at ferrazwhitmore.com/services/sanctions-trade/portugal/.
If you are assessing how EU sanctions affect your supply chain arrangements in Kazakhstan or elsewhere, or need legal advice on compliance documentation, counterparty due diligence or restructuring options, please contact us at info@ferrazwhitmore.com or visit our contacts page to arrange a discussion.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.