GEO.3 EU Sanctions DD

EU Sanctions DD GEO.3: Commercial Logic of Trade Routes

What This Control Requires

Do payment, shipment, or corporate routes make commercial sense - or are they deliberately indirect?

In Plain Language

Circuitous routing - where payments, goods, or corporate structures take unnecessarily complex paths - is a key circumvention indicator identified by the European Commission guidance. When the route does not match what normal trade patterns would suggest, something may be wrong.

This applies to all three types of flows: physical goods (shipped via unnecessary intermediate ports), payments (routed through multiple banks in different countries), and corporate structures (invoiced through entities in jurisdictions where the goods never pass through).

The question is simple: does the route make commercial sense? If goods go from Germany to UAE to Kazakhstan when they could go directly, why? If payment comes from a different country than the buyer is based in, why?

How to Implement

For each trade relationship, verify that the physical, financial, and corporate routes are commercially logical:

1. Shipping routes - are goods being shipped via the most efficient route for the origin-destination pair? Transshipment through unusual intermediate ports without consolidation benefit is suspicious.

2. Payment flows - does the payment originate from the buyer's country? Does it match the physical flow of goods or services? Payment from a third country or through multiple correspondent banks when a direct route exists is a red flag.

3. Corporate intermediaries - does each entity in the transaction chain add genuine value? Warehousing, local compliance, technical support, and market access are legitimate roles. Entities that simply pass through invoices without adding value are suspicious.

4. Currency routing - payments in unusual currencies or routed through multiple currency conversions without commercial justification.

Map the full lifecycle of each major transaction and document the commercial rationale for each step. If you cannot explain why a particular route exists, investigate before proceeding.

Red flags: goods shipped EU to Country A but payment from Country B; transshipment through multiple ports without consolidation benefit; invoicing through entities in low-tax jurisdictions when goods never pass through; and split shipments to avoid scrutiny thresholds.

Evidence Your Auditor Will Request

Transaction flow maps showing physical goods, payment, and corporate routing
Commercial rationale documentation for each intermediary step in trade routes
Analysis of payment routing versus goods routing for consistency
Investigation records for any identified route anomalies
Comparison of actual routes against expected optimal routes

Common Mistakes

Not mapping the full transaction lifecycle - looking only at direct buyer-seller relationship
Ignoring payment routing analysis while focusing only on goods movement
Accepting complex routing without questioning the commercial rationale
No comparison of actual routes against what would be expected for the trade pair
Treating each leg of a transaction in isolation rather than viewing the complete flow

Related Controls Across Frameworks

Framework	Control ID	Relationship
EU Sanctions DD	EU Sanctions DD GEO.2 (related mapping)	Related
EU Sanctions DD	EU Sanctions DD WHO.4 (related mapping)	Related
EU Sanctions DD	EU Sanctions DD WHY.3 (related mapping)	Related

Frequently Asked Questions

What are legitimate reasons for indirect routing?

Hub-and-spoke logistics networks (e.g., consolidation through Rotterdam or Singapore), free trade zone processing, local regulatory requirements (some countries require goods to clear customs through specific ports), volume consolidation for multi-destination shipments, and seasonal shipping route changes due to weather or capacity. The key is that the reason should be documentable and commercially rational.

How do we detect payment routing anomalies?

Compare the payer's jurisdiction with the buyer's stated location. Check SWIFT messages for correspondent bank chains - are there unexplained intermediate banks? Look for payments split across multiple transfers for the same transaction. Note payments from personal accounts for business transactions, or from entities not party to the contract. Your bank's compliance team can also flag unusual payment patterns.

What about invoicing through group treasury centres?

Centralised treasury and invoicing through group entities is common in multinational corporations and is generally legitimate. The red flag is when the invoicing entity has no connection to the transaction other than passing through payment - no treasury function, no financial management role, and no operational involvement. A genuine treasury centre serves multiple group companies and has financial staff; a shell entity serving as an invoice pass-through does not.

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