Russia Sanctions Enforcement Action Intensifies as Moscow's Evasion Efforts Begin to Take Shape

As the conflict in Ukraine drags into its 7th month, Russia officials have stepped up their efforts to thwart sanctions imposed against them by the U.S., UK, EU, and other Western governments. With the recent revelation that Vladimir Putin’s younger daughter, Katerina Tikhonova, has been tapped to co-chair a committee to coordinate import-substitution efforts by the Russian Union of Industrialists and Entrepreneurs, it’s becoming increasingly clear that Russia is feeling the impact of these sanctions and are increasing their efforts to evade them.

The Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Department of Commerce’s Bureau of Industry and Security (BIS) recently released a list of 18 countries they have identified as having a strong possibility of acting as transshipment points as part of a sanction evasion network. Among those highlighted are former USSR members Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. While none of these nations have been officially accused of actively facilitating sanction evasion, they have been identified as "common transshipment points through which restricted or controlled exports have been known to pass before reaching destinations in Russia or Belarus.”

Jurisdictions such as Britain, the EU, and the U.S. are targeting the elites who control Russia's economic interests and enable Moscow's aggression in Ukraine with unprecedented sanctions, and doing so often goes hand-in-hand with increased risks of evasive efforts. As Adrian Searle, Director National Economic Crime Centre puts it “As the UK government designates more entities in response to Russia’s invasion of Ukraine, the risk of sanctions evasion increases.”

To help mitigate the impact of any coordinated effort, the UK’s Office of Financial Sanctions Implementation (OFSI) and National Crime Agency (NCA) have issued a Red Alert urging increased diligence in identifying potential sanction-dodging efforts, including stepping up efforts to identify ownership changes and highlighting potential personal relationships with sanctioned individuals. The alert warns "Russian money launderers have increasingly been observed in U.K. intelligence and operational activity providing cash to crypto-asset services, with the ability to move significant volumes of funds.”

In response, these agencies stress the importance of undertaking appropriate due diligence efforts, including increased scrutiny of all transactions, as well as having a strong denied party screening program to identify potential red flags.

Businesses across all industries need a reliable system in place for sanctions screening. Denied party screening software identifies sanctioned entities and known sanction evaders to prevent a company from unwittingly violating international sanctions. As Russia and its allies have diverse business interests ranging from automotive to paper; every industry should consider itself at risk of transacting with a potential sanction evader.

There’s no denying the challenge for many businesses is effectively staying on top of changes to denied and restricted party watch lists and the latest sanctions and newly identified sanction evaders.

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