In July 2022, the UK National Crime Agency (NCA), the National Economic Crime Centre (NECC), the Joint Money Laundering Intelligence Taskforce (JMLIT) and the HM Treasury’s Office of Financial Sanctions Implementation (OFSI) combined efforts to issue a Red Alert on Financial Sanctions Evasion Typologies: Russian Elites and Enablers in order to inform the public of the common techniques that Designated Persons (DPs) and their UK enablers may use in order evade financial sanctions. The purpose of the alert is to raise general awareness and facilitate the use of preventative measures by individuals and entities in the UK and provide clarity on which agency should be contacted to report suspicious individuals and activities, including contact information and suggested reporting methods.
Following the Russian aggression in Ukraine, the UK, US, EU and other allies have collaborated to target Russian elites with unprecedented sanctions in an effort to change their behavior and ultimately end the conflict. Case studies identified through financial intelligence and other sources reveal that DPs are consistently using certain methods to evade sanctions. While efforts are made to coordinate the timing of sanctions by the UK and its allies, differing designation timescales have presented DPs with opportunities to facilitate the movement of funds before and after sanctions are imposed. These DPs are using enablers to transfer assets to trusted proxies such as DP employees and relatives; selling assets at a loss to obtain some value before designation and divesting investments to relinquish an asset or ensure that DP’s ownership interest is below the 50 percent threshold.
According to the alert, DPs may continue to retain influence over relinquished assets by using trusted proxies and enablers, which are individuals or businesses willing to evade sanctions and launder money on a DPs behalf. The alert warns that enablers tend to be in the legal and financial professions and are also estate agents, auction houses, company directors, intermediaries/agents and private family offices. The alert also indicates that enablers have three common levels of complicity – criminally complicit, willfully blind, and unwittingly involved.
The alert contains a lengthy list of indicators of sanctions evasion techniques that the public can use to 1) detect frozen asset transfers, 2) detect enablers, and 3) detect suspicious payments. Among the many indicators identified in the alert are efforts by DPs to change beneficial ownership of corporate structures to non-Russian or dual national family members/associates/nominee directors shortly before or after sanctions take effect; the movement of assets previously associated with DPs by family members where the funds and ultimately disbursed offshore through secrecy jurisdictions; the use of pooled accounts (in which banks only see the name of the enabler and not the client) that transfer funds to entities associated in open source with DPs; and the use of a complex trust structure for the ownership of a luxury asset which is overseen by a trust company and its trustees for no apparent legitimate reason.
Finally, the alert provides industry recommendations that companies should follow in order to better detect the common techniques used by DPs and their enablers. These recommendations include, but are not limited to, documenting arms-length transactions and not taking them at face value; implementing appropriate due diligence to detect willful blindness and other forms of complicity to detect circumvention offenses, and encouraging firms to conduct enhanced due diligence when presented with documents that purport to present a changed in ownership by a copy linked to a DP.
Red Alert – Financial Sanctions Evasion Typologies : Russian Elites and Enablers