Russia’s economy relies heavily - roughly half - on the sale of oil. This lifeline and the brass around it has been pressured to various degrees following a raft of sanctions (thousands upon thousands of them) and price caps put in place following Russia’s invasion of Ukraine. Names added to sanctions and watchlists include companies, people, vessels and aircraft with connections to the Russian government and its direct and indirect military industry.
In the wake of these events and subsequent governmental actions, global financial institutions and corporates began expanding their work to upgrade and automate more robust surveillance of customer and customer counterparty relationships - noting that “list based screening was not enough” in this new paradigm. Reputational risk management, including potential exposure to Russian leadership, oligarchs or military operations requires new, always-on approaches to risk management; particularly given how fast the political and on-ground truth is changing. This is also true when reading between the lines and contextualizing customer and counterparty relationships as part of due diligence requirements.
Case-in-point is recent reporting by the Wall Street Journal that says the U.S. Department of Justice is investigating potential sanction evasion and price cap manipulation tactics involving business associates of Igor Sechin, Rosneft’s boss. As background, Rosneft is a leading global oil company and the largest in Russia, with decades of interlinking relationships that were formed before the war and transcend its existence. Bonus background: Sechin was re-sanctioned by the U.S. in February 2022 and earlier sanctioned in 2014, also over Ukraine.
The news follows a recent advisory directed at governments and the private sector by the U.S. Treasury Department on the maritime oil trade, including noting that bad actors may use deceptive practices to transport Russian oil and petroleum products to be sold above the price cap or engage in activity that may violate the Price Cap Coalition's sanctions, laws, or regulations.
Digging into Russian Oil Trading
In unpacking the fast moving news, some of the entities named in reporting are connected to Murtaza Lakhani, a prominent figure in the global oil and gas industry (Lakhani denies any Russian connections and/or price cap evasion and has employed a global law firm in connection with the probe). Known as Glencore’s “man in Baghdad” earlier in his career, Lakhani remains influential - and incredibly connected - in the global commodity space. Upon review of the reporting on the matter, the companies named are real and the sheer number of them and geographic scope of the web of connections is significant, including operations and operators in Europe, the Middle East and Asia.
Highlighted Companies in Recent Reporting
Relationships highlighted as having association with or ownership by Lakhani include the following:
While none of these companies are sanctioned or suspected of wrongdoing, their proximity and association with those who are is of interest (and likely what caught the eye of others). Furthermore, this is exactly the kind of association reference that would be valuable to someone at the point of onboarding/know your customer checks or from an AML or sanctions investigative perspective to understand and properly assess risk as part of a firm's risk based approach. The combination of corporate registries and media reporting extend this network significantly as well, meaning the above named companies represent only a fraction of the known connections.
An extended example of association risk that brings to life the complex web of connections that is not highlighted in the aforementioned reporting, is Prime International Trading, a company incorporated and operating in Malta with links to Russia, Europe and Singapore, as well as Russian and Italian energy giants. The company's Facebook page states the following:
Prime International Limited is a joint venture between Rosneft, a Russian Oil Major company and world leader in extraction and refinement, and Pietro Barbaro S.p.A., an Italian company active in the shipping industry since 1885 and a leader and expert in the oil and oil product transportation market.
Prime International Limited provides shipping services to its clients by supplying the tonnage in compliance with the highest international standards, necessary for cargo transportation and other correlated marine services, such as shipping brokerage, chartering, commercial management and post-fixture, bunkering, hub agency, marine trading strategical support and procurement solutions.
Other Entrants into Russian Oil Trading Post Ukraine via Previous Reports
Reviewing available reporting further, with the prior information in mind, other entities associated with the Russian-oil trade (and not necessarily Lakhani’s. operations) cited in reporting earlier this year by Energy Intelligence and the Financial Times include the following entities:
How can Sigma360 help me stay ahead?
The rapidly growing Russian oil trading sector, coupled with potential investigations into it, are reasons for additional care when evaluating client and client counterparty relationships.
Staying ahead and understanding and contextualizing risk is essential. Legacy and list-based data and risk screening and surveillance systems would not highlight and contextualize these connections and as a result, an institution may not be seeing the full picture as part of its name screening, due diligence, enhanced due diligence and investigative programs. In short, if you are not using Sigma360, you are not seeing the full picture.
Using Sigma360, you can not only automatically screen for and detect direct and indirect risk (e.g., sanctions, PEPs, enforcement actions, etc.), but enable continuous monitor across thousands of sources to receive alerts if your pre-configured risk changes across your client or counterparty base.
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