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Russian Sanctions Evasion - Know Your Risk

On March 9, 2024 the Russian Elites, Proxies, and Oligarchs (REPO) Task Force released a general update and an advisory to contribute to effective sanctions implementation and compliance across members’ jurisdictions in preventing the undermining of financial sanctions, export controls, and other restrictive measures in response to Russia’s war with Ukraine. 

In the advisory, the REPO Task Force reminded regulated (and unregulated entities) to ensure:

“Risk mitigation measures [are in place] to prevent illicit financial activity, such as the use of shell companies or nominees.”

The broader REPO advisory expands upon earlier work by U.S. Treasury to warn banks about the risk of facilitating payments in connection with the Russian war effort - the penalty, akin to Iran-style sanctions, losing access to the U.S.

Proper risk mitigation - particularly for globally exposed firms - includes leveraging accurate data, core technology and domain expertise to screen for potential risk in customer and counterparty relationships - both at the point of onboarding and on an ongoing basis.  Basic screening approaches that rely on standard watchlist data and matching are likely insufficient in holistically guarding against many of the risks described in recent advisories.  

Reviewing your Current Posture and Vendor's Capabilities 

Moreover, in this geopolitically charged environment, frequent and straightforward sanction screening, investigative, risk assessment and vendor-readiness testing is required to ensure you are on-top of your risk.   Some quick areas to consider: 

- Matching logic: While your software should be able to match on exact names, can they also match on harder variations that frequently occur in transactions like:

- “I T C” vs. "Limited Liability Company I T C” 

- “Billions No. 18” 

- “ARX Financial” vs. “ARX Financial Engineering Limited”

- “Larrycom” vs. “Larrycom for Investment LTD”

- Instant network analytics: Can your current software flag risk associated with shell companies and risk attached with high-risk third countries that are common transshipment hubs?  Examples of interest:

- "Folsten Holdings LTD"

- "Rock Invest Holding"

- "DEA Finance SA"

- "Hanover International Holding Limited"

- System configuration: Can your current software easily segment your approach to match the risk of your operations across various client types and jurisdictions; including rapidly to meet changing requirements?

- Scale and Reliability: Can your software provider ensure always-on, scalable operations and ongoing customer support?

- Use of advanced adverse media: Can your software provider deliver, alongside watchlist and name screening, highly accurate adverse media that drives industry leading hit/catch ratios and workflows?  Examples would be successfully flagging exposure to:

- "Nu Generation Foundation"

- "Shandong Linglong Tyre"

- "Concord Management LLC"

- "Solway Investment Group" 

- "KBR-Trans LLP"

- "KBR-Technologies LLP"

- Overall system security: Does your provider invest in security to protect your data and operations and can that be demonstrated?  This has never been more important than now, particularly with a rise in state-sponsored attacks.  

- Russian-exposure risk assessment: Have you considered - or refreshed - your potential direct and indirect exposure to Russia in light of the latest advisories, red flags and protracted nature of the conflict?  

Internalizing highlighted REPO typologies

Beyond the aforementioned, highlights from the REPO advisory include the following key Russian sanctions evasion typologies that institutions should take into account as part of their risk management and additional testing: 

- Use of Family Members and Close Associates 

REPO Task Force members identified various instances in which Russian elites transferred the beneficial ownership of legal entities and arrangements and other property to their children, in an attempt to ensure continued control as well as access to wealth after the imposition of sanctions.

- Use of Real Estate to Hold Value, Benefit from Wealth 

Historically, Russian oligarchs and elites have invested in properties around the world, and it has been reported publicly how many enjoy the benefits of their real property. Since the invasion of Ukraine, however, there has been an increase in the use of real estate as a vehicle to hold Russian wealth. Some of these investments and purchases could be indicative of sanctions evasion activity.

Another sign indicative of sanctions evasion activity may follow a known money laundering typology—the purchase of real property below or above its market value—as well as the use of offshore buyers with potential links to Russia.

- Use of Complex Ownership Structures to Avoid Identification

Schemes that have been uncovered over the years by competent authorities show how these actors leverage complex ownership structures to disguise their connections to particular assets or entities.  Designated persons may further obfuscate their involvement in sanctions evasion schemes and efforts to stash away their wealth by using a combination of legal entities and legal arrangements such as trusts to ensure they remain undetected.

- Use of Enablers to Avoid Involvement, Leverage Expertise

Sanctioned Russian individuals and entities may attempt to avoid direct participation in sanctions evasion activity by utilizing certain persons in key professions, including those that frequently interact with the international financial system. 

- Use of Third-Party Jurisdictions, False Trade Information to Facilitate Sensitive Goods Shipment to Russia

One method Russian end-users use is to list a freight forwarding business, often located in third party jurisdictions, as the final destination of a good, when in fact those goods will be further shipped to their intended final destination in Russia. The entities facilitating these transactions may often appear to have no affiliation with the transaction and may be utilizing a known trans-shipment point.

Note: The REPO Task force includes participants from Australia, Canada, the European Commission, France, Germany, Japan, Italy, the United Kingdom, and the United States.

How can Sigma360 help me stay ahead? 

Using Sigma360's risk decisioning software platform, organizations can not only get ahead of risk, but leverage unstructured data - like the news highlighted in this article -  to further contextualize its impact and how it manifests across other entities that may impact counterparty relationships.  

To see Sigma360 in action, book a demo.
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