New Year, Same Issues

Some Thoughts on Last Year and Beyond

I took a break at the end of last year to recharge, reevaluate, and focus on work and professional development, so it’s been a few months since I’ve written anything in the illicit financial sphere. But now I’m back, and we’re right where we have been all year.

RUSSIA! RUSSIA! RUSSIA!

Russia’s unprovoked attack/invasion of Ukraine.

Russian oligarchs’ wealth - how to seize it and how to block them from accessing the global financial system, especially those who are close to Russian president Putin and support his savage invasion of Ukraine and help hide his assets.

Russia’s efforts to evade sanctions.

Russia’s engagement with other malign state actors to get funding and weapons for Putin’s war.

Are sanctions against Russia effective?

It has been a tough year, but Russia will not only remain the top sanctions target for 2023, but I think it will also be the top threat actor in the illicit financial sphere, as it teams up with Iran and North Korea, with a bit of financial help from China to continue pouring money into Putin’s pocket.

As most current and former colleagues confirm, the US government’s focus will almost certainly be on sanctions enforcement. Sanctions against Russia cannot be effective if bad Russian actors are using gatekeepers and other facilitators to access not just the global financial system, but also tools and technologies from which they are legally restricted.

Enforcement actions will not only involve significant fines, but also additional designations against facilitators and those who act on behalf of malign Russian (and other) actors.

IRS-Criminal Investigations (IRS-CI) last year opened 20 criminal investigations in its crackdown on sanctions evasion by Russians and identified nearly 50 individuals and entities to target for sanctions enforcement. I expect there will be more cases that will lead to more designations and charges.

OFAC in October designated a Russian network that procured military and sensitive dual-use technologies from US manufacturers and supplied them to Russian end-users. Russian national and procurement agent Yury Orekhov and two of his companies, Nord-Deutsche Industrieanlagenbau GmbH and Opus Energy Trading LLC were sanctioned in that enforcement action.

British businessman Graham Bonham-Carter in October was arrested for allegedly conducting illicit financial transactions on behalf of sanctioned Russian oligarch, Oleg Deripaska, continuing to manage Deripaska’s residential properties after the latter was designated by OFAC in 2018. Deripaska and two of his associates were also charged with violating US sanctions for helping Deripaska’s pregnant girlfriend travel to the United States to give birth to his child, ensuring the offspring is entitled to US citizenship.

OFAC in November sanctioned a transnational technology procurement network that supports the Russian military-industrial complex, as well as a global network of financial facilitators who work with two sanctioned Kremlin-linked oligarchs.

The Commerce Department is also in the game and has been issuing temporary denial orders and suspending export privileges for individuals, entities, and aircraft involved in violations of export controls.

Sanctions can only be effective if gatekeepers are prevented from facilitating their access to the US financial system, according to recent remarks by the Treasury Assistant Secretary for Terrorism Financing and Financial Crimes, Elizabeth Rosenberg. The director of the KleptoCapture task force, Andrew Adams, has named gatekeepers, such as banks and financial institutions, attorneys, fintechs, real estate brokers and dealers, and securities broker dealers in that category. Ergo, we may see increased fines for these facilitators should they be found to be helping sanctioned individuals violate sanctions and additional designations for foreign entities facilitating Russian access to restricted components and technologies.

But that’s not all!

Sanctioned Russian oligarchs and other malign actors almost certainly have access to family members and close associates who are not subject to sanctions to help them move assets. The United States last year designated Putin’s daughters and the sons of three Russian oligarchs in anticipation that these family members will take control of the oligarchs’ assets and help transfer and hide them. I would expect that US firms will work to anticipate possible sanctions against family members of designated Russian officials and will proactively de-risk and end business with them.

Sanctions are a long game. This is something I’ve always told those who ask me about their effectiveness. It takes time for corporations, banks, and financial institutions to assess possible impacts to their reputations and their bottom line, and it will take time for them to end current business contracts and possibly disengage altogether. But sanctions are an effective foreign policy tool, so don’t expect them to fade anytime soon.

I don’t anticipate the issues to change this year. The targets will remain the same: Russia, Iran, North Korea, China, etc.

But the focus will also shift to ensure that sanctions and other restrictions against these countries will be more effective in the new year.

I guess we’ll see.