At this point, anyone who refuses to recognize Russia’s invasion of Ukraine as an all-out war either has their eyes closed or is deeply in President Putin’s propaganda pocket.
Russia has lost more than 140,000 troops in this war so far.
Russia has deployed as much as 97 percent of its military force for an operation it claims is simply an effort to “denazify” a country that has a Jewish president.
Russia has murdered and tortured thousands of people, targeted critical infrastructure, and when called out, has claimed that a maternity hospital was a military asset and that despite the use of Iranian drones against critical infrastructure, it is not targeting civilians.
Vice President Kamala Harris and Secretary of State Antony Blinken this weekend both acknowledged Russia’s war crimes in Ukraine, and Treasury plans on increasing its efforts to target sanctions evaders and those who facilitate the access of sanctioned Russian individuals and entities to the global financial system and to prohibited technologies, especially with the anniversary of the invasion coming up on Friday, February 24.
“As we look forward, one of the centerpieces of our strategy will be to counter attempts to evade our sanctions,” [Deputy Treasury Secretary Wally] Adeyemo will say in remarks Tuesday at the Council on Foreign Relations, according to excerpts of his speech obtained by CNN. “We know Russia is actively seeking ways to circumvent these sanctions. … In fact, one of the ways we know our sanctions are working is that Russia has tasked its intelligence services – the FSB and GRU – to find ways to get around them.”
As Treasury Assistant Secretary for Terrorism Financing and Financial Crimes, Elizabeth Rosenberg, recently said, illicit Russian money can only come into the United States if gatekeepers facilitate its entry. Banks, fintechs, attorneys, real estate brokers, and family members and close allies who live in the West and aren’t sanctioned can all act as facilitators. Ergo, targeting these enablers is smart, and monitoring developments in that sphere is even smarter.
So what am I watching?
Azu International Ltd Sti in Turkey, which describes itself as a “wholesale trader of IT products,” according to Reuters, is shipping US computer parts to Russia. The company is not on the SDN list, nor have I found it on the BIS entity list… yet. But given the reporting about it helping Russia obtain prohibited technologies, that is one company, along with its founder, Turkish businessman Gokturk Agvaz, I would be keeping an eye on. Agvaz also manages a wholesaler of IT products in Germany called Smart Impex GmbH, which before Russia invaded Ukraine, shipped US and other products to a Moscow customer that recently has imported goods from Azu International.
Another company I’m watching is Hong Kong-based Pixel Devices, Ltd., which lists Russian Vitaly Zubov as one of the key principals in the firm. Reuters did its homework about this company.
A Reuters journalist who visited Pixel Devices’ office in a Hong Kong business tower found a small room with cardboard boxes stacked to the ceiling, and no employees. There was little sign that the company has shipped at least $210 million in electronics to Russia since April 1, including at least $50 million in Intel and AMD products through Oct. 31, according to Russian customs records.
Company records show that Pixel Devices was incorporated in 2017 by a Hong Kong firm called Bigfish Investments Ltd, controlled by Kirill Nosov, a Hong Kong resident with a Russian passport. Nosov told Reuters in an email that he helped set up the firm but doesn’t work for it and isn’t in a position to comment about its activities.
Pixel Devices’ current owner is a Singapore company, Asia Global Neolink Pte Ltd, which in turn is owned by a Seychelles company called White Wings Ltd, according to Hong Kong and Singapore company records. Pixel Devices’ only director at present is Pere Roura Cano, a Spaniard, who is also listed as a director of Asia Global Neolink and runs an aviation club in Catalonia. Reached by telephone in Spain, Roura Cano confirmed that Pixel Devices has been shipping semiconductors and other products to Russia.
On the financial side, Raiffeisen Bank International is currently on OFAC’s radar. The bank confirms that it received a request from Treasury last month to "clarify payments business and related processes maintained by RBI in light of the recent developments related to Russia and Ukraine."
Compliance officers should already have been keeping a close eye on Raiffeisen. It has had a slew of compliance issues in the past, and is not exactly known to be squeaky clean.
The Austrian Financial Market Authority (FMA) last year imposed a fine of EUR 100,000 against a Raiffeisenbank Altenmarkt-Flachau-Eben eGen for two violations of the Financial Markets Anti-Money Laundering Act.
Raiffeisen was fined €2.7 million in 2018 by the FMA for a violation of due diligence requirements for the prevention of money laundering and terrorist financing. The fine was later annulled by the Austrian supreme court.
Raiffeisen continues to transact in Russia, despite the war Putin is waging on Ukraine, and has been linked to money-laundering allegations.
In Austria, Raiffeisen Bank International’s predecessor “ignored suspicions” that should have triggered reports to the authorities, thereby abetting the money laundering linked to the Magnitsky case… The filing lists payments totaling $634 million that went from accounts at Lithuania’s Ukio Bankas and Danske Bank’s Estonian unit to accounts at Raiffeisen Zentralbank Oesterreich AG, then the main owner of Raiffeisen Bank International.
Press reporting last year also revealed that certain companies in China have been helping Russia’s military. Thirty-six companies were added to the Entity List in response, but I would guarantee that more will be blacklisted as regulators crack down on facilitators, especially if China begins sending lethal weapons to the Russians in support of their war in Ukraine.
The EU is currently discussing whether to sanction Dubai-based shipping company, SUN Ship Management Ltd, which is suspected of helping Russia circumvent restrictions on oil exports. The company probably took ownership of a fleet of Russian oil tankers that were no longer allowed to ship oil because of sanctions on Russian-owned entities from Sovkomflot in April 2022, and since SUN is not designated, the vessels to continue operating and shipping Russian oil.
Third countries should also be on everyone’s monitoring list. Armenia’s trade with Russia has doubled since the war began, Kyrgyzstan’s trade tripled, and trade with Turkey and Kazakhstan has also increased. The European Bank for Reconstruction and Development believes that circumvention of western sanctions is at least in part responsible for the significant increases in trade with Russia. These jurisdictions are definitely ones to watch, in addition to Hong Kong and the UAE, where Russians have been flocking with investment money and the usual suspects like Iran, which is using a fleet of ghost ships to carry Russian oil.
And this is just the tip of the iceberg.
Do I think all these companies will be sanctioned or at least restricted by the United States and its allies? Probably not. But monitoring these developments is critical, because even if these companies and jurisdictions are not penalized for helping Russia, transacting with them can cause significant reputational damage.
I doubt any company wants to be known as helping the Russians slaughter Ukrainians and being partially and indirectly responsible for helping prolong the war.
Sanctions evasion using US commercial real estate is also on the radar. As I wrote a few weeks ago, FinCEN issued an alert about sanctioned Russian elites, oligarchs, and their proxies investing in US commercial real estate. I have no doubt that regulators will not look kindly on firms that do not perform robust due diligence on potential purchasers.
Monitoring developments is critical, and I would hope that US firms and financial institutions understand the importance of having a comprehensive compliance program that track these issues. The issues become more challenging, as companies are expected to track ownership and control, which is sometimes tangled in webs of shell and front companies, know their end-customers, and anticipate possible upcoming new designations, especially during anniversaries or in the wake of discovered further atrocities committed by Russia.
Remember last year, when two Russian banks—Sberbank and Alfa Bank—were initially facing financial restrictions when Russia’s invasion began, but were included on the SDN list after Russian atrocities were discovered in the Ukrainian city of Bucha just a few weeks later? Regulations can change quickly, and the fog of war will result in possible adjustments.
US persons and companies need to monitor the situation in Ukraine carefully. It’s not like they haven’t been warned numerous times.
Exactly, and a LOT of work to separate the 'wheat from the chaff' so to speak. It's a never ending battle of wits.
The 'web' of Pixel Devices ownership/control is a perfect example of how the real 'owners' are hidden from regulators and public. And as you say, the tip of the iceberg... sigh...