Disabling the Enablers of Sanctions Circumvention

Acknowledgement

In recent years, the Organized Crime and Corruption Reporting Project (OCCRP) and its partners have published dozens of investigations about the professionals hired by Russian individuals to help them avoid the reach of sanctions. To extract the relevant policy lessons from this body of reporting, OCCRP partnered with RUSI’s Centre for Finance and Security to conduct the analysis contained in this brief. The collaboration is funded by the UK Foreign, Commonwealth & Development Office.

Introduction

Following Russia’s full-scale invasion of Ukraine in February 2022, an international coalition of Ukraine’s allies deployed a wide range of sanctions as a core pillar of its response. These sanctions regimes have focused on efforts to restrict the funding and resourcing of the Russian military. However, President Vladimir Putin’s kleptocratic government also relies on an inner circle, which has been rewarded for its loyalty with tremendous wealth. These individuals have also been targeted by sanctions, with bank accounts and trophy assets, such as yachts, being frozen. In anticipation of being sanctioned – or subsequent to designation – these individuals have sought out professional services to construct complex mechanisms for hiding their assets and avoiding the full impact of the sanctions.

A critical element of the response to this evasion 1 activity is the work of investigative journalists, including those of the Organized Crime and Corruption Reporting Project (OCCRP), which has uncovered information – such as that revealed in the ‘Rotenberg Files’ and ‘Cyprus Confidential’ project 2 – about how these entities and individuals respond, and about the circumvention services they employ.

While policymakers have been focused on designing and issuing sanctions packages, historically less focus has been placed on tackling evasion activity, particularly in Europe. Analysing the reporting by OCCRP and others can provide insights into the tactics employed by those seeking to evade sanctions and thus can offer valuable guidance on how to respond in the Russia context and beyond. As this Policy Brief reveals, one critical response to the widespread problem of sanctions circumvention is to disable the professional ‘enablers’ of such circumvention.

This brief analyses a sample of over 100 relevant recent investigative reports, by OCCRP and other media outlets, on Russian and Belarusian individuals and entities who have been aided by professional service providers in their attempts to circumvent sanctions; as well as official US, UK and EU actions taken against professional enablers and their services since the full-scale invasion of Ukraine in February 2022. Using this evidence base, and with an audience of policymakers in mind, this brief identifies common mechanisms by which professional service providers facilitate sanctions evasion and makes recommendations as to how policymakers can work together to minimise the use of professional service providers to circumvent sanctions.

The Enablers

With Russia’s war in Ukraine entering its third year, and with no military resolution appearing imminent, sanctions – and their effective implementation – will remain a key part of the response to this illegal and unprovoked aggression. At the same time, those targeted by sanctions will inevitably attempt to thwart their impact by exploiting loopholes. Targeting the enablers of this evasion activity will be a critical front in ensuring sanctions are as effective as possible.

The ‘enablers’ are professionals who often hide behind a veil of white-collar respectability while providing their clients with services to help them hide, move and invest illicit wealth. These services are frequently provided by lawyers, trust and company formation agents, investment advisers, money managers, real-estate professionals, art and antiquities dealers, and accountants. They can also, as described below, be ‘one-stop-shop’ consultants. The involvement of these enablers falls across a spectrum: at one end sits wilful blindness (for example, choosing not to identify the ultimate beneficiary of opaque financial transactions); and at the other are those that offer active collusion (deliberately hiding and moving assets for Russian oligarchs) by exploiting jurisdictions with lax regulatory oversight and using networks of agents across offshore financial centres.

However, it would be a mistake to focus too much on the type of profession because, as this Policy Brief demonstrates, in practice many enablers from different professional backgrounds perform the same types of services for their clients, such as shell company formation, to take one example.

Enablers also vary in their level of sophistication. For instance, certain service providers in what is often called the ‘wealth defence industry’ not only create the front-end financial vehicles and offer the asset and legal services necessary to obscure their client’s wealth, but also provide the critical back-end services to contest and attack regulators and the media.

Although the primary focus of this brief is non-bank enablers, which have in the past escaped the kind of regulatory oversight and enforcement that traditional financial institutions have been subjected to, it is critical to acknowledge that banks and elite lenders continue to manage money for clients who are at risk of being sanctioned.

The Services

As a result of the wide range of services provided by the enablers identified through OCCRP and other investigative reporting, as well as the relevant literature, this Policy Brief interprets the term broadly and has identified the following typologies of activity.

Hiding Wealth

1. Playing the shell game: Oligarch ownership is obscured through convoluted corporate structuring that uses shell companies, trusts, nominee directors and the shifting of assets to offshore jurisdictions, including via cryptocurrencies, loan forgiveness schemes, convertible promissory notes and the use of opaque investment vehicles. One example of this behaviour was exposed by the recent Cyprus Confidential investigation, which revealed that Russian oligarch Roman Abramovich held an estimated $2 billion in assets and cash across Credit Suisse, UBS and Barclays. Abramovich’s ownership of blue-chip US stocks, which were used as collateral for bank loans, had been obscured via offshore companies, trusts and complex corporate structures arranged by the Cypriot corporate service provider, MeritServus. In another example from June 2022, the US Treasury Department blocked a Delaware trust holding over $1 billion in assets linked to oligarch Suleiman Kerimov. Although the trust was formed in 2017 and Kerimov was sanctioned in 2018, it took four years for the trust to be identified as blocked. According to the US Treasury’s press release, ‘Kerimov used a complex series of legal structures and front persons to obscure his interest in [the trust]’. The trust funds were in turn invested in large US companies and ‘managed by a series of U.S. investment firms and facilitators’.
2. Keeping it in the family: To avoid detection, enablers often register companies, assets and trusts in the names of relatives or trusted proxies of their clients, as well as using relatives or associates as directors. Investigative reporting has revealed this to be a common typology, with examples including: Russian oligarch Alisher Usmanov’s sister, a gynaecologist, listed as the beneficial owner of 27 Swiss bank accounts; Boris Rotenberg's bodyguard and Arkady Rotenberg’s girlfriend holding valuable assets; and Alexander Mashenski restructuring ownership of his Belarusian fishing business to benefit his daughter, two months after the invasion of Ukraine. Another high-profile proxy that was exposed through investigative journalism is Eric Whyte, a Canadian and Cypriot citizen, who appears to have no business activities outside the network of offshore companies he allegedly controls – offshore companies connected to assets worth approximately $130 million. OCCRP reporting suggests that the beneficial owner of Whyte’s empire is actually Andrei Kostin, a sanctioned Russian banker with strong ties to Putin.
3. Leveraging networks: Enablers employ connections to other money-laundering networks or organised crime. Although they attempt to maintain a veneer of respectability, some enablers are not above working with professional money launderers and criminals. In a sweeping action against sanctions evasion, the US Treasury Department sanctioned Georgios Georgiou for his role in laundering money for ‘criminal organizations, corrupt businessmen and Russian oligarchs’ by using a variety of creative schemes to obscure the beneficial ownership of funds. In its press release, the Treasury noted Georgiou’s provision of services to another sanctioned enabler and founder of a ‘private equity and corporate structuring entity heavily involved in moving Russian finance into the UAE and money laundering’.

Maintaining Control

1. Pass the parcel of assets: Once the source of funds is obscured through shell companies, trusts and investment vehicles, they are invested by the professional enabler (either the same enabler who created the vehicle or a more specialised facilitator such as a real-estate professional). The funds are channelled into desirable assets including shares, real estate, artwork, yachts, jets and other luxury goods, such as precious metals and stones. OCCRP’s investigation into the Russian oligarch brothers Boris and Arkady Rotenberg, ‘The Rotenberg Files’, has revealed complex investment vehicles, corporate restructures, asset transfers and property schemes involving numerous proxies and permissive jurisdictions, such as the British Virgin Islands and Cyprus, all coordinated by a network of international professional service providers and designed to preserve the brothers’ financial empire and maintain their control over real estate, yachts and companies.
2. Owning 49%: Diluting ownership stakes to avoid certain thresholds, such as those that trigger share reporting or financial sanctions, allows the effective control of assets by oligarchs to remain undetected or outside the requirement to freeze those assets. This tactic is often used by enablers in combination with other sanctions-evasion typologies, such as ‘keeping it in the family’, ‘pass the parcel of assets’, or ‘playing the shell game’, to maintain hidden ownership or control. For example, OCCRP investigative reporting in 2022 revealed how, at that time, Usmanov maintained a 49% stake in his main business conglomerate, while the remainder was held by a range of opaque offshore companies and business associates.

Thinking Globally

1. Shopping around: Jurisdiction shopping to take advantage of a lack of sanctions, a delay in sanctions or lax regulatory oversight is one of the most common tactics used by enablers to avoid these measures. OCCRP’s ‘Russian Asset Tracker’ reveals a profusion of oligarch mansions, yachts and planes located in offshore financial centres, such as Bermuda, the Cayman Islands, Cyprus, Dubai, Luxembourg, Switzerland, the British Virgin Islands and the Isle of Man. Moreover, recent investigative reporting into large leaks of financial documents, such as the FinCEN files, Panama Papers and Suisse Secrets reports, all bear the classic hallmark of oligarchs using offshore entities to hide their international assets. The Rotenberg Files further reveal how mismatches between the US, EU and UK sanctions against the brothers and their family members allowed them to exploit those differences. While both brothers were sanctioned by the US in 2014, the UK and the EU did not sanction both until years later. For cunning and well-resourced oligarchs, that sort of time lag is a major window of opportunity.
2. Passport to financial freedom: Enablers often take advantage of the multiple passports of their clients and their clients’ family members to unlock access to favourable jurisdictions. Investigative reporting has identified the Finnish citizenship of Boris Rotenberg and the US citizenship of his wife. Abramovich is a citizen of Israel and Portugal, in addition to Russia. Members of the powerful Vorobyev family are citizens of Israel, Latvia, Singapore and Monaco. If their clients do not already possess useful passports, enablers also facilitate the purchase of citizenship in a preferred jurisdiction. As OCCRP reported in February 2023, five of the 10 people sanctioned by the US for operating a Russian arms sanctions-evasion network acquired EU citizenship through Cyprus’s notorious ‘golden passport’ scheme.

Deflecting Scrutiny

1. On the front foot: Many enablers offer a one-stop shop, not only constructing the vehicles necessary to shield their clients’ assets from international scrutiny; but also negotiating or aggressively dealing with regulators, compliance officials and journalists who take an interest in their clients’ affairs. An OCCRP report into data leaked from the boutique Swiss investment firm Finaport Holding shows a client list that included dozens of politically exposed persons, among them Russian oligarchs. Correspondence published by OCCRP demonstrates how Finaport employees actively circumvented compliance procedures and forcefully pushed back against due diligence requests from banks, dismissing concerns and threatening to remove their clients’ accounts.
2. Spin and suits: In addition to playing defence, some enablers play offence by deploying global public relations strategies and international lawfare against governments, regulators and the media. For instance, in October 2022 The Intercept reported that Yevgeny Prigozhin, then-leader of the mercenary Wagner Group, had recruited UK and US legal firms to challenge international sanctions against him and to sue journalists who had investigated his business dealings. The detrimental impact of such strategic lawsuits against public participation (SLAPPs) is immense, with OCCRP revealing in 2023 that journalists and media outlets in its global network were battling over 60 lawsuits filed by the subjects of their investigations.

Being Prepared

1. Staying one step ahead: With all risk-management strategies, the best outcome is to avoid exposure entirely. Thus, the most accomplished professional service providers engage in all typologies of sanctions-avoidance activity before their client is even sanctioned. For example, OCCRP and the International Consortium of Investigative Journalists investigative reporting has revealed that, in the days after the invasion of Ukraine, PwC Cyprus facilitated the transfer of millions of dollars between anonymous shell companies on behalf of as yet non-sanctioned Russian oligarch clients. Similarly, shortly before sanctions were imposed on Roman Abramovich, leaked files demonstrate that trusts holding billions of dollars in assets were amended to transfer beneficial ownership to his seven children.

Conclusion and Recommendations

As illustrated by the reporting and analysis presented in this brief, fundamental policy and practice gaps continue to allow enablers to help their clients improperly protect their assets and interests from sanctions. To address the range of activities highlighted above, policymakers should take the following steps, which will also strengthen sanctions implementation beyond the Russia context:

1. Establish deterrence: Enforcement actions against professional enabler networks that violate existing laws and designations against those that operate in lax jurisdictions must be increased. The EU and the UK lag the US when it comes to designations of, and criminal and civil enforcement against, professional enablers. The chilling effect of US and UK designations against Cypriot enablers in April 2023 should be replicated, while more criminal prosecutions should be brought against those who continue to break the law, following the example of the US Department of Justice’s Task Force KleptoCapture, and greater use should be made of the multinational REPO Taskforce. Currently, being a professional enabler in the UK and the EU is low cost and high reward, with few to no consequences. This is critical as professional enablers serve as nodes for sanctions evasion and can cater to multiple sanctioned clients.
2. Enhance coordination: Better coordination of sanctions designations across likeminded jurisdictions is required to improve compliance. Although significant strides have been made in multilateral coordination between the US, the UK and the EU, and other likeminded jurisdictions, significant differences in sanctions designations remain, as shown by the Atlantic Council’s Russia Sanctions Database. At the same time, this brief demonstrates that jurisdictional arbitrage is one of the most popular methods for avoiding the bite of sanctions, and that lags in the imposition of sanctions provide legal cover to enablers taking advantage of differences in timing to move and hide oligarch assets.
3. Take a ‘network’ approach: Sanctions must be imposed on an oligarch’s entire network simultaneously to minimise opportunities to shift assets to family members and associates. Any delay facilitates evasion. The use of family members, such as children, romantic partners, and even low-level associates, like bodyguards or school friends, continues to be a top sanctions-evasion and -avoidance method. Abramovich’s transfers to his children are a case in point. While it is standard in US sanctions programmes to include spouses and adult children, the EU only expanded its sanctions programme to cover immediate family members in mid-2023. But loopholes – such as the use of minors who are unlikely to be sanctioned for legal and policy reasons – persist and should be addressed by, for example, blocking assets that have been transferred to them in an apparent effort to avoid sanctions.
4. Publicise blocked property: A lack of information about ownership impedes effective private sector implementation. To enhance private sector enforcement, allies should consistently and publicly identify any property, such as real estate, yachts and artwork, or legal arrangements, such as trusts, in which the sanctioned person has an interest. As described above, particular attention should be paid to any assets that may have been transferred to family members and associates to shield them from sanctions.
5. Harmonise ownership and control sanctions rules: Harmonisation of the sanctions rules on 50% ownership and control across the US, the UK and the EU is required to enhance multilateral sanctions enforcement. Additionally, the US should expand its ‘50% rule’ to encompass a control standard as lowering ownership of entities to just below the 50% threshold while maintaining control through proxies continues to be a favoured tactic used by oligarchs and their enablers.
6. Close regulatory loopholes: Loopholes in the regulation and supervision of professional enablers facilitate sanctions circumvention and evasion. The US, in particular, needs to pass legislation or in certain cases finalise proposed rules imposing anti-money-laundering obligations on those who provide certain financial or related services, including those who incorporate or register companies, form trusts, manage money or other assets, are involved in real-estate closings and settlements, advise on investments, or are engaged in the trade or sale of works of art or antiquities. Those who fail to comply should face more actively applied civil and/or criminal penalties and, as appropriate, the suspension or revocation of licences, along with other disciplinary actions. The UK and the EU should focus on making their existing supervisory regimes more effective and on following through with enforcement to act as a genuine deterrent.
7. Focus on services: As enablers do not adhere to neatly defined professional roles, neither should efforts to regulate them. To avoid inadvertently creating loopholes, legislation and regulations should follow the example of the proposed US ENABLERS Act by focusing on the services provided by enablers across various professions, such as setting up companies and trusts, serving as nominee directors and managing assets.
8. Pressure enabling jurisdictions: The ability of certain jurisdictions to continue to offer sanctions-evasion services must be addressed. Pressure on enabler jurisdictions, such as Cyprus, the British Virgin Islands, the UAE and Türkiye must be increased to restrict evasion opportunities by designing clearer consequences for their actions. If such efforts are unsuccessful, allies must issue advisories on specific ‘enabler jurisdictions’, laying out the risks of doing business with them and should consider creating a designation category of ‘jurisdiction of primary sanctions evasion concern’.
9. Enhance scrutiny of visa and citizenship schemes: Further progress must be made in addressing the abuse of ‘golden passports/visas’ (or citizenship/residency) by investment schemes which are easily exploited by oligarchs and their enablers to shield themselves and their assets. Numerous oligarchs and enablers are reported to have benefited from these types of schemes. More broadly, visa bans should be used more frequently – and the listings publicised and coordinated between allies – to enhance travel restrictions on those who, whether or not in violation of local law, enable sanctions evasion and to highlight those enablers who represent a sanctions-evasion risk.
10. Develop more inclusive information sharing mechanisms: Investigative journalists and civil society have committed significant resources to revealing sanctions-evasion vulnerabilities and activities. Governments should systematically leverage this capacity by sharing unclassified information with accredited journalism organisations, civil society and the private sector to enhance investigations and compliance. They should also expand or create dedicated liaison and reporting channels for two-way information exchange that shield groups submitting information from legal or other threats.
11. Get serious about tackling SLAPP suits: The UK and the EU need to build on recent progress by ensuring that the UK’s anti-SLAPP bill is sufficiently broad and the EU’s anti-SLAPP directive is implemented properly by member states. Effective anti-SLAPP laws are essential to ensuring that the ‘wealth defence industry’ is not able to suppress investigative reporting by journalists and civil society that exposes kleptocrats and their enablers.
12. Continue to boost beneficial ownership and control transparency: Publicly accessible, central and verified beneficial ownership registries that encompass the full gamut of legal entities and arrangements are indispensable to combating sanctions evasion. Key global centres, such as the British Virgin Islands, must be provided with the analytical resources they need, and journalists and civil society actors must be granted access to such registries to allow them to leverage the information in their investigations, thus serving as a resource for overextended governments. Governments too must upskill law enforcement and other investigative authorities on how to make use of beneficial ownership information.

As Russia’s illegal war in Ukraine grinds into its third year and the range of sanctions targets dwindles, curtailing evasion activities must be a heightened focus for Ukraine’s allies. As this Policy Brief has shown, central to this mission should be an active campaign to disable the enablers which have been revealed by investigative journalists to be, knowingly or unknowingly, facilitating evasion by exploiting loopholes and using a range of obfuscation tactics.