A “red alert” issued by the Joint Money Laundering Intelligence Taskforce (JMLIT) outlines the expectations of UK regulators and enforcement bodies on the interrogation that firms should carry out on data provided by businesses with links to Russian sanctions targets.
The announcement came after the National Crime Agency last month arrested at least 10 individuals, including lawyers and security industry workers, suspected of helping “designated persons” (DPs) to evade sanctions.
The taskforce warned that DPs are using associates, including family members and close contacts, to transfer assets to trusted “enablers” such as relatives or employees - and to sell or transfer those assets at a loss in order to realise their value before sanctions take effect.
DPs were also trying to divest investments to ensure ownership stakes are below the 50% threshold for an asset freeze to bite on a non-DP, or relinquish previous controlling stakes. Simply conducting sanctions screening and relying on what a Russian counterparty tells you about a divestment/relinquishment may not be enough given the tough stance that has been adopted.
The JMLIT assesses enablers’ level of complicity at three common levels: criminally complicit; wilfully blind; and unwittingly involved. It said enablers may seek to circumvent sanctions by obstructing other parties from carrying out necessary due diligence checks to meet their own sanctions obligations. This could include misrepresenting entities that are owned or controlled by a DP, or by adopting overtly aggressive and litigious strategies to deflect from a DP’s underlying ownership and control.
The JMLIT said DPs will seek to transfer assets and funds directly and indirectly to jurisdictions where sanctions are not in place, such as the UAE, Turkey, China, Brazil, India and the former Soviet Union - excluding the Baltic States and Ukraine.
Divestment of interests in companies by sanctions targets to below the 50% threshold should not be taken at face value. A failure to challenge or validate data and assertions made on the application of sanctions could be considered a red flag for complicity in sanctions evasion, or a breach or circumvention.
Those provided with legal assessments by businesses with Russian touchpoints on the application of sanctions, and the validity of continued dealings, are recommended to obtain their own legal assessment.
If you find yourself dealing with a counterparty that has recently undergone a divestment to get ownership of a sanctioned person below 50%, or is currently doing so, you should take reasonable steps to satisfy yourself that the transaction is not a sham transaction where the sanctioned person still indirectly controls the company through proxies.
The role of specialist business intelligence research cannot be underestimated. Companies do not want to be seen to be wilfully blind, and in higher risk engagements standard due diligence checks will likely not be enough to ensure that all potentially relevant information is identified that may suggest a transaction is a sham.
Companies should ensure that their lawyers and compliance teams work alongside business intelligence experts to adopt a jointly coordinated approach to assessing the counterparty and the risk that it remains controlled by someone who is sanctioned.