By Kharon Staff
March 9, 2022
Less than two weeks since U.S. and western allies began imposing sanctions and export controls against the Russian government for its invasion of Ukraine, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued an alert “advising all financial institutions,” including money services businesses and cryptocurrency exchanges, to “be vigilant” against potential sanctions evasion activity.
FinCEN’s advisory takes into consideration risks associated with sanctioned Russian financial institutions, state-owned enterprises, and oligarchs, as well their family members and related networks or facilitators. The U.S. advisory also notes the increased threat of Russia-related ransomware campaigns that have utilized illicit virtual currency exchanges, as highlighted in recent U.S. government sanctions.
Red Flags: FinCEN’s recent alert calls attention to several “Red Flag indicators” that Russia, and related parties, may use to evade sanctions, to include:
- Use of corporate vehicles and shell companies to obscure ownership, source of funds, or for international wire transfers
- Use of third parties to shield the identity of sanctioned persons or to hide the origin or ownership of funds
- Opening or misuse of accounts in jurisdictions or with financial institutions experiencing a sudden rise in value of transfers
- Opening of new accounts that attempt to send or receive funds from a sanctioned Russian bank or those removed from the Society for Worldwide Interbank Financial Telecommunication (SWIFT)
- Non-routine foreign exchange transactions that may involve sanctioned Russian banks
- Transactions connected to virtual currency addresses listed by OFAC
- Use of virtual currency exchanges or MSBs in high-risk jurisdictions
Why This Matters: According to FinCEN, Russian sanctioned persons may seek to evade western sanctions through a variety of means, to include facilitating trade and anonymizing their activities through non-sanctioned financial institutions, front companies, and non-sanctioned businesses and associates outside of Russia. The U.S. advisory also calls on financial institutions to “consider how the use of innovative tools and solutions may assist in identifying hidden Russian and Belarusian assets.”
Expanded Risk In Focus: Alexei Aleksandrovich Mordashov
- Recently sanctioned Russian oligarch Alexei Aleksandrovich Mordashov holds a majority stake in export companies based in Europe, Asia, and the U.S. through his ownership of Severstal PAO in Russia, according to corporate records and publicly available financial disclosures reviewed by Kharon.
- Mordashov owns more than a 50 percent stake in holding companies registered in Cyprus that in the aggregate own a majority of Severstal PAO. None of these companies are sanctioned.
- On February 28th, Mordashov was sanctioned by the European Union for “benefiting from his links with Russian decision-makers” responsible for the annexation of Crimea and the destabilization of Ukraine.