REPO sets Sanctions Enforcement Priorities for 2023

One year ago, the Russian Elites, Proxies and Oligarchs Taskforce (REPO) was formed to co-ordinate sanctions implementation and enforcement as a response to Russia’s war of aggression in Ukraine.

Members of the taskforce, which include Australia, Canada, France, Germany, Italy, Japan, the United States, the European Commission and the United Kingdom have agreed a joint statement to highlight achievements to date and maintain international focus on enforcing sanctions on Russia.

REPO members also released a Global Advisory, to assist banks and the private sector on Russian sanctions evasion. The advisory identifies certain typologies of Russian sanctions evasion that will inform the enforcement priorities of regulators.

The typologies identified in the advisory include:

1. the use of family members and close associates to ensure continued access and control;

• Eg. sanctions risk related to arrangements that attempt to hide assets, obscure sanctioned interests, or otherwise evade scrutiny.  It is suggested that REPO members may seek to impose sanctions on the family members and close associates seeking to facilitate these types of arrangements.

2. the use of real estate to hold value, benefit from wealth;

• The use of proxies intermediaries, nominees or straw purchasers and/or opaque corporate structures including legal entities or trusts.

3. the use of complex ownership structures to avoid identification;

• Discusses the use of trusts as obscuring ownership structures and highlights risks associated with non-resident banking where transactions that involve shell companies registered in traditional tax havens conduct international wire transfers using financial institutions in jurisdictions distinct from the company’s registration;

4. the use of enablers to avoid involvement, leverage expertise;

• “Enablers” are said to include lawyers, accountants, as well as trust and company service providers and asset managers;

5. the use of third-party jurisdictions and false trade information to facilitate sensitive goods shipment to Russia.

• The use of freight forwarding businesses in third party jurisdictions to disguise Russia as the true final destination for goods.  Such evasions may rely on bill of lading information and other supporting documentation such as fraudulent trade finance information, to ensure the delivery of goods.

In addition, the advisory make a number of recommendations.  On one view these merely restate existing regulatory obligations, but the clear implication is that regulated entities have a positive duty to apply best practice, over and above the strict requirements of regulations:

• Ensure Compliance with National Rules Incorporating FATF Recommendations
• Ensure Compliance Program Implements Relevant AML/CFT Laws and Regulations and is Regularly Reviewed
• Take Part in Existing Public-Private Partnerships
• Leverage Information Sharing Protocols
• Update Risk Assessments
• Increase Awareness of Sanctions Risk and Its Impact for Non-AML/CFT Regulated Entities

Many regulated entities will consider this to be an appropriate point at which to review their own controls and risk assessments to ensure that they have, and can demonstrate that they have, taken those points to heart.

From a professional perspective, there is more than a hint from REPO’s advisory, that lawyers in particular are in the sights of the regulators. 

As will be familiar from the UK experience, the advisory conflates actions that are anticipatory of designation, with sanctions circumvention.  This analysis presents those who facilitate, what are acknowledged to be lawful asset transfers, as sanctions evaders. 

It might be hoped that a more joined-up approach by REPO would result in decisions to designate being reached in concert, thereby closing opportunities for expedient asset transfers, but with such a multiplicity of law-makers and local priorities engaged in the process, that is unlikely to happen.

Ironically, the analysis of professionals as sanctions enablers does not sit well with REPO’s plea that professionals and businesses on the frontline should engage pro-actively with regulators.  The response of most lawyers however, will likely be to carry on doing their best within a shifting regulatory framework.  In the UK, those obligations are likely to increase dramatically in April/May, when regulations on legal services which may mirror and perhaps extend the Commission’s restrictions on lawyers engaging in Russia-related transactional work are expected.

Once again, the regulators are playing all the right notes, but not necessarily in the right order.