Washington, D.C. (March 21, 2023) - The Russian Elites, Proxies, and Oligarchs (REPO) Task Force, which was established to enforce multi-national sanctions against Russia, issued an advisory on March 9, 2023, identifying common measures used to evade the interdiction efforts of the REPO Task Force. The REPO Task Force consists of the justice and finance ministries in Austria, Canada, Germany, France, Italy, Japan, the United Kingdom, and the European Commission. Through these new actions, the REPO Task Force has now moved to crack down on sanctions evasion schemes.

Use of Third-Party Proxies, Families, and Close Associates

Sanctioned individuals have used close associates and family members to control, access, and hide assets. The REPO Task Force reports that such action often occurs shortly after designation on sanctioned entities lists, though this type of diversion of assets can also be used to shelter sanctioned individuals and entities from regulatory scrutiny. The REPO Task Force warns that both the arrangements as well as the third parties are susceptible to sanctions for involvement in any scheme that either masks sanctionable activity or hides restricted assets.

Use of Real Estate Investment

Russian oligarchs have traditionally invested in foreign real estate, but the REPO Task Force has noted a significant increase in Russian real estate investment during the Ukraine conflict. The U.S. Financial Crimes Enforcement Network (FinCEN) reports that real estate purchases are used to launder funds to evade sanctions. Purchases are made through third-party proxies or through complex corporate structures that hide the property's beneficial owner. Typical money-laundering techniques, such as the use of offshore intermediaries and purchasing property below or above its market value, are a pattern in this type of sanctions evasion, as is leveraging citizenship programs though the purchase of property in countries known as sanctuaries for sanctioned individuals or entities.

Use of Complex Financial Structures

The REPO Task Force also identified the use of complex financial structures to evade sanctions. Trust arrangements are popular, along with any corporate entity structure that can be used to hide the beneficial owners behind owners of record. These schemes can involve fiduciaries, lawyers, and accountants. In some instances, even the beneficiaries are used to hide the true owners, which can be facilitated by using family members or close associates in the beneficiary structure. These structures, used to shield sanctions evasion from the eyes of regulators, often originate in tax or formation havens. The REPO Task Force warns that additional scrutiny should be imposed on any non-resident banking transaction in which companies engage in wire transfers using financial institutions outside of the company's place of registration.

Use of "Enabler" Accountants, Lawyers, and Trust and Corporate Service Providers

The REPO Task Force also labels traditional corporate and transactional professionals as potential "enablers." The Task Force reports that accountants, lawyers, and trust and corporate service providers assist sanctioned individuals by leveraging their professional access and participation in the financial system to allow sanctioned individuals to retain wealth and evade restrictions. By opening bank accounts, moving funds, and creating corporate structures, these professionals act for the sanctioned individuals, who are prohibited from interacting with the international financial system. The REPO Task Force notes that in addition to these professionals, investment professionals also consolidate investments from high-net worth individual or institutional investors for placement into private funds to keep ownership secret and evade sanctions enforcement.

Circumvention of Export and Trade Controls to Facilitate Transfer of Sensitive Goods Into Russia

The advisory also calls out efforts to bypass the prevention of importing sensitive goods, used to supply the Russian war effort, into Russia, including the use of fraud in shipping, trade finance, and import/export documentation. A typical technique includes using a freight forwarding business located in a third-party jurisdiction as the final destination of the goods and then diverting the goods from that point to Russia.

REPO Task Force's Recommendations

The REPO Task Force reminds government regulators to continue to enforce compliance with the Financial Action Task Force (FATF) recommendations, as implemented in their jurisdictions. Of particular importance to the REPO Task Force is instituting appropriate risk mitigation measures to prevent illegal financial activity, such as the use of shell companies or proxies. Similarly, the REPO Task Force recommends implementation of best practices and compliance with the Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) laws and regulations, even if an entity is not specifically regulated under AML/CFT.

Conclusion

Drawing from the vast experience of the various law enforcement agencies involved in the interdiction of criminal activity across borders, the REPO Task Force is successfully leveraging the multilateral relationships between its members and third-party jurisdictions. This expertise and vast network cannot operate alone, and the REPO Task Force's recommendations seek further extension into the private sector of its sanctions enforcement efforts. While not all offshore transactions or financial activity of family members and close associates are attempts at sanctions evasion, any compliance program should carefully vet the use of proxies. Financial professionals and attorneys should also take care to avoid committing sanctions violations and be wary of the traditional fraudulent schemes identified by REPO.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.