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State of Financial Crime 2023 Report

US Charges Associate Of Sanctioned Oligarch for Sanctions Evasion and Money Laundering

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The US Department of Justice (DOJ) has indicted Russian citizen and US resident, Vladimir Voronchenko, for facilitating a sanctions evasion and money laundering scheme connected to the assets of Russian oligarch Viktor Vekselberg. According to court documents, the defendant is a known close friend and business associate of Vekselberg who was initially sanctioned in 2018 following his alleged interference in the 2016 US presidential election. 

Before Vekselberg’s designation by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), the oligarch acquired multiple US properties worth approximately $75 million through a series of shell companies. Following the acquisition, Voronchenko retained an attorney to manage the financial affairs of the properties, including the payment of taxes and other fees using US dollar transactions from the attorney’s trust account.

Following Vekselberg’s designation in 2018, the source of the funds (SoF) used to maintain the properties was altered and the attorney’s account began to receive wire transfers from international bank accounts and shell companies controlled by Voronchenko and one of his relatives. No licenses from OFAC were applied for or issued for these attempted transfers. 

As a result, Voronchenko has been charged with conspiring to violate the International Emergency Economic Powers Act (IEEPA) and conspiring to commit international money laundering. The defendant has also been charged with contempt of court in connection with his flight from the US following a grand jury subpoena that required his personal appearance and testimony in May 2022. 

Financial red flags involving commercial real estate

On January 25, the Financial Crimes Enforcement Network (FinCEN) issued an alert to all financial institutions regarding potential investments in the US commercial real estate (CRE) sector by sanctioned Russian elites, oligarchs, and their proxies. The alert provides firms with guidance on identifying sanctions evasion activity in the CRE sector by providing potential financial red flags and typologies related to this activity. In addition to explaining the role of shell companies and trusts to conceal beneficial ownership structures, FinCEN highlights:

  • The use of a private investment vehicle that is based offshore to purchase CRE and includes politically exposed persons (PEPs) or other foreign nationals (particularly relatives and close associates (RCAs) of sanctioned Russian elites and their proxies) as investors
  • Customers that decline to provide information about the ultimate beneficial owners or controllers of a legal entity or arrangement
  • Ownership of CRE through legal entities in multiple jurisdictions (often involving a trust based outside the US) without a clear business purpose
  • Transfers of assets from a PEP or Russian elite to a family member, business associate, or associated trust in close temporal proximity to a legal event such as an arrest

When filing a suspicious activity report (SAR) relating to the activities highlighted in this alert, FinCEN requests that firms include the term “FIN-2023-RUSSIACRE” in SAR field 2.

OFAC compliance program guidance 

In 2019, OFAC released guidance on how to build a risk-based sanctions compliance program. The framework notes that while each sanctions compliance program will vary depending on a variety of factors – such as the company’s size, services, and geographic location(s) – firms should incorporate the following components of compliance:

  • A commitment to ensuring compliance units have adequate resources and promoting a culture of compliance throughout the organization
  • Conduct routine or ongoing risk assessments to provide a holistic review of the firm and assess its touchpoints to the outside world
  • Ensure all policies and procedures effectively identify, block, escalate, report, and keep records about activity that OFAC regulations may prohibit
  • Continue to enhance the testing and auditing function, including all program-related systems, software, and other technology, to remediate any identified compliance gaps
  • Implement an effective training program that communicates the sanctions compliance responsibilities for each employee and holds employees accountable for sanctions compliance training through assessments 

Key takeaways

In light of this court case, compliance professionals should be aware that individuals attempting to evade sanctions will use creative methods to do so. To mitigate the risk posed by RCAs in particular, robust screening should take place at the beginning of the business relationship and periodically throughout the relationship. Ongoing monitoring is particularly important as firms must be able to react quickly should the risk exposure of an RCA or PEP change. 

Additionally, OFAC sanctions compliance requires staff to collect and analyze large amounts of data from various sources. Since managing this data manually is unfeasible and can lead to costly human errors, firms should seek to integrate suitable smart technology tools to help them achieve regulatory compliance.

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Originally published 16 February 2023, updated 17 February 2023

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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