In recent years, the international community has intensified sanctions against Russia and Belarus, with the European Union, UK, US, and other G7 countries expanding multilateral sanctions.
According to Moody’s, this includes not only listing individuals but also employing broader strategies like sanctioning vessels and aircraft, signalling a robust commitment to thwarting sanctions evasion and punishing non-compliance.
Since 2022, the scope of financial sanctions has widened, encompassing stringent export controls. The G7’s introduction of the “Common High Priority List” (CHPL) marks a significant step, categorising various goods with assigned HS codes to prevent their export to Russia and Belarus, reflecting a focused strategy to impede war efforts.
In response to rising risks of evasion, the US Department of Commerce’s Bureau of Industry and Security (BIS) and the Financial Crimes Enforcement Network (FinCEN) have urged financial institutions to heighten vigilance against potential Russian and Belarusian export control evasion attempts since June 2022. This has led to reinforced sanctions compliance frameworks within these institutions, emphasizing the importance of due diligence for goods listed under the CHPL to ensure they do not reach proscribed destinations.
However, the introduction of the CHPL presents unique challenges for financial services, which traditionally focus on screening customers and transactions rather than products. This shift requires new strategies for due diligence and compliance, extending beyond the financial sector to businesses managing supply chains and vendor risks.
Moody’s has developed data and technology solutions that assist both financial institutions and other businesses in conducting thorough due diligence on entities dealing with goods listed on the CHPL, facilitating more informed risk-based decisions and compliance with sanctions regulations.
Efforts to combat sanctions evasion have also diversified, involving regulations like the EU’s Article 5r, which mandates reporting for transactions exceeding €100,000 to Russian-owned entities. The UK has similarly tightened its controls with the Economic Crime and Corporate Transparency Act of 2024, enhancing transparency in company ownership and thus reducing evasion through corporate obfuscations.
Furthermore, the OFSI has flagged an increase in Russian sanctions evasion, pointing out that intermediary countries like the British Virgin Islands and the United Arab Emirates are frequently utilised for such purposes. These tactics range from the misuse of luxury goods and artworks to obscure financial transactions, to exploiting old vessels for transporting sanctioned commodities like Russian oil.
Cryptocurrencies have also been highlighted as a tool for sanctions evasion, with the FATF and OFSI noting an increase in the use of digital assets to circumvent traditional financial systems and maintain control over illicit funds.
As sanctions evasion becomes more sophisticated, it presents a spectrum of challenges from legal loopholes to outright illegal activities, requiring robust compliance frameworks to address these complexities effectively. The EU Commission differentiates between “circumvention,” where actions appear legal but aim to evade sanctions, and “undermining,” which directly negates the effects of sanctions.
The evolving sanctions landscape underscores the importance of adaptive compliance strategies and rigorous due diligence to mitigate risks and maintain regulatory integrity in a complex global environment.
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