A significant number of sanctions against Russia following the commencement of military operations on Ukrainian territory have predictably led to an increase in schemes aimed at evading them from Russia's side. As a result, the USA and the EU have begun actively developing practices to expose Moscow's adaptation strategies to these new restrictions. Ivan Timofeev, a sanctions specialist, examines the main «red flags» that sanction initiators focus on as indicators of Russia's efforts to circumvent them.
Prior to the onset of the Russian military operation in Ukraine, investigating sanctions violations in relation to Russia was not a top priority. However, over the past year and a half, this practice has grown noticeably.
«Relevant state agencies of the USA, EU, and other sanction initiators are developing practices to uncover schemes that bypass sanctions. They identify typical signs of such attempts and compile the experience of Russia's adaptation to new restrictions. This presents a classic scenario of 'arms and armor' confrontation, where increased pressure leads to the search for ways to adapt to it. The initiators take into account the adaptation experience to optimize the pressure», writes Timofeev.
Nevertheless, according to the expert, this confrontation with Russia is unlikely to last long. Instead of attempting to circumvent sanctions at the risk of criminal prosecution, the Russian business sector will more likely shift to friendly jurisdictions, minimizing interactions with Western counterparts.
Regulators from Western nations actively involved in pressuring Russia with sanctions have issued a series of documents that generalize the experience of combating sanctions evasion and provide specific recommendations for preventing such deals. Summarizing this information, Timofeev highlights a series of «red flags» that sanction initiators consider as indicators of evading restrictive measures or at the very least, suspicious transactions.
One such indicator is the involvement of individuals or organizations from countries that have not imposed sanctions against Russia in a transaction. It is through these countries that sub-sanctioned goods often enter the country. Special attention is given to small banks and firms, which collaborate much more actively with Russia than larger companies that have markets in the West and are cautious about any ties to Moscow. Additionally, Western regulators take note of the date of a company's registration or the period of its activation. Companies established after February 2022 are highly likely to be intended for operations with Russia. The same scrutiny extends to a company's digital footprint. The absence of a website or a recently created website could indicate that the company was set up to circumvent sanctions. Finally, particular attention is paid to companies conducting operations with dual-use goods, especially in electronics and certain other high-tech niches.
Another group of indicators highlighted by Timofeev is related to the nature of transactions. For instance, attempts to break down a transaction into numerous smaller deals or excessive complexity in deliveries signal that a company is either attempting to conceal the volume of funds being transferred or has a large number of intermediaries. Both of these characteristics are potentially exploited in Russian measures to evade sanctions.
Another category of indicators revolves around the distortion of transaction information or counterparty data. These distortions encompass altering contract dates, concealing information about the ultimate user, substituting product codes, embedding sanctioned items within those not covered by sanctions, manipulating details about individual components within a product, attempting to tamper with tracking devices and systems that monitor the movement of goods and vehicles, as well as the inclination of a counterparty to conduct operations in virtual currencies.
Timofeev notes that recommendations for combating sanctions evasion issued by Western sanctioning regulators have met some degree of success. However, due to the sheer size of the Russian economy and its global significance, businesses continue to adapt to sanctions and seek new avenues for entry. Nevertheless, businesses are increasingly interested in risk mitigation. Hence, the strategy that is becoming more optimal for entrepreneurs involves a complete shift away from Western directions, seeking alternative suppliers in friendly countries, and securing reliable mechanisms for financial transactions that are not tied to the US dollar or other Western currencies, concludes the expert.
Source: Valdai Discussion Club
