The US Justice Department is looking for new ways to cut off Russian sanctions evasion by focusing on overseas investment advisers, hedge funds, law firms and private equity managers that have previously escaped scrutiny.
(Bloomberg) — The US Justice Department is looking for new ways to cut off Russian sanctions evasion by focusing on overseas investment advisers, hedge funds, law firms and private equity managers that have previously escaped scrutiny.
“People who are sitting in banks where they don’t care about US sanctions or money laundering or frankly fraud concerns, fit the bill when I say we are prioritizing facilitators,” Andrew Adams, head of the department’s Task Force Kleptocapture, told Bloomberg in an interview this week.
“Bankers, financial managers, investment advisers in some cases, people running offshore hedge funds or private equity shops, that sort of thing,” he said.
Adams’s remarks can be seen as a warning shot about the expanding US campaign to flush out sanctions evaders. They also underscore a perennial problem: law enforcement has struggled to crimp the ability of wealthy Russians and companies to conceal their money.
Investigators are also looking closely at how cryptocurrency can be used to camouflage transactions for restricted goods or funnel retail-level payments to oligarchs, sanctioned companies or Russian militias.
While there has been relatively good compliance from US and Western European banks, “there are parts of the world where that culture doesn’t exist,” Adams said.
The task force is using a series of novel and secret tactics to identify and prosecute companies and individuals hiding the assets of wealthy Russians and helping to fuel the Russian war machine in Ukraine.
“We’re not always just handing over a subpoena and hoping that people tell us the information,” Adams said. “We send in sources. We’re running sting operations. We rely on whistle-blowers and search warrants and covert activity.”
Adams was chosen last year to lead the task force. He is using lessons learned from years of prosecuting organized crime as an assistant US attorney in Manhattan to stem the flow of ill-gotten riches, technologies and materials to Russian President Vladimir Putin’s war effort in Ukraine. Adams declined to name specific companies, individuals or regions that investigators are focusing on.
The task force’s seizures of luxury assets owned by wealthy Russians, including yachts, private jets and property have been splashed in news headlines. The department says the task force has seized or restrained more than $500 million in Russian assets during the past year since the war began. The US wants to transfer the proceeds to Ukraine to help with reconstruction efforts.
Less attention has been paid to how the task force is using creative ways to enlist financial institutions and other companies in the push by unsealing as much information as possible, including warrants and affidavits, about shell companies hiding the true ownership of assets. That has led insurance companies, for example, to cancel policies for airplanes used by wealthy Russians, effectively grounding them, Adams said.
“There are offshore investment advisers of all stripes that fit the bill here or law firms across the world that allow for and facilitate this sort of work through escrow accounts and the like or by setting up shell company structures,” Adams said.
Earlier this month, the US and UK announced sanctions against key advisers of Russian billionaires Roman Abramovich and Alisher Usmanov, alleging they helped the oligarchs disguise their assets to avoid penalties tied to the invasion of Ukraine.
Cypriots Demetris Ioannides and Christodoulos Vassiliades, a lawyer, are accused of helping the billionaires transfer their wealth to relatives or trusts and out of reach of sanctions enforcers.
The case reinforced the spotlight on professional enablers, many of whom are based offshore, but help Russian moguls dodge and weave US sanctions and access assets that are or should be frozen.
After a flurry of activity to lock down Russian-owned yachts and planes before they were moved to more oligarch-friendly jurisdictions, Adams said the task force is now focused on geographical locations or technologies where violations are harder to root out.
“There are jurisdictions that cater to sanctioned oligarchs and make their financial systems available and sometimes do that in ways that make it impossible for us to really investigate,” Adams said. “Or they may facilitate US-dollar transactions through layers of shell companies in ways that make it impossible to pin an ultimate beneficial owner on a particular sanctioned person.”
Congress recently gave the Justice Department authority to transfer the proceeds of assets seized because of sanctions violations to Ukraine, though that doesn’t extend to assets, such as airplanes, restrained under export control violations. While it was only “a drop in the bucket,”Adams said about $5.4 million in funds has been authorized for transfer.
“At the end of the day, we hope we have hundreds of millions of dollars to hand over,” he said.
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