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Anniversary of Russia/Ukraine May Mean More Compliance Headaches

February 24th marked the one-year anniversary of Vladimir Putin’s war against Ukraine.

Soon after the invasion began, the U.S.—along with many of its allies—imposed sweeping sanctions and restrictions against Russia. Within the past year, the U.S. Treasury Department has issued more than 2,500 sanctions against Russian individuals and entities.

To mark the one-year anniversary of a tragic war that has monopolized headlines, the U.S. and members of the European Union slapped a fresh round of sanctions on Russia.

The U.S. Office of Foreign Assets Control (OFAC) added 22 new individuals and 83 entities to its Specially Designated Nationals and Blocked Person (SDN) list. Among these sanctions were more than a dozen Russian financial institutions, including Bank Zenit PJSC and Bank Saint-Petersburg PJSC. For a deeper dive into the new sanctions, click here.

In addition, 30 third-country individuals and companies involved in efforts to evade sanctions against Russia were added to the SDN list.

These sanctions supplement existing sanctions by the U.S. and its international allies. Even prior to the one-year-anniversary sanctions, sanctions from the past twelve months already covered over 80 percent of total Russian banking sector assets, according to the Treasury.

While banks steeped in KYC (know-your-customer) rules have well-defined processes for identifying sanctioned individuals, the new sanctions mean additional work and headaches for bankers already struggling to identify entities and individuals that use shell companies and other tactics to evade detection.

Working out who owns what “is incredibly complicated,” Zachary Brez, a partner at Kirkland & Ellis, has been quoted as saying. “And it is not made any simpler by Russia’s attempts to obfuscate some of those ownership chains.” To read more on these challenges, click here.

Know the Red Flags

At the start of the Russia/Ukraine war, FinCEN was quick to provide financial institutions with a set of red flags that might indicate sanctions were being evaded.

The first alert from FinCEN arrived on March 7, 2022. One threat, said FinCEN, is “currently unsanctioned Russian and Belarusian banks or other financial institutions that retain at least some access to the international financial system.”

In its alert, FinCEN also warned against individuals and entities using CVC, or convertible virtual currency, and asked that financial institutions with "visibility into cryptocurrency” quickly identify and report any suspicious activity.

Finally, FinCEN raised the issue of dangers posed by Russian-related ransomware campaigns.

One year out, these red flags are still important for financial professionals to review and remember.

To read the FinCEN alert in its entirety, click here.

Who’s Who?

From the start, financial institutions striving to identify the 300-plus oligarchs and companies that had been sanctioned by the U.S. government was challenging. That’s because many of the Russian jurisdictions where oligarchs and sanctioned entities operate are not known for their transparency.

According to U.S. sanctions, for instance, property interests should be blocked when a sanctioned individual owns 50 percent or more of a given real estate asset.

Sounds cut and dried? It’s not. Too often, parties try to evade sanctions through opaque and deliberately confusing structures that tend to hide true ownership.

Another problem for U.S. banks is false positives. The more names on a sanctions list, the greater the likelihood that banks, businesses, or individuals with similar names will mistakenly be blocked.

For compliance departments at banks, researching possible matches on Russian and Belarusian sanctions lists has become an enormous undertaking that requires either hiring additional compliance staff or finding an effective technology solution (like RiskScout).

To-Do List

Financial professionals already have plenty on their plates, but here are some easy suggestions for keeping abreast of changes to sanctions:

  • Understand the latest sanctions.

Read the Treasury's press release in full here.

  • Keep up with the SDN lists.

OFAC has an automated search site for sanctions here.

  • Subscribe to FinCEN’s mailing list.

FinCEN has a comprehensive list of alerts, advisories and more found here. Better yet, make sure you don’t miss anything important by subscribing to updates here.

  • Consult the experts.

Alerts and advisories will only get you so far. For answers to more individualized questions, tech solutions and consultants can prove a lifesaver.


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