Russian Financial Sanctions Evasion Continues

No doubt, Western Sanctions are beginning to take hold on the Russian Economy. With the Russian Ruble having become one of the world’s most undesirable currencies, Kremlin-connected financiers and oligarchs now have critical overexposure to Western capital markets and financial systems. With key Russian financial institutions, such as Sberbank and VTB, facing extensive Western sanctions, Russia has been forced to adopt a new strategies and contingencies to continue operations inside Western financial institutions. The Russian power base will continue to ramp-up their Sanctions evasion plans, this is essential for them if they are to continue to procure resources for the state and maintain their perceived ‘Option B’ to flee Russia in the event of chaos.

Russian organized criminal syndicates are known to be some of the world’s most sophisticated and bold organizations with regards to the use of front companies, local nominee company directors, and original source of funds obfuscation. Russian syndicates are also well known for their improvements in evading sanctions regimes by routing into the Western financial system via several other ‘clean’ financial institutions that are domiciled in currently non-sanctioned countries, such as China (and Hong Kong in particular).

The Chinese Communist Party (CCP) has refused to condemn the Ukraine invasion and Chinese banks are continuing to execute transactions for Russian interests and have even offered Renminbi-denominated lines of credit to Russian companies.

These decentralized and deliberately structured illicit financial networks pose major emerging challenges for national security agencies as well financial institutions. In the case of financial institutions, the full spectrum of the industry face risks; from the highly transactional (such as investment banks and hedge funds) to the longer term-oriented segments (such as private equity and venture capital). This is also not an issue that is specific to anti-money laundering/anti-fraud teams, compliance, or legal teams; this is a CEO-level issue.

The unclear structures of Russian criminal networks generate a fragmented, varied, and geographically distributed data environment that mostly (if not entirely) involve interests that are not overtly Russian.  A small trading house in Hong Kong with 5 employees, a logistics company in the United Kingdom with a limited fleet of trucks, and a Singapore-domiciled shipping company can manifest surprising relationships under these acute circumstances.

Russia Becomes a Financially Dependent Minor Partner to the CCP: Implications for Hong Kong

Russia is isolated from the West which has rapidly accelerated Russia’s dependence on Chinese financial institutions, and by extension the CCP, to continue to finance even the basic operations of the Russian state. The CCP understands leverage at a deep level and exploits it, even against supposed ‘friendly nations’ like Russia. Russia and China both share a critical overdependence on Western capital markets and institutions to import critical resources such as food and agricultural products, energy (in the case of China), strategic technologies, and industrial machinery and many other categories.

With London, Tokyo, New York, Singapore, and Dubai no longer readily available to the Russian state, Hong Kong remains the only available major international financial center due to the recent CCP takeover of the city. Under these evolving conditions, new enhanced investigative due diligence is essential to reliably determine original source of funds and to generate a full information data profile around an individual, company, or even specific transaction. New investigative due diligence technologies and techniques continues to clarify linkages, and provide critical relevant context that traditional methods, such as bank verifications and database searches, cannot.

China is financially enabling Russia and observing the effects that Western Sanctions are having on the Russian leadership and the broader economy. In order to continue to pull Russia down this path to strategic acquiescence, the CCP needs to make itself an indispensable partner that monopolizes the international capabilities of critical Russian economic operations. The method that will drive the CCP to achieve this endpoint is to enable Russian interests to continue to operate in Western capital markets and access sophisticated Western financial services. The control provision of this capability will generate large revenue opportunities for Chinese state-owned banks, while also providing the CCP with the ability to exert extreme pressure on Moscow to support CCP strategic goals. The West must continue to exert collective pressure on Russia and their trading partners with sanctions and trade barriers in the foreseeable future.


Company Contact Information:
Thomas J. Canova
Co-Founder, CMO
Modevity, LLC  610-251-0700


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