The Inside Track: When working to comply with rising Russian sanctions, uncover opacity-enabled oligarchs, use tax IDs to connect cronies, companies

By Brian Monroe
bmonroe@acfcs.org
May 27, 2022

The Russian Invasion of Ukraine and leveling of new sanctions has required everyone in the financial industry to improve their due diligence efforts regarding firms in Russia and Ukraine.

Sanctions compliance, ever a knotty and tricky wicket, has become a much riskier endeavor for financial institutions and businesses as the war has dragged on — dragging in an ever larger cabal of newly tainted entities.

Why? Designations of Russian industries and entities, politically-exposed persons (PEPs) and corpulent and opulent oligarchs have nearly tripled in just a few months – and have risen on nearly a weekly basis.

Further adding another layer of frustration: these sanctions are not just coming from one country.

Prior to its invasion, sanctions against Russia, chiefly tied to its annexation of Crimea, were 2,754.

But the United States, Europe, the United Kingdom and other regions in just a matter of months have added 7,826 more, according to compliance technology firm, Castellum.AI.

To view the full Russian sanctions dashboard, click here.

Further fueling sanctions exposure points for banks and corporates touching Russia is the Iron Curtain reaching a point of financial desperation – even recently making statements that it could allow certain international settlements to be paid in virtual value, with the stated goal to evade tightening monetary restrictions.

The country has been “largely cut off from the international payment system SWIFT, seen its access to $630 billion in foreign exchange reserves restricted, and watched as more than $17 billion in assets were seized from Russian oligarchs,” according to media reports.

To read the full story, click here.

With Russian political powerbrokers and billionaire fat cats looking for every trick in the book to evade sanctions, that puts intense pressure on banks and businesses to uncover current or past connections.

But how?

These groups have become experts at hiding behind shell companies with seemingly impenetrable ownership structures.

One way is by getting to know Russia’s taxpayer identification number system because every entity – corporate and corporeal – must have one, according to Thomas Mangine, the Money Laundering Reporting Officer (MLRO) for the Bank of Montreal.

He offered some practical tips and tricks in a social media post as part of the “Thought Leadership from ACFCS Ambassadors” initiative, where we gather fincrime compliance sector champions to tackle and offer guidance on the issues of the day.

To read Mangine’s original post, click here. To join the ACFCS group on LinkedIn and be part of the discussion, click here.

Mangine has more than 20 years of experience in the compliance, investigations and military and intelligence fields.

Here are some tools for those who have not worked on such investigations recently.

Russia

Tax code taxonomy

The tax code mandates individuals and businesses have a taxpayer identification number (INN or ИНН in Russian).

There are three parts to an INN:

• 1st section (A) denotes the agency that issued the INN.
• 2nd section (B) indicates the sequence of entry.
• 3rd section (C) is a control number/checksum.

Firms: Differences in delineating domestic, foreign, person

Local locus: INN’s for firms are 10 digits – AAAA BBBBB C
International rationale: Foreign organizations operating in Russia have the code 9909 for the issuing tax authority: 9909 BBBBB C
I am not a number, I am a free man: INN’s for individuals are 12 digits – AAAA BBBBBB CC
Russian Federal Tax Service

Main Page: https://lnkd.in/e7M693re

Search by INN (Search by Tax ID): https://lnkd.in/e9syQh2c

What if You do not Know the INN? (Two Options)

• 1) The Russian Federal Tax Service has a feature to search for the TAX ID – there is a link on the Russian Federal Tax Service’s Website “Find out a Taxpayers Identification Number (TIN).”
  HOWEVER, this feature requires anyone making a search provide their Full Name, Date of Birth and Number from an Identity document (such as a passport). Direct Link to this page – https://lnkd.in/eG-_UxHN
• 2) Run a search using the name of the firm and INN – for example, Polyus INN. Be sure to search both in Latin alphabet and in Cyrillic (in this case, Полюс ИНН).

Ukrainian

All Ukrainian companies have local ID, which is called EDRPOU (ЄДРПОУ). If you do not have the EDRPOU, run a search using the name and EDRPOU – be sure to run searches in the Latin and Cyrillic alphabets.

Company shareholders and management Ukraine

The Ukrainian Ministry of Justice maintains a free search tool: https://lnkd.in/ecmyceg6

Check company tax records Ukraine

This check will help you to get idea on company tax reputation in Ukraine, though you will need Cyrillic on your keypad to pass CAPTCHA anti-robot protection: https://lnkd.in/eHFvteFR

Bankruptcy Check

The Supreme Economic Court of Ukraine’s website allows you to check for bankruptcy. https://lnkd.in/eUkabafA

Challenges

If you experience challenges or the websites are down (for maintenance or due to an attack), consider using Ukrainian due diligence firms.

The firms listed below can search corporate databases; court records; and local media sites in Belarus, Russia and Ukraine.

https://lnkd.in/eyBi5uNg — Youcontrol offers packages for Daily, Monthly or Annual use. Their search engine allows searches of court records, local media and corporate registries. Anna Opanasenko

https://lnkd.in/e85Da_Bc — GCS offers tips on conducting searches for entities and individuals in Ukraine. GCS also conducts due diligence investigations.

Resource: A new sanctions toolkit curated by ACFCS staff, from country designations, to tracking ships and uncovering assets and more

Spearheaded by ACFCS SVP of Product Development, Brian Kindle, with a pinch of ACFCS VP of Content, Brian Monroe, this curated list of sanctions tools has more than 40 items to help the fincrime fighters on the ground and in the trenches.

From the best places to find sanctions list updates in the U.S., EU and U.K., to sanctions summaries and guidance, to maritime, flight and oligarch asset tracking, this list has something for everyone.

Want some help peeling back corporate ownership structures? We got it. Want some more visual options, like epic infographics? We have some of those too. And a nice bonus: a sanctions newsfeed.

The best part: we aren’t done yet! Do you have some resources you would like to share? Please reach out to us at bmonroe@acfcs.org and bkindle@acfcs.org.

To check out the tool and even add your own resources, click here.

US law firm sues Credit Suisse for misleading investors, claiming the bank did business with Russian oligarchs

Pomerantz law firm announced it filed a class-action lawsuit against Credit Suisse on Friday. The suit claims the Swiss bank has a history of business dealings with Russian oligarchs.

The law firm also accuses the bank of releasing false and misleading public statements.

To read the full story, click here.

To read the full release from the law firm, click here.

Bank liability for sanctions breaches has also ticked higher in the European Union.

Just last week, the European Commission unsheathed a proposal that would make breaking European Union sanctions against Russia a more serious crime across the bloc.

Such a move “would allow EU governments to confiscate assets of companies and individuals that evade EU restrictions against Moscow,” according to EU Commission statements and media reports.

Violating EU sanctions on Russia is currently a criminal offense in only 12 member states, according to the report.

As well, it is either an “administrative or a criminal offence in 13 and two treat it only as an administrative offence,” Justice Commissioner Didier Reynders said, adding that punitive measures for sanctions scofflaws range far too wide.

The Commission proposal seeks to unify a more stringent, strident and enforcement-minded approach to sanctions evasion, ensuring it is prosecuted as a serious crime in all members of the 27-nation bloc, he told a news conference.

“Today’s proposals aim to ensure that the assets of individuals and entities that violate the restrictive measures can be effectively confiscated in the future,” the Commission said in a statement.

The EU has so far frozen 10 billion euros in physical assets and more than 20 billion euros in bank accounts belonging to reputed Russian oligarchs helping the Kremlin’s war effort in Ukraine, according to Reuters.

But before these assets can be legally confiscated and sold off, potentially with the funds going to help Ukraine victims or the war effort itself, the oligarchs would first need to be convicted of trying to evade sanctions or of other major crimes, with the assets seized needing to be concretely linked to that specific crime.

Direct, indirect sanctions risks rise in ‘nested’ crypto exchange connections

The new EU law, which still must be unanimously approved by all EU governments and get a majority in the European Parliament, would as well target those who help break sanctions, like lawyers, gatekeepers and bankers effectively enabling those who circumvent restrictions.

That detail should not be lost on EU banks or U.S. and international institutions with large operations in the bloc.

Some banks headquartered in the EU, case in point BNP Paribas, have already felt the sting of sanctions regulators – but from the United States.

That bank has paid the largest anti-money laundering and sanctions penalty in the history of the field at nearly $9 billion, for dealing with blacklisted regions and entities.

In that same vein, just as EU banks work more broadly to uncover complex and opaque ownership structures of Russian elites, they should also query their crypto exchange connections to ensure they are doing the same – themselves and screening exchanges they are connected.

The reason: similar to the correspondent banking conundrum of “nested” relationships, any entity in the virtual value to fiat and back transaction chain can be on the hook for sanctions violations.

This at times draconian dynamic, at least from the history of U.S. enforcement actions, holds true even if the offenders that had engaged in the transactions didn’t or couldn’t directly see that they had aided odious oligarchs and the rampaging and reviled Russian war machine.