On October 19, 2022, the United States Department of Justice ("DOJ") unsealed an indictment (the "Indictment") charging five Russian nationals and two Venezuelan oil traders with various charges related to a complex scheme to evade U.S. sanctions directed at both Russia and Venezuela.
Among other things, the Indictment alleges that Yury Orekhov ("Orekhov"), the CEO and Managing Director of a German industrial equipment and commodity trading company called Nord-Deutsche Industrieanlagenbau GmbH ("NDA GmbH"), and Svetlana Kuzurgashevka ("Kuzurgashevka") used NDA GmbH as a front company to source and purchase various sensitive military technologies from U.S. manufacturers in order to avoid disclosure of the final intended purchaser of the technologies. These sensitive military technologies included advanced semiconductors and microprocessors, radiation-hardened flash memory devices, and small terminal interface circuits, as well as other dual-use technologies. Once these technologies were acquired by NDA GmbH, Orekhov and Kuzurgashevka then sold them to various sanctioned Russian companies. Some of the items acquired through this scheme were later discovered in weapons used in Russia's invasion of Ukraine.
The Indictment also alleges that Orekhov worked with Artem Uss ("Uss"), the son of the governor of Russia's Krasnoyarski Krai region, and two oil traders in Venezuela to use NDA GmbH as a front to purchase and transport approximately $33 million of oil from Venezuela to purchasers in both Russia and China. While brokering these oil deals, Orekhov "openly admitted that he was acting on behalf of a sanctioned Russian oligarch." Together, the military technologies and the oil smuggling schemes involved routing financial transactions through multiple shell companies and U.S.-based financial institutions and the falsification of official documents in order to conceal the intended final destination of the goods.
Overall, the Indictment contains twelve charges, including charges for conspiracy to defraud the United States, conspiracy to violate the International Emergency Economic Powers Act ("IEEPA"), bank fraud conspiracy, wire fraud conspiracy, money laundering conspiracy, conspiracy to violate the Export Control Reform Act ("ECRA"), and smuggling.
Although criminal charges in the United States for sanctions violations like these are generally uncommon, the Office of Foreign Assets Control of the U.S. Department of the Treasury ("OFAC"), along with the Federal Bureau of Investigation ("FBI"), the Department of Homeland Security ("DHS"), and the DOJ announced last spring that a new task force, Task Force KleptoCapture, had been created to target the assets of Russian oligarchs and any individuals attempting to evade the sweeping U.S. sanctions enacted to isolate Russia from the global markets. This recent sanctions evasion scheme uncovered by Task Force KleptoCapture demonstrates an increased risk that financial institutions, corporations, and other entities operating in the U.S. may face criminal liability or other punitive measures for sanctions and export violations.
According to the Indictment, the defendants interacted with seven different U.S.-based companies throughout their scheme. "U.S. Company 1," which is described in the Indictment as a "California-based semiconductor company," was deceived by the defendants into unknowingly using false information to apply for and receive an export license for sixty semiconductors which were exported to NDA GmbH before being sold to sanctioned Russian companies. The defendants also provided "U.S. Company 3," an electronics company based in Pennsylvania, with false information that was used to fill out an End User Statement for a magnetoresistive random-access memory device. After attempting to procure various technologies from other unnamed U.S. companies, defendants succeeded in purchasing more than $250,000 worth of sensitive military technologies from "U.S. Company 7," a New York-based technology company and defense contractor. These transactions required U.S. Company 7 to file multiple false filings, including EEI filings and export license based on "materially false and misleading information."
The facts alleged in this indictment illustrate various examples of conduct that may incur criminal liability for companies or financial institutions operating in the U.S. At this time, there is no indication that Task Force KleptoCapture, or the DOJ or OFAC more generally, intend to investigate or charge any of the U.S. companies involved in this scheme. However, in light of this increased focus on criminal sanctions violations by Task Force KleptoCapture, corporations and other institutions should take extra precautions to ensure compliance with all U.S. sanctions and export control law in order to avoid potential criminal investigation or charges.
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