On October 30, 2024, the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC) announced new sanctions against 275 individuals and entities, including sanctions against individuals involved in "sprawling sanctions evasion networks." The wide-ranging designations span 17 jurisdictions, including India, China, Switzerland, Thailand, and Turkey. Among the newly-added designations are OFAC's designations of Swiss lawyers Andres Baumgartner and Fabio Libero Delco, a move that represents OFAC's commitment not just to targeting Russian individuals and entities themselves, but those across the globe who play a role in facilitating the evasion of U.S. sanctions against those parties.
According to OFAC, Baumgartner and Delco are "major handlers of Russian assets and are important business and cash flow facilitators for Russians." Specifically, Baumgartner and Delco purportedly created shell companies to discreetly move funds for Russian clients while taking advantage of a loophole in Swiss law enabling lawyers to serve as non-financial intermediaries, who are not subject to anti-money laundering oversight requirements. OFAC's action marks the first time that Swiss lawyers have been sanctioned as a result of their work on behalf of Russian clients.
In an accompanying statement, the U.S. Embassy in Switzerland and Liechtenstein cautioned that "the United States government will designate sanctions evaders — no matter who they are, what their profession is, or where they live."
Also on October 30, the U.S. Department of State announced that it was imposing sanctions on over 120 individuals and entities. Those designations similarly targeted facilitators of sanctions evasion and included entities located in China, India, Malaysia, Thailand, Turkey, and the United Arab Emirates. The Department of State made clear its intention to "use all tools at its disposal to disrupt support for Russia's military-industrial base and curtail the Kremlin's ability to exploit the international financial system and generate revenue in furtherance of its war against Ukraine."
There are several key takeaways from these recent actions:
- Increased Focus on International Intermediaries. The U.S. government's recent actions reveal an expanded focus on third-party intermediaries, including trust and corporate service providers, who are uniquely positioned to facilitate sanctions evasion by virtue of their role in the international financial system. Pursuant to Executive Order 14071, U.S. persons are prohibited from providing certain accounting, trust and corporate formation, and management consulting services to any person located in Russia — a prohibition which is designed to prevent parties in Russia from obfuscating their assets. While Baumgartner and Delco may not have been subject to this prohibition as non-U.S. persons, their designations suggest that OFAC may try to accomplish the same objective via secondary sections. Further, the designations show that intermediaries whose activities comply with the laws of their home country may still become the target of OFAC sanctions.
- Europe Lies Within the Geographical Scope of U.S. Sanctions. Although European Union individuals and entities have rarely been sanctioned by OFAC, the designation of Baumgartner and Delco suggests that may no longer be the status quo. OFAC's increasingly global scrutiny of sanctions evasion networks means that European individuals and entities must cautiously reevaluate their risk of implicating U.S. sanctions through their role in financial transactions or otherwise.
- "Red Flags" for Sanctions Evasion Remain Consistent With Those Identified in Prior Guidance. In prior guidance, U.S. government agencies have identified certain "red flags" commonly associated with sanctions evasion networks. For example, the creation and use of corporate vehicles could indicate that a third-party intermediary may be engaged in efforts to evade sanctions or export controls. The sanctions against Baumgartner and Delco demonstrate that OFAC continues to look for such "red flags" in determining potential targets for sanctions.
* Olivia Lu contributed to this Blog. Olivia is employed as an associate in Arnold & Porter's Washington, D.C. office.
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