OFAC Sanctions 300 Individuals and Entities Involved In Russia's War Effort Including Sanctions Evasion Networks

This morning, the United States Treasury Department’s Office of Foreign Assets Control (OFAC) issued robust new measures to intensify pressure on Russia for its ongoing war against Ukraine. These measures aim to increase the risk of secondary sanctions for foreign financial institutions dealing with Russia's war economy, restrict Russian access to certain U.S. software and IT services, and target over 300 individuals and entities supporting Russia's war effort.

Key actions included:

1. Secondary Sanctions Risk: Foreign financial institutions now face a higher risk of sanctions for conducting significant transactions or providing services involving any person blocked under Executive Order (E.O.) 14024, including major Russian banks.
2. Expanded SDN List: The Treasury has updated the Specially Designated Nationals and Blocked Persons List to include the foreign locations of five sanctioned Russian financial institutions, highlighting the addresses and aliases of their foreign branches.
3. Software and IT-Related Services Prohibitions: New restrictions on the supply of IT consultancy, design, support services, and cloud-based services to any person in Russia, effective September 12, 2024, to hinder the Russian military-industrial base.
4. Targeting Russia’s Financial Infrastructure: Designations have been made against Russia's largest public trading markets and financial service providers, including the Moscow Exchange (MOEX), National Clearing Center (NCC), and Non-Bank Credit Institution Joint Stock Company National Settlement Depository (NSD).
5. Sanctions Evasion and Circumvention Networks: Over 90 individuals and entities involved in evading sanctions and supporting Russia's war economy through complex transnational supply chains have been designated.
6. Domestic War Economy: More than 100 entities within Russia’s defense, manufacturing, technology, transportation, and financial services sectors have been targeted, reflecting Russia's transformation into a war economy.
7. Limiting Future LNG Revenue: Targeting entities involved in Russia's future liquefied natural gas (LNG) projects and designating seven under-construction LNG vessels to limit future energy revenues.

Today’s action targeted, among other areas, networks leveraged by Russia “to feed its war machine and enable production material to sustain its war effort.” These networks are used to attempt to evade sanctions using schemes to move money and other valuable goods and assets. Today’s action targets more than a dozen of these types of networks, designating more than 90 individuals and entities across the globe.

One such network involved Russian national Andrey Dmitriyevich Sudakov (Sudakov), an employee of U.S.-designated Russian state-owned gold producer Public Joint Stock Company Polyus (Polyus), and his Hong Kong-based associate Mu Xiaolu (Mu). According to Treasury, Sudakov engaged in a complex, multi-layered laundering scheme whereby payments from the sale of Russian-origin gold were converted into fiat currency and cryptocurrencies through numerous UAE and Hong Kong-based front companies. The scheme used numerous Hong Kong-based trading companies to route payments related to gold sales through foreign financial institutions back into the Russian financial system. The scheme also used UAE-based front company Red Coast Metals Trading DMCC (Red Coast) to obfuscate payments from the sale of Russian-origin gold. Additionally, the scheme involved Hong Kong-based VPower Finance Security Hong Kong Limited (VPower) to transport the Russian-origin gold.

The laundering schemes set forth in today’s action are consistent with what TRM has been seeing for some time – that is, Chinese manufacturers of electronics being used for Russia’s war effort including Chinese companies shipping parts to Russia, the involvement of Chinese middlemen, coordination between Russian and Chinese logistics companies, and Russian cryptocurrency traders facilitating payments to companies in China. Cryptocurrencies have been used for payment of goods and services as well as for payment for the transport of goods.

Today’s sweeping sanctions designations are an attempt to further isolate Russia’s war economy from the international financial system and disrupt its military-industrial base. By increasing the sanctions risk for foreign financial institutions and restricting access to critical technologies, the U.S. and its allies intend to diminish Russia's capacity to sustain its aggression against Ukraine.

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