Russia’s brutal military offensive against Ukraine has accomplished in a little more than a month what consecutive EU officials and their allies have struggled to do for more than a decade: spurred European nations to get serious about enforcing sanctions.
Since Russian forces launched their botched plan to take Kyiv, decapitate the Ukrainian government and occupy the Donbas on Feb. 24, the EU has issued five rounds of sanctions against Russian and Belarusian parties, designating hundreds of businesses and banks, industry executives, oligarchs and officials, and even President Vladimir Putin himself.
But six weeks into the war, several EU national governments, including those of France, Germany and the Netherlands, have tacitly or openly admitted that they are ill-equipped—for structural, institutional and legal reasons—to trace and take custody of assets secretly owned by blacklisted Russian oligarchs through complex offshore structures.
On Monday, the Netherlands became the latest EU member to address the problem, appointing former Foreign Minister Stef Blok as the country’s national coordinator for sanctions compliance and enforcement amid criticism from Dutch lawmakers that the nation’s hunt for hidden Russian wealth lags behind that of surrounding countries.
Dutch firms have frozen €516 million in bank accounts controlled by blacklisted Russian parties and rejected €155 million of transactions after Russia’s latest invasion of Ukraine commenced, but authorities have yet to restrain any real estate, yachts, artwork or commercial properties pursuant to those sanctions.
As national coordinator, Blok faces a serious challenge: lead a new government taskforce to locate Russian assets and improve enforcement in the art sector and other non-financial industries, while also eliminating bottlenecks that have hindered data-sharing between Dutch law enforcement agencies and other authorities.
“The criticism is that the system is fragmented,” Peter van Leusden, an anti-corruption consultant with Partner in Compliance in Amstelveen told ACAMS moneylaundering.com. “Different government departments play a role [in implementing and enforcing sanctions] but no one is responsible for the whole thing.”
The EU imposes assets freezes and other commercial- and banking-related sanctions through the European Council, which represents the bloc’s 27 national governments. Implementation falls to individual member states, which now face intense pressure to enforce them to the fullest as evidence of Russian atrocities in Ukraine mounts.
Latvia, France, Germany and Cyprus have also created new sanctions-related taskforces during the invasion, with remits ranging from advising the private sector on implementation to actively coordinating government efforts to find and freeze assets.
But according to Maira Martini, a policy analyst with Transparency International in Berlin, even when national authorities find evidence that a vessel, property or corporate entity ties back to a Russian oligarch, some believe they cannot share their findings with counterparts at home or across borders, or request their assistance in the absence of a criminal investigation.
“In the past, countries would just rely on the private sector,” Martini said. “Now there’s more effort but they’re faced with legal hurdles: without evidence of criminal conduct many of these taskforces can’t start looking for assets to be frozen, request bank account data or consult an FIU [financial intelligence unit].”
On Wednesday, three weeks after Germany established its own sanctions-enforcement taskforce, Chancellor Olaf Scholz told federal lawmakers in Berlin that his government wants to fast-track legislation to give officials the necessary legal basis to seize assets from blacklisted parties directly rather than continue to rely almost entirely on the private sector.
Germany’s current setup blocks the government from taking assets linked to blacklisted parties into custody independently unless clear indications have emerged that they or their associates have taken steps to violate commercial or financial restrictions against them, for example by suddenly transferring ownership of a property from one entity to another.
Those limitations are now on full display in the case of Alisher Usmanov, an Uzbek-born, Kremlin-linked and now EU-blacklisted oligarch who allegedly owns three properties in Bavaria and a 512-foot superyacht docked in Hamburg that authorities have yet to seize.
Christoph Trautvetter, an anti-corruption campaigner with Netzwerk Steuergerechtigkeit in Berlin, told moneylaundering.com that deficits in beneficial ownership data and subpar compliance by real estate agents and notaries have undermined sanctions.
German officials highlighted those and other sanctions-related weaknesses in a national risk assessment in 2019.
“It says quite clearly that sanctions implementation doesn’t work in Germany,” Trautvetter said. “The government then said it had run an awareness-raising campaign with obliged entities and that things were running smoothly, only now they’ve admitted we have a problem.”
Latvia, which shares a 140-mile border with Russia and has spent much of the past four years trying to shed its image as a haven for both licit and illicit Russian wealth, set up a sanctions taskforce several days into the war consisting of the country’s FIU, ministries of finance and foreign affairs, Financial and Capital Markets Commission and State Security Service.
Ilze Znotina, head of FIU Latvia, told moneylaundering.com that her country has benefited from strong, existing relationships between government agencies and the private sector in the context of fighting money laundering and other financial crimes, and also from a national beneficial-ownership database that went online in 2019.
FIU Latvia warned last month that any lawyers, accountants and notaries caught helping Russian parties circumvent sanctions would trigger criminal charges.
“We have to be very focused on professional enablers,” Znotina said. “Particularly in those jurisdictions where the control mechanisms are not so strong, whether it’s because of [a lack of] political commitment or capacity of the controlling institutions.”
Cooperation at the national level works reasonably well, but Latvia would still benefit from clear EU guidance on sharing financial intelligence across the bloc, including information on corporate entities controlled by blacklisted Russian oligarchs and professional enablers helping designated parties evade their restrictions, she said.
“At the EU level there should be more coordinated effort to explain how the sanctions should be applied,” Znotina said. “Where to dig for information and how to share the information, interagency and also cross-border.”
Znotina and other officials and lawmakers told the European Parliament last month that the EU should consider establishing a bloc-level agency similar to the U.S. Office of Foreign Assets Control to administer and enforce EU sanctions.
Days earlier, the European Commission, the EU’s executive branch, launched a “freeze and seize” taskforce comprised of national law enforcement agencies, Europol and other EU agencies to share information and coordinate efforts to detain and, where legally possible, confiscate the assets of blacklisted Russian and Belarussian oligarchs.
The group’s work will feed into the Russian Elites, Proxies and Oligarchs, or REPO, taskforce, which aims to unify related efforts by the United States, Australia, Canada, France, Germany, Italy, Japan, the Netherlands, New Zealand and Britain.
Contact Koos Couvée at firstname.lastname@example.org
|Sanctions , Asset Forfeiture
|April 11, 2022