Russian Invasion Breaks Down Compliance Silos in Banks

By Koos Couvée

Over the past 19 months, the EU, U.K. and U.S. for the first time have imposed and regularly strengthened a comprehensive program of sanctions on an energy superpower and major, globally connected economy, Russia, for launching a war of conquest against Ukraine.

European banks now find themselves navigating a maze of transactional and commercial restrictions, while also contending with new demands to find, flag and ultimately collapse the elaborate, multi-jurisdictional channels Russian end users and their profit-minded suppliers in the West use to evade the embargo and continue feeding the Kremlin’s war machine.

Several lenders, including Citadele Banka in Latvia, have adapted to the new environment by knocking down many of the structural and administrative barriers that previously limited cooperation between their anti-money laundering, export-control and financial-crime-investigations functions.

At Citadele Banka, AML staff more accustomed to screening exports for signs of tax evasion or trade-based money laundering now also conduct enhanced due diligence on shipments that, as a result of the embargo against Russia, present a higher risk of sanctions evasion, Uldis Upenieks, the lender’s chief compliance officer, told ACAMS

“You use exactly the same type of information, but the output of this [enhanced due diligence] work is not just for anti-money laundering, but also for sanctions compliance,” said Upenieks. “This is where the convergence really materializes.”

EU, U.K. and U.S. officials have repeatedly warned that Russian sanctions-evasion networks often use the same techniques as money launderers to obscure the ultimate destination of prohibited goods and beneficial owners of the companies that import them.

The European Commission, the EU’s executive branch, urged banks last month to especially watch out for attempts to route trade payments through shell companies that form part of a complex offshore structure or appear to “serve little to no” economic purpose.

“A lot of sanctions teams just do sanctions policy—they cannot read a SWIFT [Society for Worldwide Interbank Financial Telecommunications] message or tell you whether an investment structure is logical or not,” said Samantha Sheen, former director of AML at ACAMS.

Banks have also sought to foster closer cooperation between their AML- and sanctions-compliance functions during know-your-customer reviews, said Sheen.

Reducing the risk of inadvertently boosting the Russian economy ranks as a top priority for banks across Europe.

A compliance officer for a Dutch lender told on condition of anonymity that his institution’s financial-crime-investigations team now closely monitors exporters who previously shipped now-banned goods to Russia for evasive behavior, such as a sudden shift from their usual patterns of transactions.

During the invasion, Turkey, the United Arab Emirates and China, and Kazakhstan, Kyrgyzstan and other former Soviet states have emerged as waypoints for Western-prohibited shipments.

“There’s a strong focus on countries around Russia,” a compliance officer in London said, adding that his institution has adapted to the restrictions in part by not only training sanctions-compliance officers on Russian sanctions-evasion typologies, but also financial-crime investigators and frontline staff.

The enormous and perpetually developing embargo made growing pains inevitable. Take the EU’s successive rounds of sectoral sanctions and export controls against Russia, for example.

The bloc has outlawed shipments of ball bearings, drone parts and other dual-use goods to Russia during the invasion, and also banned exports of advanced technologies such as semiconductors, as well as products and exports suited for use in the telecommunications, transportation and energy industries.

Upenieks, the chief compliance officer, told that sectoral and export controls have posed a significantly challenge for lenders in the Baltics, whereas, thanks to the widespread adoption of automation and sophisticated transaction-screening software, asset freezes and other financial restrictions are a comparatively straightforward proposition.

“As soon as goods fall [under sectoral sanctions] you have to dig very deep into who the customer’s customer is and figure out if the customer’s customer—and sometimes [parties] even further into the supply chain—have controls in place … to make sure that the delivery path is kosher,” he said.

Across the aisle

Western nations have also blacklisted dozens of Russian oligarchs who own large swathes of luxury real estate in the EU and Britain, and—at least up until February 2022—owned or controlled companies with an extensive presence, whether commercial or financial, in Europe.

Many, if not all, of them drew close scrutiny from European banks long before the full-scale invasion amid questions as to their sources of wealth, their alleged involvement in corruption, or simply as a result of their status as politically exposed persons.

“That kind of information tends to be held on the financial crime side, because they’re a PEP or there was adverse media,” a compliance officer at an overseas branch of a U.K. lender said. “It’s meant that sanctions teams and financial crime teams have started working much more closely together, often by building informal networks for sharing information quickly.”

AML compliance officers tasked with filing suspicious transaction reports now also more frequently draw on the expertise of their sanctions-compliance colleagues to flag suspected attempts by Russia to evade Western restrictions.

The Dutch financial intelligence unit, FIU-Nederland, disclosed in June that the number of sanctions-related reports filed by local financial institutions and other firms rose from 226 in 2021 to more than 2,000 last fiscal year.

STRs filed on suspected attempts to evade sanctions rose from 12 to 281 in Latvia and from 41 to 195 in Lithuania over the same 12 months.

Anti-financial crime concerns and sanctions-related expectations have also converged in government.

In the Netherlands, the Fiscal Information and Investigation Service, which usually targets high-end money laundering and tax evasion, has arrested several individuals suspected of shipping banned goods to Russia.

Latvian authorities used proceeds-of-crime legislation to restrain assets from blacklisted Russian parties on multiple occasions over the past year.

The German government has pitched plans to enact similar legislation, and also proposed to create a new sanctions agency and require foreign legal entities that own property in their country to identify their beneficial owners.

“Sometimes it’s proven easier to use AML powers to freeze assets, and quite a few countries have filled [sanctions-related] gaps with AML legislation,” said Sheen, now an independent AML consultant based in London.

Contact Koos Couvée at

Topics : Sanctions , Anti-money laundering
Source: European Union , United Kingdom , U.S.: OFAC
Document Date: October 9, 2023