U.S. authorities list red flags for sanction evasion by third parties

The Department of Commerce’s Bureau of Industry and Security (BIS), Department of the Treasury’s Office of Foreign Assets Control (OFAC), and Department of Justice (DOJ) issued a joint compliance note Thursday regarding the use of third-party intermediaries or transshipment points to circumvent the penalties placed on Russia by the United States for waging war against Ukraine.

The note listed red flags U.S. companies should look for as possible signs of sanctions or export controls evasion by third-party intermediaries:

• Use of shell companies to obscure ownership, source of funds, or countries involved in a transaction, particularly sanctioned countries;
• Customers’ reluctance to share information about the end use of a product or to fill out the end-user form;
• Use of shell companies to conduct international wire transfers, particularly if the institutions are different from the third party’s registration;
• Declining customary installation, training, or maintenance of the purchased item(s);
• IP addresses that do not conform to the customer’s reported location data;
• Last-minute changes to the shipping instructions that contradict customer history or business practices;
• Use of personal email accounts by the third party; and
• Routing of purchases through transshipment points commonly used to illegally redirect restricted items to Russia or Belarus, including China, Hong Kong, Macau, Armenia, Turkey, and Uzbekistan.

“Our economic tools are constraining Russia—so much so that the Kremlin has tasked their intelligence services with finding ways to get around international sanctions and export controls,” said Andrea Gacki, director of OFAC, in a press release. “The private sector is an essential partner in ensuring that we cut off Russia from accessing much-needed equipment to continue their unjust war against Ukraine.”

The note also listed real-world examples of sanctions and export control evasion attempts by malign actors.

One method is to claim shell companies located in third countries are intermediaries or end users, the note said. Another method is to claim certain items will be engaged in activities subject to less stringent oversight.

Another sign of potential sanctions evasion by malign actors is to transfer funds from shell companies in foreign jurisdictions into U.S. bank accounts but then quickly forward or distribute the funds to obfuscate the audit trail or foreign source of the money, the note said. Some third parties divide shipments of controlled items into multiple, smaller shipments to avoid law enforcement detection, while others use aliases for the identities of intermediaries and end users.

Additional information on BIS export controls are available here.