On March 2, 2023, the Department of Commerce, Department of the Treasury, and Department of Justice issued a Tri-Seal Compliance to constrain the use of third-party intermediaries or transshipment points to circumvent restrictions, disguise the involvement of Specially Designated Nationals and Blocked Persons (SDNs) or parties on the Entity List in transactions, and obscure the true identities of Russian end users. The Compliance Note highlights several of these tactics to assist the private sector in identifying warning signs and implementing appropriate compliance measures.
According to the agencies, malign actors continue to try to evade Russia-related sanctions and export controls despite the different government agencies’ efforts to degrade Russia’s economy and war machine. Through the Compliance Note, the agencies described common red flags which can indicate that a third-party intermediary may be engaged in efforts to evade sanctions or export controls. These include:
Use of corporate vehicles (i.e., legal entities, such as shell companies, and legal arrangements) to obscure (i) ownership, (ii) source of funds, or (iii) countries involved, particularly sanctioned jurisdictions;
A customer’s reluctance to share information about the end use of a product, including reluctance to complete an end-user form;
Use of shell companies to conduct international wire transfers, often involving financial institutions in jurisdictions distinct from company registration;
Declining customary installation, training, or maintenance of the purchased item(s);
IP addresses that do not correspond to a customer’s reported location data;
Last-minute changes to shipping instructions that appear contrary to customer history or business practices;
Payment coming from a third-party country or business not listed on the End-User Statement or other applicable end-user form;
Use of personal email accounts instead of company email addresses;
Operation of complex and/or international businesses using residential addresses or addresses common to multiple closely-held corporate entities;
Changes to standard letters of engagement that obscure the ultimate customer;
Transactions involving a change in shipments or payments that were previously scheduled for Russia or Belarus;
Transactions involving entities with little or no web presence; or
Routing purchases through certain transshipment points commonly used to illegally redirect restricted items to Russia or Belarus. Such locations may include China (including Hong Kong and Macau) and jurisdictions close to Russia, including Armenia, Turkey, and Uzbekistan.
Criminal charges have been brought against those it alleges are using front companies to hide their identities. These cases highlight additional tactics used for evasion purposes, including:
Claiming that shell companies located in third countries were intermediaries or end users; in one case, DOJ alleges that only one of the five intermediary parties had any visible signage and consisted of an empty room in a strip mall;
Claiming that certain items would be used by entities engaged in activities subject to less stringent oversight; on at least one occasion, a defendant allegedly claimed that an item would be used by Russian space program entities, when in fact the item was suitable for military aircraft or missile systems only;
Dividing shipments of controlled items into multiple, smaller shipments to try to avoid law enforcement detection;
Using aliases for the identities of the intermediaries and end users;
Transferring funds from shell companies in foreign jurisdictions into U.S. bank accounts and quickly forwarding or distributing funds to obfuscate the audit trail or the foreign source of the money;
Making false or misleading statements on shipping forms, including underestimating the purchase price of merchandise by more than five times the actual amount;
Claiming to do business not on behalf of a restricted end user but rather on behalf of a U.S.-based shell company.
The Tri-Seal Compliance Note can be found here.