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Sanctions against Russia: The fight against the fortune of the oligarchs is waged in law firms (and it is a battle full of legal mines) | Business

The war in Ukraine after Russia’s invasion on February 24 has immediately mobilized the international community. The pressure has resulted in a relentless economic crusade, led by the United States and the European Union (EU), to cut off the tap of Vladimir Putin’s military offensive. Serious financial sanctions build on those imposed by the Twenty-Seven in 2014 due to the annexation of Crimea and include blocking the foreign fortunes of a group of Kremlin-linked oligarchs. Together, these assets reached almost 110% of national income in 2015, according to the article From soviets to oligarchs: Inequality and property in Russia, 1905–2016by researchers Filip Novokmet, Thomas Piketty, and Gabriel Zucman.

The correct application of these restrictions is crucial to achieve the objective. In Spain, the responsibility falls mainly on those indicated by Law 10/2010, of April 28, on the prevention of money laundering and the financing of terrorism. That is, banks and other financial entities, but also real estate agencies, law firms, auditors, notaries and registrars, among others. All of them must paralyze any operation of people or companies included in the blacklists, as well as identify their assets, and notify the Treasury. However, it is not an easy task.

In many cases, the assets of the sanctioned tycoons are not in their name or registered under Russian companies, but with companies registered in tax havens. Hidden fortunes that registrars and notaries have to deal with. As the deputy dean of the College of Registrars, José Miguel Tabarés, tells us, a first phase of investigation is open, coordinated by the Anti-Money Laundering Registry Center, “to block their assets.” The track of the companies of which they are real owners is also followed “for having the de facto control of the company”. There have already been coincidences, he assures.

These actions, warns Mariano García, head of the analysis unit of the Centralized Body for the Prevention of Money Laundering of Notaries, are independent of the usual anti-money laundering precautions. And it is that the people or companies included in the lists of the EU or the UN are prohibited from signing any operation before a notary. Therefore, it is necessary to update these sources daily and “cross data with your clients, new and old,” he says. According to him, he predicts, the design of “complex legal structures” that hide the final owner to circumvent the restrictions may increase.

Since the operations require financing, it is the banks that have the greatest control in the framework of sanctions against Russia and Belarus. The EU has prohibited accepting deposits from Russian or Belarusian nationals or residents of more than €100,000, except for legal trade and basic necessities. In addition, they must block payments for so-called dual-use goods, that is, those that can be used for both civil and military purposes, included in a community regulation updated after the invasion of Ukraine. It is a fairly unknown issue, warns Edo Bakker, CEO of Agile Control Solutions, “which affects the exports of Spanish companies”. To send certain vehicles, for example, you must have a license from the Public Treasury.

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The complexity of sanctions and the continuous updating of lists means that banks need logistical support and legal advice. As Bakker points out, “they have an extra responsibility, also criminal.” Not surprisingly, the Money Laundering Prevention Service (Sepblac) has warned of fines for violation of these restrictions. In these circumstances, explains the expert, the diligence with the documentation increases. Entities could even “temporarily block some transactions to review them manually.” The single letter dance in the name can bypass automatic filtering.

In this scenario, there are companies that have decided to do business with Russia. In any case, any company that participates in international trade, points out Pedro Fernández-Villamea, Legal & Compliance coordinator at Gees-Spain, “must be accredited with ISO 37001, the international anti-bribery certificate, together with UNE 19601″. These certifications, he adds, “become strategic both for the opening to possible tenders, and for the reputation of the firm.” All this, he summarizes, must be in line with the criteria set by the FATF (International Financial Action Task Force) recommendations, “which guide daily action in the eradication of money laundering.”

Money laundering

Another concern is the circulation of money of dubious origin. According to sources consulted, some operators already put customers from Russia or Belarus under the microscope for considering them to be of higher than average risk. However, Mariano García underlines, “these countries are not considered tax havens nor are they on the FATF or EU blacklist.” But the red light does not only come on when the money comes from these territories. Also, for example, when a retired elderly person represents a company in a commercial operation. All those responsible must raise their hands if they observe suspicious signs. “If they don’t, they could incur liability,” explains Tabarés. Even criminal.

Money laundering is, in itself, a crime with which it is intended to erase the trail of the illicit origin of an amount of money or any asset through investments, purchases, etc. The key, emphasizes Eduardo de Urbano, magistrate on leave of absence and counsel of Kepler-Karst in Economic Criminal Law, “is to be able to sufficiently prove that the introduction of these funds in the legal market derives from specific crimes”. Mere suspicions or doubts are not enough, he explains, and pursuing it is difficult, “because, by definition, it is a non-transparent activity.”

Cryptocurrencies, an escape route

With the ruble at a low, bitcoin captures the attention of Russian investors. Cryptocurrencies can be an asset to circumvent the restrictions imposed by international banks for the movement of capital with Russia. In fact, according to the financial newspaper Les Echos, some tycoons have already transferred money to digital currency exchange platforms. As Juan E. Tordesillas, partner in the Compliance area at Ecija, analyzes, this operation, despite having increasing regulation and greater supervision at the community level, such as the fifth anti-money laundering directive or the future MiCA Regulation, “facilitates the international transfer of financial assets with control difficulties.

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