US intensifies enforcement of sanctions to throttle Russian evasion

LONDON – The United States government has moved to sanction hundreds of what it called “enablers” who allegedly facilitate the evasion of sanctions slapped on Russia in retaliation for its all-out invasion of Ukraine.

Since

that invasion started in February 2022,

the US authorities have sought to tighten the economic noose imposed on Russia with repeated waves of sanctions aimed at wealthy Russian individuals – often referred to as oligarchs – and Russian enterprises.

But a sweeping new list of sanctioned individuals and companies released on Oct 30 by the Office of Foreign Assets Control (OFAC) – a financial intelligence and enforcement agency operating under the US Treasury Department – belongs to a new category. The so-called “secondary sanctions” are aimed at those who allegedly help either the Russian authorities or Russia’s proxies to bypass existing sanctions.

And it also signifies a fresh determination in Washington to flex America’s financial muscle.

The new OFAC list affects entities based in 17 countries, including some registered in Singapore. For the first time, it also targets lawyers based in Switzerland accused of exploiting legal loopholes to facilitate the illegal flow of Russian money.

In keeping with its usual practice, OFAC has released no factual evidence to support its accusations.

Yet there is no doubt about the grave consequences of OFAC’s listing. Any company or individual engaging in any activity with those on the new sanctions list could be subject to heavy fines and criminal charges from the US authorities if they ever set foot in America or somehow fall under a US jurisdiction.

“The United States and our allies will continue to take decisive action across the globe to stop the flow of critical tools and technologies that Russia needs to wage its illegal and immoral war against Ukraine,” vowed Deputy Secretary of the Treasury Wally Adeyemo, soon after the latest list of sanctions was published.

There are five Singapore-based entities on this list, including Powerman International.

According to the US State Department, Powerman shipped approximately US$4.5 million (S$6 million) worth of materials potentially for use in Russian military applications, including electrical supplies, to Russia-based companies between March 2023 and February 2024.

Powerman did not immediately respond to queries from The Straits Times.

The US State Department also found that Singapore-registered LNG Alpha Shipping, LNG Beta Shipping, LNG Delta Shipping and LNG Gamma Shipping are the registered owners of vessels that were procured to expand Russia’s liquefied natural gas export capacity.

These four entities could not be reached for comment.

All four are majority-owned by Dubai-based New Transhipment FZE, a subsidiary of a sanctioned Russian company, Novatek. The US State Department also said LNG Alpha Shipping is directed by Russian nationals.

Since Russia’s invasion of Ukraine, the US, European Union, Britain and many other countries including Australia, Canada and Japan have imposed what are by now estimated to be an astonishing 18,500 different sanction measures on Russia.

Singapore has followed suit, with sanctions on technology transfers to Russia in an effort “to constrain Russia’s capacity to conduct war against Ukraine”, as well as “financial measures targeted at designated Russian banks, entities and activities in Russia, and fund-raising activities benefiting the Russian government”, as a March 5, 2022, communique from Singapore’s Ministry of Foreign Affairs (MFA) outlined.

MFA was unable to immediately respond to an ST request for fresh comment late on Nov 1.

The US and its allies have also frozen Russian foreign currency reserves worth US$350 billion – about half of the country’s total reserves. In addition, about 70 per cent of the external assets of Russian commercial banks had been blocked.

Russian payment systems were also excluded from Swift, a high-speed messaging service for financial institutions, severely limiting the country’s ability to trade.

Western experts claim that the sanctions are hurting Russia badly. They may have halved Russia’s economic growth prospects and created severe financial imbalances that will endure for a long time.

Interest rates are rising fast in Russia, indicating inflationary pressures. Russian financial markets are experiencing an acute shortage of Chinese yuan as residents scramble to buy one of the few global currencies still available.

Still, the Russian economy has continued to grow at an annualised rate of around 2 per cent, and consumer goods – mainly imported from China – remain widely available.

More significantly, Russia proved adept at redirecting its oil and gas sales away from European markets to Asian consumers, particularly in India and China.

While Russia initially sold its energy products at a discount to entice customers to ignore US-led sanctions, its current energy exports carry much smaller discounts, indicating that Russia successfully bypassed Western sanctions.

Moscow succeeded in doing so by shipping much of its oil through a so-called “shadow fleet” of up to 1,000 mostly ageing tankers. These sail without the required cover of a globally recognised insurance company, have opaque ownership, frequently change their names and flag registrations, and generally operate outside international maritime safety regulations to avoid detection.

Until now, US regulators have tended to ignore such activities mainly because the Biden administration feared that if Russian oil exports were seriously disrupted, that could send global energy prices soaring just before the US presidential election.

However, with the US polls soon out of the way, officials in Washington may now be ready to throttle this trade.

Many of the Chinese, Malaysian, Thai and Singapore-based individuals and commercial entities now sanctioned were added to the list because, allegedly, they enable the operation of this “shadow fleet” or are otherwise helping Russia overcome a global shortage of tankers capable of transporting liquefied natural gas.

Another US sanctions novelty is the targeting of lawyers in Switzerland, accused by the American authorities of being “major handlers of Russian assets” and “cash facilitators” for Russian interests.

The Americans have complained for years about lawyers in countries such as Britain or Switzerland who earn fortunes by setting up complicated trusts and shell companies for the sole purpose of hiding cash belonging to Russian oligarchs or the Russian state.

The British government now vows to deal with such “professional enablers”.

However, Swiss lawmakers remain deadlocked over proposals to create a “transparency register” where all companies established in their country would have to disclose the identity of their ultimate owners. The Swiss fear this would reduce their country’s attractiveness as a global financial centre.

By sanctioning two Swiss lawyers, the US is warning that it will not tolerate what it regards as Switzerland’s dithering for much longer.

At an Oct 30 press conference held in Bern, the Swiss capital, US Ambassador Scott Miller rejected accusations that the US is trying to gain advantages for its financial centres by enforcing sanctions. “The Swiss financial centre is still No. 1 for offshore assets,” he pointed out.

The Swiss government has rejected US pressure, pointing out that the two lawyers are not subject to sanctions in the EU or Switzerland.

“In principle, US sanctions have no direct legal effect in Switzerland,” read an Oct 31 statement from the Swiss authorities.

Still, the all-powerful Swiss Bankers Association urged the country’s legislators to quickly revise its money laundering legislation.

Mr Felix Muff, the association’s head of legal and compliance, warned that a dispute with US regulators “must be avoided at all costs”.