Citadele bank warns businesses about sanctions evasion

Take note – story published 1 year and 8 months ago

Latvian bank Citadele said September 13 that attempts by businesses to circumvent or evade sanctions imposed on agressor states Russia and Belarus will ultimately prove extremely counter-productive to those doing so.

Since February 24th this year, when the military aggression by Russia against Ukraine, which began in 2014, became full-scale warfare, the European Union, United States and other countries have enacted several rounds of increasingly powerful economic sanctions.

"Citadele has informed its customers and the wider public multiple times about European Union and United States sanctions which apply to the Baltic states by law or the bank’s internal policies," Citadele said in a round-up of the latest trends it has detected in sanctions evasion and its potential impact on the war against Ukraine.

"The bank has noticed increasing attempts to use businesses established in the European Union (EU) and in third countries as an intermediary for making payments or goods deliveries to or from Russia. This trend has clearly changed from the cases which were typical even until July this year, when the payment chain matched the end recipient or seller. This demonstrates the effectiveness of the sanctions, and the acute need of Russia and its consumers to obtain or sell sanctioned goods," Citadele said.

Giving an intersting example of how sanctions evasion happens, the bank explained:

"Goods are delivered to, for example, Kazakhstan or Serbia, while the true end recipient is in Russia. Or, for example, raw materials are procured from the United Arab Emirates, Bulgaria or Tajikistan, but their true origin is Russia, and they may also have been transported via Belarus or other countries.

“The aim of recent sanctions against Russia and Belarus is not just to signal to these countries the West’s strong position, but also to take specific actions to reduce Russia’s ability to fight this illegal war by denying access to financial resources and the goods, services and technologies needed to fight and finance the war. Therefore, attempting to evade EU sanctions is not just criminally punishable, but also supports Russia’s crimes against Ukraine and its people,” said Uldis Upenieks, chief compliance officer at Citadele Bank.

Know your partners (and all your partners’ partners)

The bank believes that one of the best ways to avoid accidentally supporting Russian aggression or the Lukashenko regime is to investigate business partners and the entire delivery chain in full.

"You should ensure that your business partner is not merely a front company which hides its true owners, manufacturers or buyers behind overseas companies or offshores, or other complex ownership or delivery chains. This is particularly apparent when business partners or even just one business partner have no apparent business use, which points to efforts to hide something.

"These and similar schemes threaten legitimate business operations, because even unknowing involvement in sanctions evasion attempts may cause serious complications. For example, payment for goods which have already been delivered may be frozen if it is discovered that the true end recipient is subject to sanctions," Citadele said.

Banks may cease cooperation with any customer if they suspect they may be involved in breaching or evading sanctions. The bank is also obliged to notify the relevant institutions of all such cases, and to freeze the sanctioned person’s funds at any point in the illegal transaction chain, it added.

Following an April decision to cancel legal entities’ payments with Russia and Belarus, Citadele cancelled private customer payments with Russia and Belarus on August 20, noting what it called "a feverish transfer of funds from Russia" with each transfer checked manually by the bank to avoid breaching sanctions and other rules.

“We would like to remind that, in accordance with EU regulation, additional controls are applied to Russian and Belarusian citizens who do not have a valid residence permit, including a limit on the maximum account balance in one credit institution and limits on operations with financial instruments,” said Upenieks.

Useful materials for businesses

To combat sanctions-busting, the Financial Intelligence Unit of Latvia (FIU Latvia) has led a months-long project with the involvement of Citadele’s sanctions expert Saiva Krastiņa and experts from other banks to produce a document entitled “Indicators of Russia-Related Sanctions Evasion,” which is available on the FIU Latvia website in Latvian and English.

Citadele has also published a document of its own titled “Five Steps to Adhering to Sanctions for Businesses” a version of which is also available in English.

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