Introduction/Summary Findings
A year into Russia’s invasion of Ukraine, and despite the unprecedented number and speed of sanctions imposed on Russia, its leaders, institutions, and intermediaries, Russia’s appetite for continuing the war has not stifled. However, these restrictions have imposed significant costs on Russia’s economy and its elite and have altered implementation of US sanctions and anti-money laundering efforts. As sanctions continue to be implemented, there are those looking for ways to evade them by concealing origins of funds and ownership, hiding assets, and using intermediaries to access the global financial system.
This month’s report covers the latest sanction enforcement activity, including the following highlights:
- OFAC designating Russian mercenary outfit Wagner Group as a “transnational criminal organization” and entering sanctions against associated persons and companies as well the Russian defense sector;
- A former head of the FBI’s Counterintelligence Division being indicted for violating sanctions on Russian oligarch Oleg Deripaska;
- A joint G-7 sanctions action against Russia to mark the anniversary of the invasion of Ukraine focused on defense entities and senior Russian leadership figures;
- OFAC designating a Russian sanctions evasion network with ties to Israel, Cyprus, Singapore, and Latvia.
Spotlight – Former FBI SAC Indicted for Deripaska Ties
On January 23, the US Department of Justice unsealed an indictment against Charles F McGonigal, former Special Agent in Charge (SAC) of the FBI’s Counterintelligence Division, and Sergey Shestakov, a former Soviet/Russian diplomat, for “alleged[ly] violating and conspiring to violate the International Emergency Economic Powers Act (IEEPA) and conspiring to commit money laundering and money laundering.” The DOJ accused McGonigal, who served as SAC from 2016 to 2018 and conducted several investigations against Russian oligarchs, of working with Shestakov to provide services to oligarch Oleg Deripaska after the US imposed sanctions on Deripaska in 2018. McGonigal, as SAC, received a classified list of potential sanctions targets in 2018 which included Deripaska. The complaint alleged that shortly after Deripaska was sanctioned and while McGonigal was still SAC, Shestakov, an acquaintance of McGonigal’s, introduced him to Deripaska’s agent.
After McGonigal retired from the FBI, he and Shestakov introduced Deripaska’s agent to an unnamed US law firm to try to remove Deripaska from the sanctions list. The complaint noted that in communication between the parties, none of the individuals would name Deripaska directly, referring to him in euphemisms instead. Under the agreement between Deripaska and the law firm, he paid the firm $175,000 per month together with $25,000 for “other professionals,” the latter of which was paid to McGonigal as a consulting fee.
Although the sanctions removal scheme fizzled out, the complaint stated that the defendants began working with Deripaska again in Spring 2021, when Deripaska’s agent retained them to investigate an unnamed Russian oligarch with whom Deripaska was sparring over control of an unnamed large Russian corporation. Deripaska sought their help to uncover potential hidden assets as well the possibility of the target covertly holding another passport. In August 2021, the defendants and Deripaska’s agent executed a contract under which a Cyprus entity related to Deripaska agreed to pay an initial $51,280 and subsequently pay $41,790 monthly to a New Jersey company owned by a friend of McGonigal’s. The indictment noted that McGonigal’s friend “arranged for McGonigal to participate in the business” while he was still at the FBI and gave\ him “a corporate email account and a cellphone under a false name […] to conceal McGonigal’s work for the New Jersey Corporation while still employed by the FBI.” McGonigal and Shestakov gathered information on the oligarch until November 2021. One of their subcontractors allegedly uncovered a cache of dark web files “that could reveal hidden asets valued at more than $500 million.” However, the investigation stopped when FBI agents seized the defendants’ electronic devices.[1]
Note that McGonigal was a central figure in the early stages of Robert Mueller’s investigation into alleged Russian interference in the 2016 US election. Per media outlets such as the New York Post, McGonigal was “among the first FBI officials to learn that Trump campaign adviser George Papadopoulos told an Australian diplomat that Russia had “political dirt” on [Hillary] Clinton.” In July 2016, McGonigal sent FBI Deputy Assistant Director Jonathan Moffa an email which “contained essentially that reporting, which then served as the basis for the opening of the case.” In March 2017, shortly before Mueller’s appointment to lead the investigation, McGonigal sent a colleague an email claimed that FBI agents were interviewing Trump campaign adviser Carter Page about ties to Russia. Oleg Deripaska himself was also a key figure in the Mueller investigation, as Deripaska at one point sued Trump campaign director Paul Manafort, a former business partner, for allegedly owing him millions of dollars.[2]
New Sanctions
US Sanctions
Joint G-7 Sanctions
On February 24, 2023, OFAC entered one of its largest sanctions package to-date when it designated over 100 companies and individuals engaged in generating revenue for the Russian government, Russian defense sector, sanctions evasion, and more.
Russian defense input manufacturers were some of the most prominent sanctions targets. In particular, the US focused on carbon fiber and aerospace components, entering sanctions against JSC UMATEX, Russia’s largest carbon fiber producer, as well as three subsidiaries (including Austrian company UMATEX Group Europe SRO). OFAC also designated UVICOM Ltd and Alabuga-Fibre LLC, smaller Russian carbon fiber producer. Furthermore, as part of aerospace sanctions, OFAC designated composite materials producers JSC Prepreg Advanced Composite Materials and Urals Scientific Research Institute of Composite Materials as well as NPO Mashinostroyenia, a major Russian defense manufacturer previously sanctioned in 2014.
Several Russian technology companies linked to the defense sector were also sanctioned. These include: 0Day Technologies, a cybersecurity firm which has reportedly provided personal info of Western citizens to the Russian government; OKB Spektr, which produces spectral analytical instruments and has provided telemetry support for Russian missiles; mobile device monitoring firm Novilab Mobile LLC; high-tech equipment importers JSC Vakuum and PSV Technologies LLC, cyber warfare contractor Forward Systems R&DC, and others. JSC Vakuum was notably identified as working with the Malberg Ltd sanctions evasion network which was designated by OFAC in 2022.
Furthermore, OFAC designated Federal State Unitary Enterprise Central Scientific Research Institute of Economics, Informatics and Management Systems, a Russian government entity engaged in developing military command and control systems, and PMC Redut, a private military company fighting in Ukraine which has been linked to the GRU and Ministry of Defense.
Another nexus for designation was the sanctions evasions network of Swiss-Italian businessman Walter Moretti, who OFAC states “covertly procured sensitive Western technologies and equipment for Russian intelligence services and the Russian military, including hydraulic presses, armament packages, and armor plating” as well as “equipment for Russia’s nuclear weapons laboratories.” Moretti’s main accomplices in the scheme were German national Markus Mueller and Swiss nationals Ronald Cosman and Bruno Koller, who used Swiss company Swisstec 3D AKUS AG as well as two other Swiss firms controlled by Mueller for military technology procurement. Two Moretti companies in the UAE (Taerio Limited and Tamyna FZE) were likewise sanctioned together with Taerio Limited-owned Maltese firm Stratton Investment Group LTD and its Swiss-Italian board member Frederic Villa. Several other individuals and companies involved in the evasions scheme were likewise designated. Another arms dealer targeted by OFAC was Russian-Turkmen Nurmurad Kurbanov, accused of representing a US-sanctioned Belarussian arms manufacturer, and his Cyprus-based Stella Leone Limited.
OFAC further designated Aleksandr Udodov, a Russian businessman and ex-brother-in-law of Prime Minister Mikhail Mishustin, together with Udodov’s Russian consulting company Aforra Management LLC and 14 Russian-based subsidiaries. Udodov’s Czech company Avrora Capital SRO, BVI-based Leading Capital Investment Ltd, and Bahamas-based Caliber Wealth Management Ltd were also sanctioned.
Another major target was the Russian banking industry. Notably, this includes the Credit Bank of Moscow, the largest non-state bank in Russia, as well as Metallinvestbank, MTS Bank, Bank Uralsib, and other large Russian banks. OFAC also issued a new General License (GL 60) authorizing winddown of certain transactions by May 2023 with additional carveouts for energy-related transactions.
In addition, several wealth management entities and their related persons were designated. This includes Singapore-based family office CONFIDERI Pte Ltd and its two founders as well as Vend Ore GmbH, a related Austrian company owned by the duo. Sanctions also touched HNWI wealth management firm IC Veles Capital LLC and its Russian-Cypriot founders Dmitry Bugayenko and Aleksei Gnedovskii, as well as three related Russian and two related Cypriot companies. Rosbank deputy chairman Ulan Ilishkin, Alfa Bank’s private banking head Alina Nazarova, and Sberbank private banking head Evgeniya Tyurikova were also designated.
Zimenkov Sanctions Evasion Network
On February 1, 2023, OFAC imposed full blocking sanctions against 22 individuals and entities involved in sanctions evasion for the benefit of the Russian military. The network involved companies and individuals spread out across multiple jurisdictions. At the center of the scheme was Igor Zimenkov, a Russia/Cyprus-based arms dealer who has supplied high tech military technology to the Russian defense sector and his son Jonathan. OFAC claimed that the two have been involved in multiple military deals not just with the Russian military but the Belarussians as well.
As part of the sanctions, OFAC also designated Singapore-based Zimenkov front company Asia Trading & Construction PTE Limited and director Serena Bee Lin Ng for their role in helicopter sales to Latin America on behalf of Rostec. Cyprus-based GBD Limited, which positioned itself as an arms supplier for African countries, its shareholder and Zimenkov associate Alexander Volfovich, his two sons Stanislav and Ariel, and six firms owned by Volfovich (including one in Israel and one in Bulgaria) were likewise designated. Pursuant to sanctions against the Volfovich companies, Uzbekistan-based Maks Piflaks, director of Cypriot Volfovich company Mateas Limited and his son Gilad, both of whom were also affiliated with Israel-based D.E.S. Defense Engineering Solutions LTD were also designated. Igor Palnychenko, an executive at Volfovich company GMI Global Manufacturing & Integration Limited, and two companies he directed were likewise designated.
Finally, Marks Blats, a Latvian Zimenkov associate and business partner of previously sanctioned Belarussian Aliaksandr Zaitsau, was sanctioned alongside Texel F.C.G. Technology 2100 Limited (Israel) and Elektrooptika SIA (Latvia), companies he used for the scheme.
Wagner Group
On January 26, 2023, OFAC and the US State Department concurrently entered sanctions designations against Wagner Group, the mercenary outfit owned by Evgeniy Prigozhin which has emerged as the largest Russian private military company with operations across Africa as well as in the ongoing War in Ukraine. The new designations branded Wagner as a “transnational criminal organization” whose personnel “have engaged in an ongoing pattern of serious criminal activity, including mass executions, rape, child abductions, and physical abuse in the Central African Republic (CAR) and Mali.”
In addition to Wagner itself, OFAC also designated various entities which “support Wagner Group’s military operations.” This includes Russian commercial satellite imagery supplier JSC Terra Tech, Chinese company Changsha Tianyi Space Science and Technology Research Institute Co. Ltd (which supplied images of Ukraine to Terra Tech used to inform Wagner operations), the Chinese firm’s Luxembourg subsidiary Spacety Luxembourg SA, and Russian satellite imagery firm JSC Research and Production Concern BARL. In the Central African Republic, OFAC designated Officer’s Union for International Security (OUIS) and Sewa Security Services, entities used by Wagner in their CAR operations. OUIS’s director Aleksandr Aleksandrovich Ivanov was also designated. Furthermore, Kratol Aviation, a UAE company used to “move personnel and equipment between the CAR, Libya, and Mali” and Valery Nikolayevich Zakharov, a Wagner employee and National Security Advisor to the President of CAR, were also designated.
Apart from the Wagner-related sanctions, OFAC also designated various entities in the Russian defense industrial complex including: Russian cargo airline JSC Aviacon Zitotrans for shipping Russian arms to various locations across the world and LLC Research & Production Enterprise Prima for developing and manufacturing communications equipment for Russian aircraft. Furthermore, Alan Valeryevich Lushnikov, majority shareholder of the Kalashnikov Concern weapons manufacturer, and LLC TKKH-Invest, the entity he used to control Kalashnikov, were designated due to their operation in the Russian defense sector. Other individuals sanctioned by OFAC include Tupolev PJSC chairman and Tatarstan president Rustam Nurgaliyevich Minnikhanov his wife Gulsina Akhatovna Minnikhanova, and OOO Luchano, a hotel and spa complex in Kazan. Aleksandr Dmitrievich Kharichev and Boris Yakovlevich Rapoport, were sanctioned due to their work in annexation referendums in Ukraine.[3]
Concurrently with the US Treasury Department, the US State Department also designated Wagner Group, and several related Africa-focused entities including Africa Politology, a Russian entity controlled by Prigozhin which “develops and mechanisms to induce Western countries to withdraw their presence in Africa and is involved in a series of Russian influence tasks in the Central African Republic.” The State Department also entered sanctions against four companies related to Vladimir Potanin, a Russian oligarch designated in December 2022. These include: MK Interros Invest, a Russian firm he used to manage his stake in Norilsk Nickel; Whiteleave Holdings Limited, a Cypriot firm which held his Norilsk Nickel; Saltcliff Trading Limited, a Cypriot investment firm; and International LLC Interros Capital, a Russian investment firm which acquired a majority stake in Rosbank. Sergey Leonidovich Batekhin, CEO of sanctioned Interros Holding, was also designated.
Another group of sanctions was levied against Sergei Nikolaevich Adonev, “financier to Russian President Vladimir Putin and Rostec State Corporation head Sergei Chemezov”, and his network including sons Filipp and Luka, Adonev-owned LLC Kaleidoskop, and three of his yachts. Five Russian politicians, Russian shipbuilding firm Joint Stock Company Far Eastern Shipbuilding and Ship Repair Center, and eight of the firm’s subsidiaries were also designated by the State Department. Finally, the State Department imposed visa restrictions on 531 members of the Russian military.[4]
Iranian Drones
On January 6, 2023, OFAC entered sanctions designations against six executives and board members of Qods Aviation Industries (QAI), a US-sanctioned Iranian drone manufacturer, for their role in supplying said drones to Russia. OFAC designated QAI chairman Seyed Hojatollah Ghoreishi, managing director Ghassem Damavandian, and four board members “for acting or purporting to act for or on behalf of, directly or indirectly, QAI.” Ghoreishiwas also sanctioned due to serving as head of the Supply, Research, and Industry Affairs section of the Iranian Ministry of Defense and Armed Forces Logistics.[5]
EU Sanctions
On February 25, after several months of negotiation, the EU announced its 10th package of sanctions against Russia. As part of the sanctions, the EU designated over 100 new individuals including senior government officials and decision makers, occupying authorities, disinformation disseminators, indivduals involved in kidnapping Ukrainian children, and others linked to Russia’s ongoing invasion of Ukraine.
At the political level, the EU designated every new member of the Federation Council since December 2022, notably including members from the Luhansk People’s Republic as well as 23 deputy ministers, federal agency heads, and State Duma members. Also designated were proxy authorities and government organizations set up in the annexed territories such as the Donetsk Ministry of Emergency Situations, as well as their unsanctioned leadership figures. In addition, multiple members of Evgeniy Prigozhin’s network, including senior Wagner Group commanders and companies used in Prigozhin’s African operations, were also designated. Like other countries, the EU also designated people and companies involved in Russian propaganda activities including Rossyia Segodnya. Three large banks, Alfa-Bank, Rosbank, and Tinkoff Bank were sanctioned to limit economic activity by the Russian government.[6]
Apart from individual designations, the sanctions also included numerous new rules for engaging with Russia. Notably, the new rules ban any Russian national from holding positions at entities which govern critical EU infrastructure due to concerns over Russian influence. In addition, the EU banned provision of gas storage services to Russian nationals and suspended broadcast licenses for Sputnik Arabic and RT Arabic. Finally, the EU implemented new export restrictions on electronics, vehicles, machine parts, engine parts, and certain construction materials which can be used for military goods. Various military-linked Russian companies had tighter export control measures imposed on them. Finally, Europe announced new reporting obligations on funds belonging to sanctioned individuals subject to a freeze.
UK Sanctions
On February 24, the UK announced new sanctions which banned exports to Russia of “every item Ukraine has found Russia using on the battlefield to date.” The UK banned export of aircraft parts, radio equipment, and electronic components and banned imports of various Russian goods such as iron and steel.
Like the US, the UK entered sanctions against St Petersburg Bank, MTS Bank, Bank Uralsib, and Bank Zenit in order to further target the UK financial sector. The UK sanctions also sanctions nearly 100 individuals and entities. Most notably, the UK designated Nord Stream 2 CEO and Putin confidante Mattias Warnig, Tula Oblast governor Alexei Dyumin, and Gazprom chairman Viktor Zubkov. Multiple senior personnel from Russian military-industrial entities were likewise designated. This notably included 17 members of the supervisory and management boards of state nuclear entity Rosatom 19 board members from state defense technology entity Rostec, and 15 senior employees from defense manufacturer Almaz-Antey. In addition, executives from other defense-adjacent entities such as Aeroflot CEO Sergey Aleksandrovsky were also sanctioned, as were several companies which provided support services to the defense industry.
Finally, the UK designated five Iranian individuals affiliated with QAI to supplement the US’s January sanctions against QAI individuals. The UK likewise sanctioned Ghassem Damavandian and the four board members for their role in supplying drones to Russia.[7],[8]
Taiwan Sanctions
On January 4, the Taiwanese Ministry of Economic Affairs (MOE) amended its “List of High-Tech Goods Exported to Russia and Belarus” to expand export controls against Russia and Belarus. Under the new framework, the MOE added 52 items “related to nuclear energy substances, miscellaneous goods and materials, chemicals, and machine tools” to the restriction list. It stated that “in license applications” for controlled goods, the Bureau of Foreign Trade “will take into consideration whether exporters received payments prior to the aforementioned announcement, and whether end users are involved or not in the proliferation of weapons of mass destruction.”[9]
Japan Sanctions
On February 28, Japan announce that it would implement sanctions measures as part of joint G-7 sanctions against Russia. These measures, which were not immediately announced, will include new asset freezes on Russian individuals and entities, financial sanctions on financial institutions, and export bans on dual-use items.[10] On January 27, Japan expanded its sanctions against Russia to include 36 individuals and 52 entities to the list. First Deputy PM Andrey Belousov, Minister of Justice Konstantin Chuychenko and Deputy Defense Minister Mikhail Mizintsev are some of the high profile officials added to Japanese sanctions.[11] The new sanctions also include asset freezes and bans on exports to Russia. Sanctions targets include aircraft company JSC Irkut Corp and missile maker MMZ Avangard, whose assets in Japan were frozen. Japan additionally imposed bans on exports of goods such as “water cannons, gas exploration equipment and semiconductor equipment to vaccines, X-ray inspection equipment, explosives and robots” to Russia.[12] Apart from these targeted sanctions, on February 6, Japan announced a total import ban on oil from Russia above $60 per barrel.
Australia Sanctions
On February 24, Australia, in conjunction with other G-7 nations, announced a new round of sanctions against 130 persons and entities in Russia. The defense sector received particular attention, with designations hitting weapons manufacturer Kalashnikov Concern, aircraft maker Tupolev, submarine maker Admiralty Shipyards, vehicle makers Uralvagonzavod and Lipetsk Mechanical Plant, and other entities involved in manufacturing equipment used on the front lines in Ukraine. Also sanctioned were research institutions involved with defense work including the Kurchatov Institute and Fond Perspektivnykh Issledovaniy or tied to oligarchs such as the Skolkovo Foundation. Canada also sanctioned Sputnik, the Russian state-owned media network, oil company Lukoil, and banks Dalnevostochniy Bank & Russian Export-Import Bank.
On the individual side, Australia designated 14 members of the Russian Central Election Committee, 10 previously unsanctioned cabinet ministers, four Deputy Prime Ministers, 39 previously unsanctioned governors including Moscow governor Andrey Vorobyev, in a drive against senior government personnel. Senior officials at media organizations, such as Channel One CEO Konstantin Ernst and Roskomnadzor (Russian media regulator) deputy head Vadim Subotin, were sanctioned for their role in promoting Kremlin propaganda. Patriarch Kiril, the head of the Russian Orthodox Church, and Russian political philosopher Alexander Dugin were also designated. In addition, Australia designated Task Force Rusich, a neo-nazi Russian paramilitary unit fighting in Ukraine, as well as its co-founder Yan Petrovsky.
Switzerland Sanctions
On January 26, the Swiss Federal Department of Economic Affairs, Education and Research, pursuant to an announcement by President Ignazio Cassis that Switzerland would follow the EU sanctions regime, designated over 200 individuals and entities included in the EU’s December 2022 9th package of sanctions. The Swiss Federal Council also stated it would “grant exemptions from the arms embargo on demining equipment for use in Ukraine on a case-by-case basis.”[13]
New Zealand Sanctions
On February 24, New Zealand entered sanctions against 87 Russian individuals to mark the anniversary of the Russian invasion of Ukraine, the largest single package to date. The sanctions designated 10 formerly unsanctioned cabinet ministers, including Minister of Energy Nikolai Shulginov and Minister of Labor Anton Kotyakov, as well as four Deputy Prime Ministers including Tatiana Golikova. Also sanctioned were nearly 40 Russian governors and 14 members of the Russian Central Election Commission. Furthermore, New Zealand designated senior Russian military commanders including the heads of Russia’s strategic missile forces and main missile-artillery directorate, as well as several division and army group heads.[14]
Canada Sanctions
On February 24, Canada announced its portion of the joint G-7 sanctions against Russia. As part of this package, Canada designated over 120 Russian politicians and their families, including high profile individuals such as First Deputy Prime Minister Andrey Belousov, as well as every member of the Russian State Duma who voted for the annexation of four Ukrainian provinces as well as other pro-war measures. The ruling United Russia party and government organizations such as the Federal Security Service, State Duma, Federation Council, and Federal Guards Service, were among several state entities sanctioned by Canada. Other entities designated as part of the package were numerous defense companies and their suppliers. This ranged from large entities such as Uralvagonzavod, research organizations such as the Central Aerohydrodynamics Institute, and auto manufacturers like Gruppa Gaz LLC.[15],[16]
Additionally, on February 3, Canada imposed sanctions on 38 individuals and 16 entities involved in Russia’s propaganda campaigns such as new organizations RIA Novosti & Rossiya Segodna and Evgeniy Prigozhin-linked disinformation organizations United World International and Foundation for the Fight Against Repression. Also sanctioned were various persons associated with Russian propaganda such as singer Nikolai Baskov, who has visited occupied Ukraine, and Sergey Karaganov, head of the Council on Foreign and Defense Policy.[17]
END UPDATE
[1] https://www.justice.gov/usao-sdny/press-release/file/1563476/download
[2] https://nypost.com/2023/01/23/charles-mcgonigal-indicted-ex-fbi-head-helped-trigger-russia-probe/
[3] https://home.treasury.gov/news/press-releases/jy1220
[4] https://www.state.gov/actions-to-counter-wagner-and-degrade-russias-war-efforts-in-ukraine/
[5] https://home.treasury.gov/news/press-releases/jy1182
[6] https://www.consilium.europa.eu/en/press/press-releases/2023/02/25/10th-package-of-sanctions-on-russia-s-war-of-aggression-against-ukraine-the-eu-includes-additional-87-individuals-and-34-entities-to-the-eu-s-sanctions-list/
[7] https://www.gov.uk/government/news/new-sanctions-ban-every-item-russia-is-using-on-the-battlefield
[8] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1138500/Notice_Russia_240223.pdf
[9] https://www.moea.gov.tw/Mns/english/news/News.aspx?kind=6&menu_id=176&news_id=104215
[10] https://sanctionsnews.bakermckenzie.com/japan-announces-further-sanctions-against-russia/
[11] https://www.japantimes.co.jp/news/2023/01/27/national/japan-russia-sanctions-list/
[12] https://www.aljazeera.com/economy/2023/1/27/japan-bans-exports-of-robots-semiconductor-parts-to-russia
[13] https://www.aa.com.tr/en/europe/switzerland-imposes-new-raft-of-sanctions-on-russia-for-military-aggression-in-ukraine-/2797573
[14] https://www.rnz.co.nz/news/political/484773/government-announces-further-russia-sanctions-on-anniversary-of-invasion
[15] https://www.international.gc.ca/world-monde/international_relations-relations_internationales/sanctions/russia_regulations-reglement_russie36.aspx?lang=eng
[16] https://www.international.gc.ca/world-monde/international_relations-relations_internationales/sanctions/russia_regulations-reglement_russie37.aspx?lang=eng
[17] https://www.canada.ca/en/global-affairs/news/2023/02/canada-sanctions-additional-russian-propagandists.html
This post has been written by Daniel Gutman and published by Integrity Risk