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Red alert issued in respect of financial sanctions evasion typologies – Russian elites and enablers

10 Aug 2022

On 21 July 2022, the BVI Financial Services Commission (the FSC) issued Industry Circular No. 4 highlighting a “red alert” which has been issued by the UK National Economic Crime Centre (the NECC).

The NECC is a multi-agency unit in the UK’s National Crime Agency and Her Majesty’s Treasury’s Office of Financial Sanctions Implementation that works in conjunction with law enforcement and financial sector partners as part of the Joint Money Laundering Intelligence Taskforce.

What is a red alert?

A red alert is a mechanism which provides a series of sanctions evasion indicators identified from real works case studies and also sets out recommendations as to the level and type of due diligence (DD) that persons in the financial services sector should perform on higher risk transactions and counterparties.

The purpose of a red alert

The purpose of a red alert is to combat financial sanctions evasion by complementing the private sector’s existing knowledge of these issues. The red alert facilitates preventative action in the form of enhanced business processes and procedures to identify and mitigate any exposure that sectors of the industry may have to sanctions evasion following the unparalleled volume of sanctions designations introduced since the start of Russia’s invasion into Ukraine.

What is the red alert based on?

The red alert is based on financial sanctions evasion typologies in relation to Russian entities and enablers as identified within the UK. These typologies are applicable to “relevant persons” who are conducting “relevant business” and Designated Non-Financial Business Providers (DNFBPs) operating in or from within the BVI.

Why has the FSC published the red alert?

The reason for publishing the red alert in the BVI is to:

  • promote an awareness of the importance of effectively identifying and mitigating the risk posed by higher risk transactions and counterparties;
  • underscore the importance of relevant persons and DNFBPs to undertake robust DD that is targeted to address the sanctions risks, including sanctions evasion risks posed by such transactions and business relationships; and
  • ensure that relevant persons and DNFBPs consider whether existing sanctions compliance mechanisms take into account sanctions evasion tactics and that such measures are effective in mitigating/prohibiting financial sanctions evasion by persons who are designated on the Consolidated List of Financial Sanctions Targets in the UK (the UK Sanctions List), Russian elites and enablers.

What should BVI relevant persons and DNFBPs be doing?

If BVI relevant persons and DNFBPs have a suspicion that they are dealing with a designated person that is utilising techniques and tactics to evade the sanctions, most notably, the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), the Russia (Sanctions) (EU Exit) Regulations 2019 (the 2019 Russia-UK Regs) which were made under SAMLA and which were extended to the UK’s Overseas Territories (including the BVI) by the Russia (Sanctions) (Overseas Territories) Order 2020 (the 2020 UKOT-Russia Order), they are required to:

  • check whether they maintain any account or hold any funds or economic resources for the persons referred to in the UK Sanctions List (as updated from time to time);
  • immediately freeze any accounts and funds or economic resources of the designated persons;
  • file a compliance reporting form with the Governor of the BVI;
  • refrain from dealing with the funds or assets or making them available (directly or indirectly) to the designated person;
  • take legal advice to ascertain whether any licence application needs to be filed with the Governor of the BVI and if so, use the BVI approved licensing form; and
  • based on the internal controls, file a suspicious activity report with the BVI Financial Investigation Agency.

If BVI relevant persons and DNFBPs fail to comply with any of the requirements in SAMLA, the 2019 Russia-UK Regs, and the 2020 UKOT-Russia Order they could be subject to criminal penalties.

Supplemental information

Please find the below useful links:

  • information on the red alert can be accessed here;
  • the FSCs Industry Circular can be accessed here; and
  • our updated table for UK sanctions on Russia-Ukraine-Belarus can be found here.

Should you need any assistance on the Russia sanctions regime, please feel free to contact your usual Harneys contact or any of the listed authors.