USA: Sanctions evasion and export control violations new priority for DOJ

In a puzzling announcement this week, the US Justice Department (DOJ)  informed the world that sanctions evasion and export control violations were now the central focus of the DOJ’s white-collar enforcement program following Russia’s invasion of Ukraine.

Deputy Attorney General Lisa Monaco made the statement at a New York City Bar Association event, adding that the focus should have a profound effect on businesses and their efforts to comply with US laws,

“The way that multinational companies have to think about how these sanctions regimes are going to be affecting their businesses is critically important, and something we should be having conversations about,” Ms. Monaco said.

Multinationals have long feared the DOJ for its primary focus on Foreign Corrupt Practices Act (FCPA) investigations, aggressive enforcement in cases of improper payments to foreign officials, billions of dollars in fines, and prosecutions .

But that focus is set to change by the looks of it. Ms. Monaco said Wednesday. “One way to think about this is as Sanctions being the new FCPA”… Wait what?

Hold on now, would the DOJ be willing to shelve its golden goose, its star program, THE enforcement program US authorities have mastered since 1977, which is prosecuting companies under the FCPA for foreign bribery?

Well as it turns out, the DOJ’s white-collar enforcement is gradually shifting into more national-security focus, which is hardly a surprise since the “Biden Memo” released in June last year, elevated the fight against corruption as a core US national security interest.

The Biden administration subsequently released a strategy outlining a whole-of-government approach to elevating the fight against corruption.

But what’s interesting in the new DOJ focus, is that sanctions and export controls seem to have likewise been elevated, albeit with less splendid display.

Ms. Monaco stressed: Financial institutions often are the first entities to be held responsible for sanctions violations, particularly in situations where they process payments by individuals or companies that violate national security prohibitions.

But companies (non-financial sectors) also need to be aware of the rules, including by applying know-your-customer processes to their supply chains.

This would probably explain OFAC’s guidance found in its latest enforcement action against  Australian freight forwarder and logistics Toll, which put a special emphasis on the need for companies to conduct third party due diligence (analyzed here)

This week, highlighting the focus the DOJ was placing on prosecuting individuals involved in sanction evasion, the DOJ announced charges against two European citizens for conspiring with a US citizen to assist North Korea in evading US Sanctions.

KleptoCapture

Last February, the DOJ launched KleptoCapture task force, an interagency task force dedicated to enforcing sanctions and export-control measures implemented against Russia in response to its invasion of Ukraine. And that task force has since been a busy bee.

Earlier this month, Ms. Monaco already delivered remarks that highlighted the task force’s achievements so far and were indicative of the DOJ’s current appetite for enforcement actions to disrupt and prosecute Russian criminal activity.

This month alone, law enforcement in Spain, acting on US request and pursuant to a warrant issued by a United States Court seized a $90 million yacht — named the Tango — belonging to sanctioned Russian oligarch Viktor Vekselberg. That yacht was subsequently searched by Spanish authorities, accompanied by agents of the FBI and Homeland Security Investigations.

Charges were also unsealed in the Southern District of New York against Konstantin Malofeyev, a Russian national and a Russian oligarch. Malofeyev is charged with conspiring to violate and violating United States sanctions. These are the first criminal charges brought by the Department of Justice against a Russian oligarch since Russia invaded Ukraine.

While Russian oligarchs in the view of the US and its partners provide some of the most ostentatious displays of Russian illicit finance, they are not the only ones whose financial misconduct is tied to Russia.

On April 5th, the DOJ disrupted the Hydra Market — the world’s largest and longest-running darknet marketplace.

At the same time, the DOJ brought criminal charges against Dmitry Pavlov, a resident of Russia, for his role in operating and administering the servers used to run Hydra. German Federal Criminal Police played a critical role in this operation and seized over $25 million in Bitcoin from Hydra.

The Treasury Department in parallel announced sanctions on the cryptocurrency exchanges believed to have facilitated many of Hydra’s transactions.

Ms. Monaco concluded:

“As Russia and its aggression continues, we have our eyes on every yacht and jet, we have our eyes on every piece of art and real estate purchased with dirty money and on every bitcoin wallet filled with the proceeds of theft and other crimes. Together with our partners around the world, our goal is to ensure that sanctioned Russian oligarchs and cyber criminals will not find safe haven.”

 

So whilst it is not quite clear whether the Biden Memo/Anticorruption strategy, or even the FCPA will proceed as planned, by the looks of it, it would seem the DOJ’s immediate efforts will probably concentrate on the prosecution of individuals and companies evading sanctions, whilst continuing to prosecute corrupt Russian oligarchs and seize their assets .

To be followed.

 

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