US alert: Russian sanctions evasion through new overseas branches and subsidiaries
The US Department of the Treasury’s Office of Foreign Assets Control (‘OFAC’) has issued an alert warning foreign jurisdictions and financial institutions about alleged Russian attempts to evade international sanctions by establishing new overseas branches and subsidiaries of Russian financial institutions.
The warning underscores growing US and EU concerns that Russia is using third countries to circumvent sanctions and continue funding its ongoing war in Ukraine.
Russia is ‘reorienting its entire economy and government resources’ to support its military actions, including through the financial sector, OFAC said in the alert, published 4 September.
‘Foreign regulators and financial institutions should be cautious about the establishment of, or any dealings with, new overseas branches or subsidiaries of Russian financial institutions,’ OFAC cautioned.
It further noted that even if these new branches or subsidiaries are not themselves sanctioned, they should be viewed as potential vehicles for sanctions evasion.
OFAC warned that financial institutions engaging with these new entities — including activities such as maintaining accounts, transferring funds, or providing financial services like payment processing, trade finance, and insurance — face ‘significant sanctions risks associated with facilitating Russia’s efforts to evade sanctions.’
However, the alert also clarified that existing financial relationships that facilitate permissible transactions, such as those related to food, agriculture, medicine, energy, and telecommunications, remain authorised. Despite this allowance, OFAC stressed that attempts to open new branches or subsidiaries are a clear ‘red flag’ for potential sanctions evasion by Russia.
