International efforts to seize assets of sanctioned Russian oligarchs and dispose of them in a timely fashion continue to face obstacles. Among these assets are the TANGO and AMADEA, two superyachts that were seized in the spring of 2022. More than a year and a half later, the TANGO and AMADEA are stuck in legal limbo. Taxpayers fund the staggering cost of upkeep, which (for full upkeep) can per annum be ten percent of a yacht’s total value. The costs include wages for a skeleton crew, insurance, docking fees, diesel supply and general maintenance. Licenses from multiple jurisdictions are often needed to process transactions relating to a frozen asset, making payment for these services even more complicated and time consuming.
For financial institutions, these cases are a reminder of the finance risk associated with sanctions and the need to ascertain beneficial ownership. To avoid transactions with a sanctioned party, financial institutions must have robust Know Your Client (“KYC”) controls and sanctions compliance programs. The primary goal of these KYC controls and sanctions programs is to ascertain the Ultimate Beneficial Owner (the “UBO”), that is, the natural person who ultimately owns or controls a company or asset. Properly identifying the UBO is necessary to avoid opening or maintaining accounts for sanctioned individuals, or facilitating prohibited transactions on their behalf. Prohibited transactions include transferring, paying, exporting, withdrawing, or otherwise dealing in the property (or interests in property) of sanctioned individuals.
Identifying UBOs can be challenging in a world of complex corporate structures spanning multiple jurisdictions. An advisory published by the Russian Elites, Proxies and Oligarchs (REPO) Task Force describes a variety of deceptive practices that Russian elites allegedly use to evade sanctions. These tactics include the use of shell companies to hide the identity of beneficial owners. Related tactics used to hide beneficial ownership include complicated ownership structures and trusts, registering unsanctioned family members and close associates as UBOs, and the use of intermediaries, nominees, or straw purchasers to purchase property.
The allegations surrounding the TANGO, which was seized in an international raid in Spain in April of 2022, illustrate some of these tactics. U.S. prosecutors allege that the yacht belongs to Viktor Vekselberg, a wealthy Russian national who is subject to U.S. and U.K. sanctions. Prosecutors allege that Vekselberg used shell companies to hide his beneficial ownership of the vessel from U.S. financial institutions. By processing transactions related to Vekselberg and the TANGO, those financial institutions inadvertently violated sanctions themselves. Prosecutors claim that Vekselberg also violated bank fraud and money laundering statutes in the course of procuring these transactions.
The AMADEA, which was seized in Fiji in May of 2022, is another example of how shell companies can obscure beneficial ownership. U.S. prosecutors allege that the registered owner of the vessel is merely a shell company designed to hide its true owner, Suleiman Kerimov, who is subject to U.S., E.U., and U.K. sanctions. The case also involves a sanctioned brokerage company, which allegedly helped yacht owners evade sanctions by forming chains of shell companies to conceal their identity. A recent civil forfeiture filing related to the AMADEA describes how U.S. financial institutions processed transactions related to the vessel.
These cases are a stark illustration of the challenges that financial institutions face in identifying UBOs. Complicated ownership structures across multiple jurisdictions can make identifying sanctioned individuals and entities extremely difficult. Banks and other lenders must continually reevaluate their KYC controls and sanctions compliance programs to make sure they are up to task.