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FinCEN Files: The art of evading sanctions

September 24, 2020

Sanctions are popular means to frighten despots and enforce national interests. But the FinCEN files show that sanctions can be circumvented, often with the help of banks.

FinCEN Files

When Syrian President Bashar Assad used military violence against his own people during protests in 2011, US President Barack Obama imposed sanctions on representatives of his regime. The measures targeted wealthy Syrians, including Mahir al-Assad, the president's brother, aiming to ensure that those responsible for the violence would not be able to move their money around the globe.

The European Union followed suit shortly after, and sanctions were quickly extended. The regime's access to weapons, to gasoline, to the international financial market was to be blocked. Such targeted sanctions are considered the means of choice for exerting pressure on despots and their associates.

Read more: FinCEN files — tracing the flow of dirty money

Ruble to dollar, dollar to art

But do such sanctions work? There has always been some doubt about that. The FinCEN Files show once again: Sanctions can be circumvented — with the help of banks and a network of offshore companies.

What are the FinCEN Files?

The leaked Suspicious Activity Reports (SARs) that banks sent to the US Treasury Department show, for example, that Russian President Vladimir Putin's close friend Arkady Rotenberg is said to have transferred money to Barclays Bank in London through a company called Advantage Alliance. It was money with which he later supposedly bought art on a grand scale. Among the works purchased was a painting by Belgian surrealist Rene Magritte worth $7.5 million US (€6.4 million).

The journalists involved in the FinCEN Files investigation — among them reporters from Buzzfeed News, Deutsche Welle, the German public broadcasters NDR and WDR, and the German daily Süddeutsche Zeitung — also revealed that banks might have helped clients with illegal transactions that sent money to and from Iran. From 2013 to 2017, Britain's Standard Chartered Bank is reported to have put aside suspicions of breaking US sanctions and allowed through hundreds of millions of dollars.

According to the FinCEN Files, the sanctions against Syria are also likely to have been circumvented. The Bank of New York Mellon is reported to have transferred $224 million for a company based in Malta called Petrokim. Some of the transactions might have benefited people blacklisted under the sanctions.

The ball is in the banks' court

Why are state authorities not stopping this? "There is simply not enough manpower for this in the responsible authorities. They can't pursue every case," said Sascha Lohmann, of the German Institute for International and Security Affairs in Berlin. He is a political scientist with the think tank's Americas research group and has been working intensively on FinCEN.

Sascha Lohmann
It's the banks who take the risk, Lohmann saysImage: Jens Meyer

All US banks have to report suspicious cases to FinCEN. The government has the power to then make them limit or deny services to certain foreign banks in order to cut off their access to the US dollar. The ball is thus in the court of the banks, which must expect penalties for violations. Lohmann speaks of a "risk-based approach" to prevent money laundering and sanction evasion. "The goal is for banks to realize: 'certain regions, certain business partners are so dangerous for us that we keep our hands off them entirely.'"

This has often worked in the past, which is why Lohmann said it was "initially surprising to see how many, for example, Russian business partners of politicians close to the Kremlin who are blacklisted in Europe or the United States can still move money back and forth."

Driven by fear and greed

The FinCEN Files came as no surprise to Saskia Rietbroek. As director of the Association of Certified Sanctions Specialists, she advises banks and other companies that are seeking help in complying with sanctions rules. "Sanctions evasion is really pervasive, and criminals go to lengths to stay under the radar," Rietbroek told DW. "That is why many banks get caught up in sanctions evasions problems. So these were not the first banks and will not be the last banks involved in some sanctions evasion scheme."

Bank employees in compliance departments must do their utmost to ensure that no rules are broken, she said: "The compliance officers really want to do the right thing. At least that's what I see with our members." Those employees believe that they have an important role in protecting their country against national security threats such as terrorism, she said. "But, on the other hand, there are commercial interests," she added. "And that is always a struggle — that struggle between the business and compliance departments. You know, banks live between fear and greed."

Saskia Rietbroek - Executive Director
It is Rietbroek's job to help banks adhere to rules and regulationsImage: ACSS

Peeling the onion

Rietbroek said it had become increasingly difficult to comply with sanctions rules. "Up until a couple of years ago it was just North Korea and Cuba," she said. "You couldn't do business with them, and almost nobody was doing business with them." However, these broad sanctions hit the people of the countries more than they did the ruling class. For several decades, the UN, the US and the EU in particular have used targeted sanctions, which are primarily directed at individuals. 

"But now, with, for instance, Russia, there are a lot of oligarchs, people with a lot of money, with a lot of business interests that have been placed on the list," Rietbroek said. "And you can't just close all their accounts. You have to see what is legal and what is prohibited. And that takes time and expertise, which is not always there."

If a bank suspects that a customer is up to something illegal, it must investigate further. Rietbroek calls this Enhanced Due Diligence: "It's sometimes like peeling an onion: layer after layer of shell corporations. I've seen visual representations of links between offshore companies and people on transactions that were the size of a tablecloth." That is why connecting the dots takes a lot of time. "And sometimes they're told: 'if you don't find anything bad at first sight, go on.'"

Vladimir Putin with Arkady Rotenberg
'Hero of Socialist Labor' — Vladimir Putin awarded Arkady Rotenberg the gold star medal for building a bridge to the Crimean peninsulaImage: Russian Look/picture-alliance

Up to now, such violations have mostly been punished with fines. But, says Rietbroek: "If there was willful conduct to evade sanctions, in my opinion, there should be prison terms and people should be sent to jail. And that is sometimes lacking. And I don't think it should be the compliance people who should go to prison. Typically, it's the people at the top who pressure the compliance people."

No real alternative

It is impossible to prevent all illegal money transfers anyway, said Francesco Giumelli, of the University of Groningen in the Netherlands. The political scientist has done research on the success of sanctions. "The problems with the implementation of sanctions are not new," he told DW. "We knew this before and this just brings more evidence to the fact that there are problems with the system as it is." 

The measures have an important symbolic effect, Giumelli said: "Sanctions sustain norms. In order to avoid sanctions, actors don't even engage in certain activities. That is the real value of sanctions rather than simply preventing money from going around." Thus, sanctions will probably continue to be used in the future — both to enforce national interests and to deter autocratic behavior and human rights violations, such as those in Syria.

"It is also about more than just trying to influence behavior," Lohmann said. "Sanctions are a form of strategic communication with relevant third parties, and they are also about maintaining one's own self-image." For example, the EU member states did not want to appear to stand idly by and watch what is happening in Belarus. Even if sanctions are repeatedly undermined, Lohmann said, "it will probably continue to be the means of choice — because there are not many other options."

Peter Hille Bonn 0051
Peter Hille Peter Hille is a multimedia reporter with a strong background in African affairs@peterhille