RUSSIA: How UK professionals are helping Russian elites evade asset freezes

When Russia launched its full-scale invasion of Ukraine, the UK Government imposed a sweeping sanctions package to hit Putin’s inner circle where it hurts the most: their wallets. But new reports from the Office of Financial Sanctions Implementation (OFSI) have found that it is ‘almost certain’ UK lawyers, estate agents and associated property service firms have helped clients evade and avoid asset freezes – undermining the UK’s efforts from within.

How sanctions are being circumvented
Under the UK sanctions regime, designated individuals have their assets frozen, including their bank accounts and real estate. This means they must not sell or benefit from their UK properties. Yet, OFSI has found that many are doing just that, aided by a network of boutique estate agencies, property managers, and enablers who are facilitating sanctions evasion and avoidance for the Russian elite.

Some of these schemes pre-empted sanctions designations, helping clients avoid their impact. The reports outline how some of those targeted by the UK Government used complex layers of companies to transfer their assets and properties to family members, close associates or ex-spouses. Roman Abramovich, for instance, reportedly transferred his extensive property empire to his children, just weeks before being sanctioned by the UK. Abramovich has denied financial ties to the Kremlin and filed unsuccessful legal action to overturn similar restrictive measures imposed by the EU.

The need for transparency
These evasion efforts invariably involve opaque corporate structures, trusts and similar legal arrangements – and it is easy to see why. Despite recent transparency reforms, many owners of super-prime UK property remain anonymous.

The UK’s Register of Overseas Entities intended to address this issue, but enforcement of penalties for non-compliance is low, with only 3 per cent of fines being collected. In addition, loopholes allow owners to hide their identities behind trusts make it harder for the businesses, authorities and the public to spot instances of sanctions breaches. Making trust information for property ownership publicly available and holding enablers accountable are crucial steps in closing this gap.

The role of offshore jurisdictions
The reports also show that 22 per cent of all suspected breaches involved actors in intermediary jurisdictions – including the British Virgin Islands, Jersey and Guernsey. While the UK has had a public register of beneficial ownership since 2016, most of its Overseas Territories and Crown Dependencies have failed to deliver on their own commitments to follow suit.

Making beneficial ownership information readily available would make it much easier for companies to perform due diligence for sanctions compliance, and for law enforcement agencies to identify sanctions busting operations.

Professional enablers of evasion
Finally, the reports find that it is almost certain – meaning a likelihood of 95 per cent or higher – that UK property and related services firms have acted as professional enablers, facilitating sanctions evasion.

While designated individuals can apply to OFSI for licences to use frozen funds for essential needs or the upkeep of their properties, these are tightly controlled and limited in scope. In practice, the report finds small companies with a high-risk appetite are providing services to ultra-high net-worth individuals to maintain their property empires. These companies often obscure the involvement of sanctioned individuals, making direct payments for property maintenance, household staff, utility bills, or letting services – often without licences, and in potential violation of the law.

Strengthening Britain’s sanctions regime
The UK’s sanctions regime was designed to turn off the taps for the Russian elite and slow the Kremlin’s advance in Ukraine. But a small number of lawyers, estate agents, property managers and other service providers are undermining its effectiveness.

For sanctions to bite, the UK needs to up its game:

Strengthen transparency around property ownership, especially over assets held via trusts – you can’t sanction what you can’t see.

Require greater corporate transparency in Overseas Territories and Crown Dependencies who need to be faster at delivering commitments to corporate transparency. Their outsized role in servicing the sanctioned is plain to see, despite their opacity.

Implement tougher policing of the private sector. Too many are willing to break the law because they do not fear consequence. Government consulted on reform in 2023, it now needs to deliver it.