Virtual Hearing - Schemes and Subversion: How Bad Actors and Foreign Governments... (EventID=112790)
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On Wednesday, June 16, 2021, at 2:00 p.m. (ET) National Security, International Development, and Monetary Policy Subcommittee Chairman Himes and Ranking Member Barr will host a virtual hearing entitled, “Schemes and Subversion: How Bad Actors and Foreign Governments Undermine and Evade Sanctions Regimes."
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Witnesses for this one-panel hearing will be:
• Ivan A. Garces, Principal and Chair, Risk Advisory Services, Kaufman Rossin
• Eric B. Lorber, Senior Director, Center on Economic and Financial Power, Foundation for Defense of Democracies
• Lakshmi Kumar, Policy Director, Global Financial Integrity
• Jesse Spiro, Global Head of Policy & Regulatory Affairs, Chainalysis
• Dr. Jeffrey W. Taliaferro, Professor, Department of Political Science, Tufts University
Introduction
Economic and trade sanctions are forms of coercive statecraft that are based on “U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States.” A powerful non-military tool, sanctions are used to change the behavior of the target of the sanctions by limiting or eliminating access to commercial and financial markets. They can be comprehensive (directed at an entire country) or targeted (narrowly scoped to a specific sector, group, entity, or individual)3 and can be used unilaterally or multilaterally. Examples of sanctions include the blocking or freezing of a target’s assets within the banking system due to engagement in the narcotics trade, prohibition on doing business with companies owned by a corrupt government official, and restrictions on the sale of certain goods and services to a targeted nation. Sanctions efficacy can be improved when sanctions are part of clearly defined foreign policy and national security objectives and are backed by strong alliances to both designate targets and prevent evasion. In the United States, the Office of Foreign Assets Control (OFAC) at the U.S. Department of the Treasury (Treasury) administers and enforces economic and trade sanctions in partnership with the White House and other federal bodies.
Given the restrictive nature of sanctions, targets of sanctions will often work to evade the sanctions’ effects, sometimes with the assistance of other targets of sanctions or adversaries of the nation imposing the sanctions, and thereby undermining the goals of the sanctions. Sanctions evasion can give targets access to the funding or the commercial goods and services that they need to undertake the behavior that the sanctions aim to deter, such as giving terrorist groups access to funds to plan and execute attacks.
Methods of Sanctions Evasion
All U.S. “persons” – including U.S. citizens and permanent resident aliens regardless of location, any person or entity in the United States, and U.S. businesses and their foreign branches – must comply with OFAC prohibitions on transactions with the designated targets of sanctions. Despite the breadth of that coverage, avenues for evasion are plentiful. Large, sophisticated targets like nation-states are able to leverage their control of ports, the financial sector, and national borders to provide avenues for evasion (e.g., shipping schemes), and designated individuals like oligarchs or kleptocrats might employ other methods like trading in high-value art and engaging in real estate transactions.
Generally, financial institutions have programs in place – using software, training, and personnel for customer onboarding and transaction monitoring – to ensure that they are complying with sanctions programs, violations of which are strict liability offenses. Other businesses may not have sanctions compliance as deeply embedded into their daily operations, which is why OFAC outreach and information exchange (beyond the sanctions announcements themselves) can raise awareness of and decrease the opportunities for targets to circumvent sanctions.
Traditional Evasion
One of the most common evasion techniques involves obscuring the true owner or beneficiary of transactions by using front or shell companies. Front companies are “fully functioning company[ies] with the characteristics of a legitimate business, serving to disguise and obscure illicit financial activity,” while shell companies are “incorporated compan[ies] with no independent operations, significant assets, ongoing business activities, or employees.” Targets of sanctions will...
Hearing page: https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=407955