SANCTION CASE STUDY: Russian DPs and post-designation ownership and control transfers

Legal services providers should be alert to ownership and control transfers by Russian DPs using complex corporate structures and report to OFSI where relevant.

The FOLLOWING case study concerns a Russian DP and a discretionary family trust, as well as the subsequent transfer of assets to non-designated individuals and entities.

 START

1. A Russian businessman, the longstanding chairman of a Russian bank, was designated [AS A DESIGNATED PERSON [DP]) by the UK Government in March 2022
2. The Russian DP is the original settlor and, along with family members, a beneficiary of Trust B, a discretionary trust established in the BVI in 2015.
3. The trust is managed by a Cyprus-headquartered TCSP, which also has operations in the BVI, headed by a Cyprus national and lawyer.
4. At the time of designation [MARCH 2022], the assets held within Trust B comprise a VALUABLE PROPERTY PORTFOLIO, including assets in the UK and the EU.

1. In June 2022, having removed the Russian DP from the structure of Trust B through a deed of exclusion, the Cyprus-based TCSP oversees the sale of Trust B’s property portfolio to COMPANY GAMMA LLP.
1. The sale price is significantly lower than the estimated market value of the property portfolio.
2. GAMMA LLP (GAMMA) is a low-profile, UK-registered company incorporated in the UK, jointly owned by a Russian national and a Belarusian national.
1. The Russian national is a former executive at the designated Russian bank chaired by the Russian DP.
2. The Belarusian national is a senior manager at a designated bank in Belarus.
3. Following the acquisition of the property portfolio, Company GAMMA
1. creates a new share class that transfers economic ownership rights to an individual with EU country nationality and a limited public profile.

LAW FIRM APPROACHED

• The EU national approaches a UK-registered solicitors’ firm on behalf of COMPANY GAMMA to provide services relating to the management of the property portfolio.
• The EU national initially provided only limited information to the UK solicitors’ firm regarding the acquisition of the portfolio.

CDD/EDD

• However, through a combination of due diligence and engagement with the EU national, the solicitors’ firm establishes the facts above.

REPORT

• Based on concerns over the circumstances in which Company Gamma acquired the property portfolio and the links between COMPANY GAMMA’S shareholders and the Russian DP, the solicitors’ firm reports to OFSI.

THE FULL PICTURE