Symposium on systems of financial secrecy summary report

  • Publication date: 06 March 2024
  • Author: Open Ownership

Session three

Sanctions and national security

This session focussed on the systems of secrecy and their impact on national security threats. It explored both academic and practitioner understanding of threats such as sanctions evasion, and the policy solutions that have been identified as key to resolving these issues.

  • Jodi Vittori, Professor of the Practice, Walsh School of Foreign Service, Georgetown University

This session opened with Jodi delivering her keynote speech on Kleptocratic adaptation to sanctions: The role of bridging jurisdictions with research from her co-authored report.

The presentation introduced the concept of bridging jurisdictions; those which have strong links to international and financial trade systems and act as conduits for ill-gotten wealth to be moved from one country to a destination in another country. In the context of kleptocracy and transnational corruption, these jurisdictions are used by kleptocrats to move wealth from their home jurisdiction into a third country. These jurisdictions may also be authoritarian or kleptocratic themselves, however may not have been subject to sanctions or economic marginalisation due to perceived strategic significance. Potential current or future bridging jurisdictions include Bahrain, Malta, Panama, Saudi Arabia, Turkey, and the UAE.

Jodi further noted that one bridging jurisdiction—the UAE—has historically acted as a secondary offshore financial and economic capital to Afghanistan and Iran. Other bridging jurisdictions and/or sanctioned regimes may also seek to use offshore locations in a similar manner. This use of bridging jurisdictions as an offshore financial or economic capital will challenge the effectiveness of international sanctions regimes in that some of sanctioned regimes’ key business and financial activities are not embedded in the sanctioned country but instead are located in compliant offshore jurisdictions

The webinar for the launch of the report’s is available on YouTube.

  • Dr Helen Taylor, Senior Legal Researcher, Spotlight on Corruption

Helen presented Tackling sanctions evasion in the UK: Recent policy developments and emerging enforcement challenges. She explored the ways in which sanctions are being enforced, and what threats there are in terms of sanctions evasion.

Following Russia’s invasion of Ukraine in 2022, the UK acted swiftly to ramp up sanctions on Russia, with more than 1600 individuals and 200 entities designated as subject to sanctions and new legislative powers granted. There has also been a 200% increase in the UK Office of Financial Sanctions Implementation staff, and the UK’s Economic Crime Plan (2023–26) commits to “combatting kleptocracy and driving down sanctions evasion”, including implementing a cross-government strategy on professional enablers.

Yet, the effectiveness of these early sanctions efforts appears to be limited, with zero fines for post-February 2022 sanctions breaches to date, and only one case of “naming and shaming”. She also shared examples of sanctions investigations and cases that have been dropped or encountered difficulties. She highlighted that there are still limits on private-to-private information sharing as well as barriers to proactive information and intelligence-sharing with public actors. Third-party jurisdictions are also a vulnerability, with UK firms’ offshoring high-risk work, and a potential chasm in enforcement opening up between the US and the UK/EU on targeting firms operating in these bridging jurisdictions.

Going forward, Helen outlined priorities that there should be clearer enforcement strategies and guidance; better coordination among domestic actors on enforcement; and greater transparency as well as stronger parliamentary scrutiny.

  • Joshua Tjeransen, PhD Researcher, Dickson Poon School of Law, King’s College London

Joshua presented Central bank digital currencies (CBDCs) and national security: Policy considerations.

Joshua’s presentation asked whether, how, and why foreign CBDCs might pose a national security risk to the UK, outlining key findings. Joshua began by outlining the risks associated with China’s CBDC, the e-CNY). To start, Joshua explained that the e-CNY could undermine the SWIFT system or force nations to pay debts in e-CNY rather than USD currency if internationalised. Moreover, Joshua discussed how, if internationalised, CBDCs such as the e-CNY could be an attractive alternative for countries who rely on non-sovereign currencies.

Additionally, Joshua highlighted how international trade data, when integrated with an operable and internationalised e-CNY could provide China with a worryingly granular view of global trade data. This possibility was said to raise concerns regarding how China may use such data, with nefarious undertones being the primary concern. Lastly, Joshua spoke about foreign CBDCs and how they may affect global norms around financial freedom, the impact they may pose on the UK as a financial centre, and, if left to develop, efforts to limit risks to national security could be costly, difficult, and time-consuming.

Joshua shared some policy recommendations; see the presentation for details.

  • Simon Lock, Reporter, the Bureau of Investigative Journalism (TBIJ), and Tom Stocks, Senior Investigator, the Organized Crime and Corruption Reporting Project (OCCRP)

Simon and Tom presented How Russian oligarchs and officials hide assets and skirt sanctions. Their presentation focused on a Cyprus Confidential investigation using leaked data from MeritServus.

They outlined how, in one case, Russian oligarch Roman Abramovich held over USD 2 billion in assets or cash, and his ownership is often obscured through complex corporate structures. For instance, they discussed practices used by oligarchs to hide ownership which the work of investigative journalists had uncovered. For example, an oligarch declaring 49% interest in entities and trusts, with the other 51% being held by his wife, children, or other family members to avoid them being the majority owner. They also shared other examples of alleged wrongdoing related to the world of football finance, as well as alleged possible sanctions evasion linked to oligarchs Konstantin Malofeev and Alexey Mordashov.

More information on the case is available from TBIJ and OCCRP.

  • Steph Muchai, Programme Director, Governance and Accountability, International Lawyers Project

Steph presented An empirical study of the impact of Magnitsky sanctions on the earliest corruption designees, which discussed findings from a recent report she contributed to as well as related case studies.

In order to understand how sanctions can best be used, Steph argues we need to understand the impact of sanctions on the individuals who are subject to sanctions, rather than broadly evaluating the ‘effectiveness’ of sanctions. Her report outlined desk-based research and research interviews with 27 participants such as journalists who have followed sanctioned persons.

She discussed four categories of impact of sanctions that were discovered: direct impacts resulting from travel bans or asset freezes; impacts resulting from private sector actions such as banks and businesses ceasing to do business with the individual; personal impacts such as loss of job or political influence; and behaviour change by the sanctioned persons and members of their network,

Based on this research, she recommends that governments should:

  • not assess the effectiveness of sanctions purely in terms of measurements like the amount of assets frozen;
  • seek to identify corporate networks associated with targeted individuals;
  • prioritise individuals who rely on international financial systems so are more likely to be affected by the designation;
  • develop a clear understanding of the added value that the designation would have, depending on the circumstance.

Find out more about the research here.

Next page: Session four