The recent US-requested seizure of a Russian-owned yacht moored in Spain shows the willingness of authorities around the world to coordinate and use the powers at their disposal flexibly to clampdown on Russian oligarchs targeted by sanctions, says international law firm Pinsent Masons in a briefing note on 13 April.
Andrew Sackey, Stacy Keen and Francis Tyrrell of Pinsent Masons were commenting after the US Department of Justice (DoJ) announced that action had been taken to seize ‘Tango', a 255-foot luxury yacht valued at $90m which is owned by Viktor Vekselberg, a sanctions target in the US, EU and UK.
The DoJ has alleged that Tango was subject to forfeiture "based on violation of US bank fraud, money laundering, and sanction statutes".
This case highlights the interplay between enforcement powers under money laundering legislation and sanctions law.”
Vekselberg did not hold the required licence in respect of his interest in Tango, according to the DoJ, which highlighted US dollar payments made through US banks in respect of the vessel - including in relation to its support and maintenance, as well as mooring fees.
It accused Vekselberg of using shell companies "to obfuscate his interest" in Tango but said he had been its owners since 2011.
As Tango was moored in Spain, the US government asked Spain for assistance with seizure of the vessel. It relied on a bi-lateral mutual legal assistance treaty the countries have agreed on criminal matters. Spanish authorities obtained a freezing order from a Spanish court, which was executed on 4 April.
US attorney general Merrick B. Garland said the case was the first seizure of a Russia-linked sanctioned individual's assets and promised that it would "not be the last".
White collar crime and investigations expert Andrew Sackey said: "The logic applied by the DoJ appears to have been that transmitting funds through a correspondent bank account in the US to Spain to maintain the yacht, while concealing ownership through shell corporations, resulted in Vekselberg committing a money laundering offence enabling the yacht to be subject to civil forfeiture."
"This demonstrates a flexible application of existing anti-money laundering powers to deliver the strategic outcome desired by the authorities. This shows the willingness and intent of authorities to reimagine existing powers to fit new and emerging risks, as was the case recently in the UK when HMRC seized non-fungible tokens in a VAT fraud case," he said.
Sanctions expert Stacy Keen said: "This case highlights the interplay between enforcement powers under money laundering legislation and sanctions law."
"Sanctions targets continue to own their assets once sanctions are applied. Any such assets held by third parties are frozen, but there is no change in ownership. Sanctions targets can continue to lawfully live in their homes and use their superyachts. However, they face practical challenges in that others cannot accept payments from those targets towards the maintenance of the asset, for example, for gas, electricity, mooring and fuel, without a licence first being obtained," she said.
Recently, the UK government introduced legislation aimed at preventing Russian vessels from entering UK ports. UK ministers enjoy powers under the legislation to issue a direction requiring the detention of a specified ship at a UK port or anchorage.
European Commission president Ursula von der Leyen announced last week that the EU would introduce an equivalent restriction to the UK's prohibition on Russian linked or operated vessels accessing ports, with exemptions for "essentials, such as agricultural and food products, humanitarian aid as well as energy". That prohibition will become effective after 16 April 2022.
Francis Tyrrell of Pinsent Masons, who specialises in port operations and harbour orders, said: "Many vessels will have dollar transactions underpinning their hire and maintenance. That said, from a UK point of view, in theory, the UK should be less involved in the type of enforcement action taken in the Tango case since Russian vessels are already barred from accessing UK ports."
"There are potential financial implications for ports affected when vessels are detained, since those vessels will take up space often with no prospect of the port operators recovering any mooring fees or dues," he said.