Using Network Graphs to Identify and Prevent Russian Financial Sanctions Evasion Post-Ukraine
From IC Insider Siren
By Dr. Ryan Clarke, Siren Asia
With the Russian Rouble having become one of the world’s most unwanted currencies, Kremlin-linked financiers and oligarchs now have critical overexposure to Western capital markets and financial systems. With key Russian financial institutions, such as Sberbank and VTB, facing extensive Western sanctions, Russia has been forced to adopt a new set of methods to continue operations inside Western financial institutions. Sanctions evasion is essential for them if they are to continue to procure resources for the state and maintain their perceived ‘Option B’ to flee Russia in the event of chaos.
Russian Front Companies, Obfuscated Structures, and the Essential Nature of Network Graphs
Russian organized criminal syndicates are known to be some of the world’s most sophisticated and bold organizations with regards to the use of front companies, local nominee company directors, and original source of funds obfuscation. Russian syndicates are also well known for their ‘innovation’ in circumventing sanctions regimes by routing into the Western financial system via several other ‘clean’ financial institutions that are domiciled in currently non-sanctioned countries, such as China (and Hong Kong in particular). The Chinese Communist Party (CCP) has refused to condemn the Ukraine invasion and Chinese banks are continuing to execute transactions for Russian interests and have even offered Renminbi-denominated lines of credit to Russian companies.
These decentralized and deliberately compartmentalized illicit financial networks pose major emerging challenges for national security agencies as well financial institutions. In the case of financial institutions, the full spectrum of the industry face risks; from the highly transactional (such as investment banks and hedge funds) to the longer term-oriented segments (such as private equity and venture capital). This is also not an issue that is specific to anti-money laundering/anti-fraud teams, compliance, or legal teams; this is a CEO-level issue.
The amorphous structures of Russian criminal syndicates generate a fragmented, varied, and geographically distributed data environment that mostly (if not entirely) involve interests that are not overtly Russian. A small trading house in Hong Kong with 5 employees, a logistics company in the United Kingdom with a limited fleet of trucks, and a Singapore-domiciled shipping company can manifest surprising relationships under these acute circumstances.
The Power of Network Graphs
This is especially the case when secondary and tertiary degrees of connections of each entity are factored into the analysis and a broader tree-shaped network graph is generated. These network graphs are the most proven and effective method for an investigator or analyst to ingest, aggregate, and represent this type of situational intelligence for both strategic decisions as well as law enforcement actions. Network graphs enhance and augment professional expertise, judgment, and dedication.
Russia Becomes a Financially Dependent Junior Partner to the CCP: Implications for Hong Kong
Russia is isolated from the West which has rapidly accelerated Russia’s dependence on Chinese financial institutions, and by extension the CCP, to continue to finance even the basic operations of the state. The CCP understands leverage at a deep level and exploits it, even against supposed ‘friendly nations’ like Russia. Russia and China both share a critical overdependence on Western capital markets and institutions to import critical resources such as food and agricultural inputs, energy (in the case of China), strategic technologies, and industrial machinery (amongst many other categories).
With New York, London, Tokyo, Singapore, and Dubai no longer readily accessible to the Russian state, Hong Kong remains the only available major international financial center due to the recent CCP takeover of the city. Under these emergent conditions, network graphs are essential to ‘reach back’ to reliably determine original source of funds and to generate full information pictures around an individual, company, or even specific transaction. Network graphs surface and illuminate linkages, some of which would otherwise be subterranean, and provide critical decision-relevant context that traditional methods, such as bank attestations and database searches, cannot.
China is simultaneously financially enabling Russia and observing the effects that Western sanctions are having on the Russian leadership and the broader economy. In order to continue to pull Russia down this path to strategic subservience, the CCP needs to make itself an indispensable partner that monopolizes the international enablement of critical Russian economic operations. The method that will drive the CCP to achieve this endpoint is to enable Russian interests to continue to operate in Western capital markets and access sophisticated Western financial services. The monopoly provision of this capability will generate large revenue opportunities for Chinese state-owned banks, while also providing the CCP with the ability to exert extreme pressure on Moscow to support CCP strategic goals, including in Europe.
Precision Network Graphs Deny Russia the Rebuild, Rearm Option
Utilizing network graphs to identify, assess, and prevent Russian infiltration into the Western financial system via CCP-controlled intermediaries will generate positive strategic effects that extend well beyond Ukraine.
Successful Western execution of this objective will also generate an additional diffusion of benefits that will spread across Europe and democratic Asia, namely to Taiwan. While Russian financial sanctions compliance is a legal issue at its core, there other issues at stake as well.
Russia is unable to continue to finance its war in Ukraine without access to international, and primarily Western capital markets. Russian losses of armour and air assets, high expenditure of missiles, rockets, and artillery, and the loss of some of Europe’s most fertile farmland to combat operations will require a massive reconstitution exercise by Russia. Network graphs that are strategically oriented and precision calibrated around this reality will deny Russia this option.
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Siren provides the leading Investigative Intelligence platform to some of the world’s largest and most complex organizations for Investigative Intelligence on their data. Rooted in academic R&D in information retrieval, distributed computing and knowledge representation, the Siren platform provides integrated investigative intelligence combining previously disconnected capability of search, business intelligence, link analysis and big data operational logging and alerting.
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