Treasury Targets Global Sanctions Evasion Network Supporting Russia’s Military

On February 1, 2023, the United States Department of the Treasury’s (“Treasury Department”) Office of Foreign Assets Control (“OFAC”) imposed full blocking sanctions against twenty-two individuals and entities from multiple countries related to an alleged sanctions evasion network supporting Russia’s military activities. This action, taken pursuant to Executive Order (“E.O.”) 14024 was part of a larger U.S. strategy to target sanctions evasion efforts around the globe, and demonstrates the high sanctions risks attending dealings with the Russian military supply chain, including by non-US persons and companies.  OFAC’s action also illustrates that U.S. sanctions designations for “acting on behalf of” a sanctioned person can occur simultaneously with that person’s designation.

The designation announcement explains that, working with the Treasury Department’s Russian Elites, Proxies, and Oligarchs (“REPO”) Task Forceand  Financial Crimes Enforcement Network (“FinCEN”), OFAC targeted a Russian sanctions evasion network led by Russian and Cyprus-based arms dealer Igor Vladimirovich Zimenkov (“Zimenkov”). The network includes entities involved in projects connected to Russian defense capabilities, including supplying a Russian company with high-technology devices after Russia launched its full-scale invasion of Ukraine on February 24, 2022.

According to the designation announcement, Zimenkov, along with his son Jonatan Zimenkov, worked closely with a broad network of individuals and entities to enable Russian defense sales to third-country governments, communicate directly with sanctioned Russian defense firms, and maintain close relationships with personnel of sanctioned Russian state-owned enterprises. Zimenkov also provided support for the Belarusian military-industrial complex by facilitating sanctioned Belarusian defense entity Belspetsvneshtechnika’s sales efforts in Latin America, an entity previously designated pursuant to E.O. 14038 both being owned or controlled by, or for having acted or purported to act for or on behalf of, directly or indirectly, the Government of Belarus as well as for operating or having operated in the defense and related materiel sector of the Belarus economy. Because of these activities, OFAC designated both Zimenkov and his son as Specially Designated Nationals and Blocked Persons (“SDNs”) pursuant to E.O. 14024. In designating Jonatan Zimenkov, OFAC also designated two cryptocurrency wallets connected to him. It is unclear whether OFAC has the authority to designate cryptocurrency wallets, as these wallets are currently not considered to be legal persons.

Along with designating Zimenkov and his son, OFAC designated multiple other entities operating within the Zimenkov network. Asia Trading & Construction PTE Limited (“Asia Trading”) was designated for selling helicopters to a Latin American government on behalf of Rostec, a previously blocked entity pursuant to E.O. 14024. Serena Bee Lin Ng, the director of Asia Trading, was simultaneously designated pursuant to E.O. 14024 for being or having been a leader, official, senior executive officer, or member of the board of directors of Asia Trading. Texel F.C.G. Technology 2100 Limited (“Texel”) engaged in extensive funds transfers to Asia Trading and was also simultaneously designated pursuant to E.O. 14024 for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, Asia Trading. Individual Mark Blats, the CEO of Texel, was designated pursuant to E.O. 14024 for being or having been a leader, senior executive officer, or member of the board of directors of Texel. Mark Blats also owned Elektrooptika SIA, which was designated pursuant to E.O. 14024 for being owned or controlled by, or having acted or purported to act for or on behalf of, directly or indirectly, Mark Blats.

OFAC also designed Alexander Volfovich (“Volfovich”), a Cyprus-based arms broker, due to his connections with the Zimenkov network. Simultaneously, OFAC designed seven companies located in various countries that are owned by Volfovich for being owned or controlled by, or for having acted or purported to act for or on behalf of, directly or indirectly, Volfovich. OFAC also designated Maks Borisovich Piflaks (“Maks Piflaks”), Igor Palnychenko (“Palnychenko”), and two other individuals for maintaining leadership roles on entities owned by Volfovich. Finally, OFAC designated Gilad Piflaks for being the adult child of Maks Piflaks, and designated two entities owned by Palnychenko for being owned or controlled by, or for having acted or purported to act for or on behalf of, directly or indirectly, Palnychenko.

This action by OFAC demonstrates an increased enforcement of Russia-related export control laws as well as a high risk of sanctions enforcement for any activity connected to Russian military procurement or the Russian military-industrial complex. It also illustrates that OFAC may designate one entity, and then immediately designate other entities for their previous interactions with this newly designated SDN. Therefore, in order to decrease the likelihood of being designated by OFAC and maintain compliance with U.S. sanctions, companies and other entities should consider the future designation risk, alongside the current designation status, of business parties with whom substantial dealings will occur.

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