Russia Sanctions Evasion Case Study: Viktor Labin

Shell Companies, Red Flags, and Research Strategies

📅 March 18, 2024

When conducting customer due diligence (CDD) and enhanced due diligence (EDD), simple screening for names that may be on sanctions lists is no longer sufficient given the increasing complexity of Russia’s sanctions evasion efforts and the volatile regulatory environment because of Moscow’s aggression against Ukraine. In the United States, so-called “shadow SDNs” that are 50% or more owned by designated individuals are not included on OFAC’s Specially Designated Nationals (SDN) list but are still sanctioned by force of law. The EU and the UK also have “shadow” designated entities, which are more than 50% owned or controlled by sanctioned persons.

That’s why extra research is necessary to ensure compliance with sanctions laws and adherence with your company’s own risk policies. This research, however, can be complex, and structured analytic techniques and tools are necessary for effective due diligence.

Example

A recent report by Russian investigative media outlet, The Insider, shone a spotlight on a Russian military intelligence (GRU) officer, Viktor Labin, whose company, Belgium-based Groupe d’Investissement Financier, has been routing European technologies that Russia needs to conduct its war in Ukraine through a shell company in Turkey to Moscow-based OOO Sonatek.

Russia has not been able to create an import-substitution mechanism for coordinate-measuring machines, so its military-industrial complex relies largely on imported products sourced through Sonatek, whose owner and CEO, Ruslan Labin, is Viktor Labin’s son. The Insider obtained classified Russian data indicating that in 2022, Sonatek provided supply and maintenance services to at least 18 Russian defense companies. Ruslan confirmed to The Insider that the defense companies mentioned in its report were, indeed, Sonatek’s customers, providing corroboration for the information in the outlet’s documents.

The Insider published its first report linking Sonatek to Russian defense companies in October, indicating that the company imports high-precision machine tools from European companies such as Polish Baltic Shipping Agency LTD, UK-based Aberlink, and others. After The Insider’s initial report was published, several of the EU companies that transacted with Sonatek distanced themselves from the company.

However, even before The Insider’s October report was released, Viktor Labin was already sending European technology to Sonatek via a shell company in Turkey. The elder Labin, when contacted by The Insider for corroboration to the information about its activities, claimed that his Belgian company stopped delivering equipment to Sonatek after sanctions were imposed on Russia in the aftermath of its invasion. However, The Insider obtained records that show Labin’s Groupe d’Investissement Financier only stopped delivering machines to Sonatek in April 2023, and that subsequently, the Belgian entity began processing its deliveries to Sonatek through a Turkish shell company with a similar name: GROUPE D’INVESTISSEMENT FINANCIER OSBORNE.

The Insider deduced Labin’s GRU affiliation based on his previous address, which was registered as a GRU Academy dormitory in Moscow on Narodnoe Opolchenie Street 52, Building 4.

Screen cap courtesy of the Insider.

When asked to confirm his link to Russian military intelligence, Labin sent the investigative journalist to **redacted** in Russian.

None of the entities mentioned in this case study appear on any sanctions lists, but the presence of red flags indicating possible evasion of sanctions or trade controls imposed against Russia should result in additional scrutiny.

Red Flags

🚩 A Russia-based company, which boasts that it has customers in Russia’s military sector, imports sensitive machines and technologies from Europe.

🚩 A Belgian shipping company has been sending equipment Russia’s military needs to a Russian company that has military industry clients, even after sanctions were imposed on Russia.

🚩 The Belgian company has a Russian owner.

🚩 The Belgian company’s directors are also Russian, are related to the owner, and one of them owns the Russia-based company that is importing European equipment for Russian military industry customers.

🚩 The owner of the Belgian company is almost certainly a Russian military intelligence officer.

🚩 Turkey does not have a sanctions regime against Russia and is a high-risk transshipment jurisdiction.

Some Research Strategies

Find corroborating evidence. The Insider reached out to Viktor and Roman Labin to corroborate information it received that Sonatek works with the Russian defense sector and that the elder Labin owns Groupe d’Investissement Financier, confirming information the outlet received from other sources.

Evaluate sources. Credible sources of information include official databases, grey literature, academic research, due diligence research databases, and sanctions and watch lists. Adverse media reports are also useful but require additional insights into historical reporting and ownership to evaluate objectivity and corroboration for the reporting. Public social media activity can provide insights into the activities, background, education, and personal connections of a company’s leaders.

The Insider confirmed Labin’s links to the GRU by accessing public information about his previous addresses, one of which was a GRU officer dormitory in Moscow.

Research involved parties using tools that will help determine where company owners and directors are based, ownership and control of the entities involved, leadership structure, their connections on social media, and additional business ventures in which they may be involved. Research business activities and confirm locations of the entities involved in transactions.

The Insider confirmed that Labin is the director of another company in Belgium – Projet Plus – that is located at his residential address, which features his surname both on the doorbell and the mailbox. Additional research shows that Projet Plus is a Private Limited Company whose lines of business include “management consultancy,” “computer consultancy and computer facility management,” and “other IT activities” – a vague description of business activities that should raise a red flag when doing enhanced due diligence.

Basic list screening should be the first step taken to ensure none of the counterparties involved in a potential transaction are sanctioned or subject to trade restrictions. However, US and international regulators are increasingly focused on enforcement of existing sanctions and export controls, and firms and financial institutions should be cautious about their customers and research trade partners and their clients’ business activities, especially if the client is located in a high-risk jurisdiction such as Russia, or any of the countries that are known transshipment points for restricted technologies, such as Türkiye, Kazakhstan, Kyrgyzstan and other Central Asian countries, and several Caucasus nations.

Firms and financial institutions must monitor advisories, alerts, and other guidance issued by regulators, which may contain novel evasion methodologies or red flags indicating a client or counterparty may be evading sanctions. Alerts identifying high-risk goods and sectors, advisories helping stakeholders identify sanctions violations, and guidance highlighting common transactional risks and mitigation measures can help companies enhance their compliance efforts.

Recorded Webinar

The Institute for Financial Integrity hosted a webinar to mark the two-year anniversary of Russia’s invasion of Ukraine on February 24, 2022. Watch the recording, during which IFI’s Nicki Kenyon and Pavel Verkhniatskyi, Managing Partner of Ukrainian due diligence and corporate intelligence firm COSA, discuss two years of sanctions, restrictions, and other measures countries around the world have implemented.

This is an outstanding opportunity to hear from an expert on the ground in Ukraine and understand compliance, due diligence, and investigations into Russia’s efforts to evade sanctions from Ukraine’s perspective.

Watch the Recording

Expert Insight

Two years after its full-scale invasion of Ukraine, Russia has become the most sanctioned country in the world, with world powers imposing thousands of sanctions and other restrictions against Russian individuals, entities, vessels, and aircrafts. Strategic trade controls have become a substantial part of efforts to degrade Russia’s military capabilities and weaken its ability to wage war. At the same time, Moscow continues to come up with innovative and complicated ways to evade sanctions and trade restrictions and gain access to necessary resources to continue its aggression in Ukraine.

Download the Report

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