Sanctions require compliance from industries, and companies have to quickly dig through corporate ownership layers to find, freeze and report relevant accounts. In the U.S., they share findings with the Office of Foreign Assets Control, or OFAC.

It may take time for financial institutions to identify associated accounts of a sanctioned individual that aren’t already widely known, said Howard Mendelsohn, chief client officer at Kharon, which uses technology and experts to construct the network of relationships around sanctioned parties.

Shuffle Time
Someone who is sanctioned can use that as a window to hire lawyers, consider ownership changes and otherwise move assets around, he said.

“They might be thinking, ‘I might have a little time here before anyone figures out what all my companies are, especially those that are majority-owned,’” Mendelsohn said. “I’m going to shuffle. I’m going to take my daughter, my wife, my employee or employees, and I’m going to put this stuff in other names. It’s going to show up and it’s going to be documented that I’m not the majority owner.”

In the U.S., there’s a clear incentive to drop majority control: OFAC’s so-called 50% rule.

It states that property or interests owned by sanctioned individuals must be blocked if people named on the government’s list have a 50% or greater aggregate stake. That makes divesting shares a popular maneuver to get under that threshold. 

The U.S. Treasury has the power to name and sanction spouses or adult children of sanctioned individuals under a 2021 executive order. 

Prior Shifts
It’s not the first time Russian tycoons have resorted to shuffling assets. Oil mogul Gennady Timchenko sold an almost 50% stake in a Finnish petroleum distributor days before being sanctioned following Russia’s annexation of Crimea in 2014. 

Oleg Deripaska was sanctioned by the U.S. in 2018. To ensure aluminum company En+ Group International PJSC’s was removed from OFAC’s list, he shrunk his stake to 45% from 70% through a complex array of transactions involving a share tender to a state-owned bank, stock transfers and charitable donations. 

OFAC lifted sanctions on En+, citing that the majority of board directors were independent.