November 29, 2022
IRS is major player in enforcing sanctions on Russian oligarchs
The agency is combining forces with other federal law enforcement agencies as well as foreign counterparts in allied countries to uncover Russian elite sanction evasion and illegal asset movements.
The IRS Criminal Investigation (CI or IRS-CI) is the part of the agency that investigates federal tax crimes. Its focused expertise in uncovering financial crimes like money laundering and cybercrime is the key tool in the U.S. arsenal to sanction Russian kleptocrats in response to the invasion of Ukraine.
CI also engages in asset seizure when illicit financial activity is involved, another major reason they are crucial for carrying out the Russian sanction program.
What are the sanctions? It goes beyond just yachts.
The New York Times summarizes the sanctions program against Russian banks, officials and oligarchs. Included are the freezing of Russian central bank assets and the intercepting of transactions involving major Russian financial institutions. The IRS works with international institutions and allied governments since the oligarchs’ movement of money and assets weaves a worldwide web.
The IRS is coordinating with other federal government agencies, including the Financial Crimes Enforcement Network or FinCEN. The Times reports that FinCEN has warned banks and dealers in luxury goods to be alert for “suspicious transactions” of sanctioned oligarchs and their families that may involve luxury goods (art, jewelry and others) and real estate.
In addition, the IRS seeks evidence of new fictitious businesses and shell companies with complex structures created to hide property and assets and to engage in anonymous cryptocurrency transactions. Oligarchs often register these businesses in obscure, isolated island nations, but not always.
When appropriate, CI will freeze and seize assets of those being sanctioned.
IRS’ familiarity with Russian kleptocrats
CI was actively investigating questionable financial transactions of Russian oligarchs well before the recent attack on Ukraine. For example, the IRS reports that Oleg Tinkov was indicted in 2019 for failing to pay taxes due when he gave up his U.S. citizenship and returned to Russia in 2013. He avoided the exit taxes by significantly understating his worth, despite a recent surge in the value of his stock in a Russian bank as well as gain from a constructive property sale worth more than $1.1 billion.
After his 2020 arrest, he paid about $509 million in unreported taxes, interest and a penalty for fraud. According to The New York Times, since 2017, the IRS has participated in at least 20 cases involving the investigation of Russian elite’s money laundering, but the latest sanctions “are also expected to spur aggressive evasion measures by Russians.”
Finding evasive actions
The investigative process under these circumstances is like forensic accounting on steroids – painstaking in its detail. Assisted by tracing technology, agents trace every suspicious transaction, linking it to others to uncover irregularities in money and asset trails that can lead to evidence of money laundering and related criminal activity. CI special agents can “deanonymize otherwise anonymous transactions” that involve foreign entities that are unlawfully using U.S. financial systems, according to the IRS.
In March 2022, the U.S. Department of Justice (DOJ) announced the interagency Task Force KleptoCapture to enforce the Russian sanctions as well as other economic measures and export restrictions, in coordination with allies. As part of KleptoCapture, the IRS-CI is providing analysts and agents to the effort. When uncovered, those violating sanctions or tax laws will be prosecuted and if convicted could serve substantial prison time and face other potential penalties.
CI and other members of the task force will not only target oligarchs and their families, but also third parties who assist them in their attempts to evade sanctions.
The efforts of IRS-CI and other law enforcement entities here and around the world to enforce sanctions on Russian kleptocrats is commendable. But sometimes in an aggressive effort to achieve a worthy goal, government can overreach and sweep up innocent parties, or violate procedural safeguards or individual rights. Anyone who suspects CI is investigating them for matters of concern to KleptoCapture should seek immediate advice from an experienced tax attorney.