What’s sanctions evasion?

Sanctions impose legal restrictions on certain financial, economic and trade activity. They’re set by the UN Security Council and by individual countries and regions. They may apply to countries, regimes, organisations or individuals. They commonly include asset freezes, financial prohibitions and trade controls.

In practice, sanctions evasion can include:

• obscuring a sanctioned person’s involvement in a transaction;
• routing funds through third parties or jurisdictions to mask a sanctions link;
• using corporate structures, trusts or nominees to distance assets from a designated person; or
• misrepresenting goods, services or counterparties to allow activity to proceed.

The central factor is intent. The arrangements are designed to conceal or bypass sanctions controls rather than arising from misunderstanding or administrative error.

Why is sanctions evasion relevant for AML?

Sanctions evasion has direct relevance for AML because it can result in assets becoming criminal property. Once sanctions are deliberately breached or circumvented, the funds or assets involved may represent the proceeds of criminal conduct.

As a result, sanctions evasion feeds into:

• client and matter risk assessments;
• decisions around enhanced due diligence;
• ongoing monitoring; and
• internal and external reporting of suspicious activity.

Supervisors expect sanctions risk to be considered alongside money laundering, terrorist financing and proliferation financing within a firm’s overall risk framework.

How does FATF address sanctions evasion?

FATF sets the international standards for anti-money laundering, counter-terrorist financing and counter-proliferation financing. It deals with sanctions evasion through several connected Recommendations.

Recommendations 6 and 7

These require countries to apply the targeted financial sanctions set by the UN Security Council. Recommendation 6 covers terrorism and terrorist financing, and Recommendation 7 covers the proliferation of weapons of mass destruction. Countries must freeze the funds and assets of designated persons without delay and make sure no funds or assets are made available to them.

Recommendation 1

Recommendation 1 requires countries and businesses to identify, assess and manage their proliferation financing risk. FATF defines this as the potential breach, non-implementation or evasion of the targeted financial sanctions under Recommendation 7.

This is where sanctions evasion becomes part of your own risk assessment under FATF’s standards.

National sanctions law

Many countries and regions, including the UK, US and EU, also run their own sanctions regimes. These are set by national law, which also sets out your obligations under them. They typically create offences for:

• intentionally circumventing sanctions;
• enabling or facilitating breaches by another person.

Where assets are generated, retained or moved through sanctions evasion, they may also count as criminal property under national money laundering laws.

How can you manage sanctions evasion risks?

A clear, proportionate, risk-based approach underpins effective sanctions evasion risk management. For most firms, this includes:

• reliable sanctions screening;
• clear onboarding and ID verification processes; and
• ongoing monitoring that reflects changing risk.

Clear internal and external suspicion reporting processes help ensure that sanctions-related suspicions are handled consistently and in line with both sanctions law and AML requirements.

Final thoughts

For regulated professionals, the focus is on recognising when arrangements are designed to conceal a sanctioned connection. This allows you to respond in line with your business’ risk-based AML approach.

Clear reasoning, proportionate due diligence and good record-keeping allow firms to manage sanctions exposure confidently while meeting legal and supervisory expectations.