As international sanctions become a central tool in global efforts to uphold rule of law and curb illicit finance, businesses — especially those operating cross-border — face increasing exposure to compliance risks. A recent KLEPTOTRACE report, supported by the European Commission, sheds light on how sanctions are being circumvented and what steps entrepreneurs can take to avoid inadvertently enabling these violations.
Sanctions, particularly those adopted by the European Union (EU), are intended to disrupt illegal activities, hold violators accountable, and pressure regimes into behavioural change. Yet the effectiveness of these sanctions is constantly undermined by elaborate schemes designed to avoid detection.
According to the KLEPTOTRACE study, which analysed 97 cases of sanction circumvention, violations occur rapidly — often within weeks of new sanctions being enacted. In fact, one-third of all analysed violations began in 2022, immediately following new EU sanctions linked to Russia’s invasion of Ukraine.
The majority of violations (over 80%) relate to sectoral sanctions — broad measures targeting entire industries such as finance, energy, and technology. These are particularly vulnerable to evasion due to the complexity of monitoring high-volume commercial flows.
Meanwhile, targeted sanctions, which aim at specific individuals or entities, account for a smaller but still significant portion of violations. These often involve deliberate efforts to disguise ownership or control through shell companies, nominee shareholders, and offshore structures. Compliance failures—where businesses unwittingly break sanctions due to poor due diligence — make up only a small share of cases, but can still incur legal and reputational damage.
The report identifies specific geographic hotspots where sanctions evasion is concentrated. In targeted sanction cases, non-EU jurisdictions such as Switzerland, Turkey, Jersey, Monaco, and the Isle of Man are frequently involved. Within the EU, Cyprus appears disproportionately.
For sectoral sanctions, the Asia-Pacific region (notably Hong Kong, China, Kyrgyzstan, and Kazakhstan) and the Middle East (especially the United Arab Emirates) are key. Additionally, Turkey and Belarus play recurring roles as transshipment or financial centres.
Another significant factor is the role of corporate vehicles — particularly shell companies and intermediaries like brokers and legal advisors. These actors use their knowledge of regulatory loopholes to obscure the origin and destination of goods and funds, often utilizing traditional bank transfers and offshore accounts. Cryptocurrencies have been used in a minority of cases, but their role is growing.
For entrepreneurs and business leaders, the risk is clear: even unintentional involvement in sanctions evasion can result in legal penalties, frozen assets, and reputational harm. Here’s how to minimize your exposure:
The EU is stepping up enforcement, including the criminalization of sanctions violations and alignment of its framework with anti-money laundering (AML) standards. This includes new regulations effective from mid-2025 that will hold businesses criminally liable for violations — even if committed through negligence.
As the regulatory environment grows stricter, companies must treat sanctions compliance not as a bureaucratic formality but as a core risk management function. By proactively addressing vulnerabilities, entrepreneurs can avoid costly missteps and demonstrate their commitment to lawful, responsible business conduct.
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