Russian-Canadians Charged in Smuggling Scheme to Aid Moscow’s War on Ukraine
- October 31, 2023
- Clayton Rice, K.C.
A criminal complaint was unsealed yesterday in Brooklyn, New York, charging three people with conspiracy to commit wire fraud stemming from a global procurement scheme on behalf of sanctioned Russian entities including companies affiliated with the Russian military. Some of the technology was found in seized Russian weapons platforms and signals intelligence equipment in Ukraine. The case is the latest prosecution coordinated by the United States Department of Justice Task Force called KleptoCapture set up to enforce sanctions in response to Russia’s invasion of Ukraine.
The complaint filed in the United States District Court, Eastern District of New York, in Brooklyn, asserts that Nikolay Goltsev, Salimdzhon Nasriddinov and Kristine Puzyreva smuggled millions of dollars in semiconductors, integrated circuits and other dual-use electronic components to Russia through front companies based in Brooklyn. (here) “These defendants are alleged to have illegally exported millions of dollars in electronics to support the Kremlin in its ongoing attacks of Ukraine,” said Ivan Arvelo, Special Agent in Charge of Homeland Security Investigations, in a press release earlier today by the U.S. Attorney’s Office. “Over the course of a year, this criminal organization evaded U.S. sanctions and laws, managing to dispatch over 300 shipments of restricted items, valued at approximately $7 million USD, to the Russian battlefield,” Mr. Arvelo said. (here) The complaint alleges the defendants used two corporate entities registered in Brooklyn, SH Brothers Inc. and SN Electronics Inc., to unlawfully source, purchase and ship electronic components from U.S. manufacturers to sanctioned end users in Russia. According to the U.S. Department of Commerce, many of the electronics were, “of the highest concern due to their critical role in the production of advanced Russian precision-guided weapons systems”.
2. The Defendants
The defendant, Nikolay Goltsev, is a dual Russian and Canadian national who resides in Montréal, Canada. He served as an account manager and purchasing coordinator for Electronic Network, Inc. based in Montréal. On February 24, 2023, the U.S. Department of Commerce, Bureau of Industry and Security (BIS), added Electronic Network to its Entity List which I discussed in a previous post to On The Wire. (here) The Entity List identifies foreign persons, businesses and governments that are subject to specific export licence requirements, in addition to those found in the Export Administration Regulations, due to a determination that such persons or entities have engaged in activities contrary to U.S. national security or foreign policy interests. The defendant, Salimdzhon Nasriddinov, is a dual national of Russia and Tajikistan who resides in Brooklyn, New York. On June 11, 2021, he founded SH Brothers Group Inc., a company listed with a Brooklyn address. On January 30, 2023, Mr. Nasriddinov founded SN Electronics, Inc., a company also located in Brooklyn. The defendant, Kristina Puzyreva, is also a dual Russian and Canadian national residing in Montréal. She is married to Mr. Goltsev. In addition to the three defendants, there are four unindicted co-conspirators identified by numerical pseudonyms.
3. The Entities
Radioavtomatika is a defence procurement firm based in Moscow, Russia, that specializes in acquiring foreign items, including from the United States, for Russia’s defence industry. On March 3, 2022, following the invasion of Ukraine by Russia, BIS added Radioavtomatika to its Entity List. On the same day, under Executive Order 14024, the U.S. Department of the Treasury, Office of Foreign Assets Control, added Radioavtomatika to its Specially Designated Nationals and Blocked Persons List (SDN). U.S. persons are generally prohibited from dealing with individuals and entities on the SDN list. Testkomplekt is an electronic components distributor specializing in semiconductors and microelectronics based in Moscow. It has held various contracts with the Russian military including State Corporation Rostec, a defence conglomerate based in Moscow. On May 19, 2023, under Executive Order 14024, the Office of Foreign Assets Control added Testkomplekt to the SDN list. EKB-Neva is an electronic components supplier based in Moscow. On May 19, 2023, EKB-Neva was also added to the SDN list under Executive Order 14024.
4. The Scheme
The complaint contains various summary paragraphs of the alleged criminal scheme that I will give you in the following condensed extracts. The deponent of the concurrent affidavit based the allegations on records obtained by search warrants, business records, shipping documents, wire transfers and financial documents.
- The complaint alleges that Mr. Goltsev, Mr. Nasriddinov and Ms. Puzyreva were involved in smuggling U.S.-origin dual-use electronics to Russia. Using the SH Brothers and SN Electronics corporate entities, the defendants sourced, purchased and exported to Russia millions of dollars of dual-use electronics from U.S. manufacturers and distributors located in the Eastern District of New York. Many of the items required a licence from BIS to be exported to Russia. Even for items that did not require a licence, the defendants made false statements in Electronic Export Information (EII) to conceal that Russia was the destination and Russian entities and individuals were the end users. The defendants and co-conspirators caused U.S. companies to sell and export electronic components in violation of the Export Control Reform Act (ECRA); process and accept payments in furtherance of the illicit transactions; and file false documents and fail to file documents with BIS and other U.S. government agencies, including required statements regarding the ultimate consignee and purchaser. The defendants and the co-conspirators also caused U.S. financial institutions to process millions of dollars in payments in violation of U.S. laws and regulations. Many of the transactions were processed through bank accounts held by SH Brothers and SN Electronics and correspondent accounts at New York City banks and in the Eastern District of New York. (para. 23)
- The complaint specifically asserts that Russian companies which sought to acquire particular parts or items from the United States were relayed to Mr. Goltsev. Mr. Goltsev communicated directly with U.S. manufacturers and distributors using aliases such as “Nick Stevens” and “Gio Ross.” In those communications, Mr. Goltsev misrepresented and omitted material information, including information about how the items would be used, the various parties involved in the transactions and the identities of the ultimate Russian end users. (para. 24)
- Mr. Goltsev and Mr. Nasriddinov then purchased the items from U.S. companies. Mr. Nasriddinov received the items and shipped them to Russia and the end users, including Radioavtomatika, Komtech, Testkomplekt and EKB-Neva through intermediary companies in Turkey, Hong Kong, China, India, and the UAE. Some of the intermediary companies received U.S. exports solely from SH Brothers, including Robotronix Semiconductors Ltd. Robotronix was listed as an intermediate consignee on approximately 32 shipments valued at more than $600,000, ostensibly for end users in China. BIS had added Robotronix to its Entity List on October 6, 2023. (para. 25)
- Some of the components exported by the defendants were designated as “Tier 1” items on the Common High Priority Items List, which, according to BIS, were of the “highest concern due to their critical role in the production of advanced Russian precision-guided weapons systems, Russia’s lack of domestic production, and limited global manufacturers.” Some of the same makes, models and part numbers of electronic components exported by the defendants through SH Brothers were found in seized Russian weapons platforms and signals intelligence equipment in Ukraine. (para. 26)
- Mr. Goltsev and Mr. Nasriddinov were allegedly aware that the electronics being shipped had potential military applications. In a February 23, 2023, message, Mr. Nasriddinov wrote to Mr. Goltsev, “Happy defender of the Fatherland,” in reference to the Russian holiday celebrating those who served in the armed forces. Mr. Nasriddinov attached a screenshot to the message showing activity in an SH Brothers bank account. Mr. Goltsev replied, “happy holiday to you too my friend, we are defending it in the way that we can [smile emoji].” (para. 27)
- In a text message exchange on January 13, 2023, Mr. Goltsev complained to Ms. Puzyreva that a subordinate of co-conspirator 2 “asked me to make 80 accounts…I am making accounts for 3 mln. Fingers hurting already from the laptop.” Ms. Puzyreva resplied, “Lot of money? We will get rich.” The complaint alleges Ms. Puzyreva used numerous bank accounts to make financial transactions in furtherance of the scheme. For example, she was the signatory on two New York bank accounts, one that listed Mr. Nasriddinov’s home address in Brooklyn as the address of record. Statements for these accounts reflected large cash deposits made in Brooklyn that corresponded with trips that Ms. Puzyreva and Mr. Goltsev made from Canada to meet Mr. Nasriddinov. (paras. 48-9)
In text messages purportedly involving Mr. Goltsev and Russian procurement agents, including co-conspirator 4, it appears Mr. Goltsev was aware the electronic components were destined for military users in Russia. On December 22, 2016, Mr. Goltsev advised co-conspirator 4 that he “fully understands that this [ordered electronic component] is military in nature,” which co-conspirator 4 directed Mr. Goltsev to “definitely send to Radioavtomatika, like in our agreement.” On January 17, 2017, in another exchange, Mr. Goltsev said, “I understand that this is a military end user” and recommended that Radioavtomatika should test the parts in their laboratory. In a subsequent message, co-conspirator 4 advised Mr. Goltsev that co-conspirator 4 was waiting for “the military to sign the contract” before placing the order.
On August 7, 2022, the Royal United Services Institute, Britain’s leading defence and security think tank, released a report in partnership with Reuters detailing inspections of twenty-seven Russian weapons systems and pieces of military equipment expended or lost since Russia invaded Ukraine. (here) The report concluded the majority of apparent Western components were manufactured by U.S. companies. “The preponderance of foreign-made components inside these systems reveals that Russia’s war machine is heavily reliant on imports of sophisticated microelectronics to operate effectively,” the report said. (here and here) The complaint alleges some of the electronic components exported through SH Brothers found in seized Russian weapons platforms and signals intelligence equipment include the Torn-MDM radio reconnaissance complex, the RB-301B “Borisoglebsk-2” electronic warfare complex, the Vitebsk L370 airborne counter missile system, Ka-52 helicopters, the Izdeliye 305E light multi-purpose guided missile, Orlan-10 unmanned aerial vehicles and T-72B3 battle tanks. All three defendants were ordered detained following their first court appearances earlier today. (here)