Two Russia-born U.S. citizens, Sergey Nefedov from Anchorage, Alaska, and Mark Shumovich from Bellevue, Washington, were arrested for allegedly operating a scheme to illegally export nearly half a million dollars’ worth of snowmachines and associated parts from the United States to Russia without the required export authorization and approvals through the company Absolut Auto Sales LLC.
Details of the Scheme
“As alleged in the indictment, the defendants engaged in a scheme to evade export restrictions by smuggling hundreds of thousands of dollars’ worth of snowmachines and associated parts to Russia,” said Assistant Attorney General Matthew G. Olsen of the Justice Department’s National Security Division. “This matter is the latest example of our commitment to hold accountable those who violate sanctions laws and our determination to impose costs on the Russian government for its unjustified invasion of Ukraine.”
According to the indictment, Nefedov and Shumovich sought to buy 17 snowmachines and parts from multiple American distributors with the intent to export them to Russia through Hong Kong, claiming they were bound for South Korea on behalf of an Alaska-licensed tour company called Alaska Sled Tours LLC between March 2022 and May 2023. The violators conspired with those doing business in Russia and Hong Kong to evade the U.S. export restrictions that were imposed on luxury goods (Executive Order 14068). Because snowmachines are considered luxury goods (determined by their HTS code within the EAR), this transaction required prior US Government approval following Russia’s invasion of Ukraine on Feb. 24, 2022. Exporting to an intermediary in Hong Kong does not absolve exporters from complying with US export regulations.
Apparently, Shumovich had been involved in shipping snowmachines and parts to Russia before the sanctions. However, once the sanctions hit there was a need to get creative and that first attempt to bypass the restrictions was in 2022 with his regular shipping company by sending them first to Hong Kong. However, an employee “refused to ship the snowmachines, explaining … that companies that had previously shipped to Russia and now ship to China or Korea are facing delays and closer scrutiny, and that the employee did not believe the container would pass U.S. customs.” Instead of applying for and obtaining the necessary export licenses, Shumovich decided to look for a new logistics company and “attempted to ship approximately $475,000 worth of snowmachines and associated parts to a Hong Kong-based company to fulfill an order for Alaska Sled Tours LLC.”
Fun Fact
Being a subtropical climate, snow is very rare in Hong Kong. So rare in fact that 1975 was the last time light snow was reported on Tai Mo Shan Mountain.
Bottom line, snowmachines to Hong Kong = Red Flag!
Investigation and Charges
The US Government was able to access electronic documents, including communications involving the two men and unidentified co-conspirators in China and Russia, which showed that the snowmachines were destined for Russia. The findings also implied that the pair were well versed in export controls, even telling their freight forwarder that the goods needed to “transit a third country” because deliveries to Russia “have been stopped.” Both knew the regulations well enough to identify that shipments of the snowmachines to Hong Kong were NLR (No License Required); which led the freight forwarder to file inaccurate information and false filings to the US authorities by concealing the true Russian end user and ultimate destination of the goods. Both individuals conspired with others in Russia and Hong to evade sanctions. The pair worked with a Russian national in Hong Kong to ship the items there which were then re-exported onto Russia.
“This seizure of snowmachines and the coordinated investigation led to the disruption and identification of a transnational criminal network attempting to circumvent Russian sanctions,” said Special Agent in Charge Robert Hammer, who oversees Homeland Security Investigations (HSI) operations in the Pacific Northwest.
Both face charges of smuggling, money laundering, and violating export laws related to Russia’s invasion of Ukraine; with the US authorities seizing all the snowmachines and associated parts who are seeking to forfeit the snowmachines for transfer to Ukraine.
It is important to note that the interagency law enforcement task force dedicated to enforcing sanctions since the invasion of Ukraine is the Justice Department’s Task Force KleptoCapture. They have been tasked with targeting Russian oligarchs aligned with the Kremlin and have seized more than $500 million of luxurious items such as yachts and lavish homes.
Takeaways for US Suppliers & Companies
- Even domestic sales and shipments can result in your product ending up in sanctioned territories Even domestic sales and shipments can result in your product ending up in sanctioned territories – Always KYC – Know Your Customer!
- Be aware of Red Flags and if something does not seem right, follow up!
- Items do not lose their country-of-origin status whether exported directly or indirectly
- Profiting through illegal activities and evading prohibitions results in negative publicity, penalties and fines!
Need more help navigating export regulations and avoiding sanctions violations like the snowmachine case? Schedule a no-charge consultation with one of our team members today.
Kristine Kelleher is a Trade Compliance Consultant for Export Solutions -- a full-service consulting firm specializing in U.S. import and export regulations.