Latvia’s Moscow House Case Becomes a Defining Test for Europe’s Sanctions Enforcement Regime

Latvia’s security authorities have intensified one of the country’s most politically charged financial crime cases, moving closer to criminal prosecution against two former managers of the defunct “Moscow House.” The pair are accused of generating income from a sanctioned Russian-owned property, in defiance of European Union asset-freeze measures. This unfolding prosecution highlights both the intricacies of sanctions enforcement across Europe and the ease with which immobilised assets can quietly be reactivated through local business activity.

According to the State Security Service (VDD), the Moscow House managers allegedly rented out sections of the building and accepted services from tenants, in direct violation of the EU’s sanctions regime against Russia. The investigation underscores that sanctions evasion does not always involve offshore transfers or shell companies — it can occur through something as tangible as the continued commercial use of real estate. For Latvia, now a front-line jurisdiction in the enforcement of EU sanctions linked to Russia’s war in Ukraine, the case is a critical test of its ability to prosecute violations under Section 84(1) of its Criminal Law.

The legal foundation of this case lies in the EU’s restrictive measures introduced after Russia’s full-scale invasion of Ukraine in 2022. These measures were designed to cut off financial access for individuals and entities supporting the Kremlin. Under EU law, all assets and economic resources owned or controlled by sanctioned persons must be frozen — not only money or securities, but also property, rental income, and any other assets capable of generating value.

The Moscow House, officially registered as the representative office of the Moscow Centre for International Cooperation, was drawn into these restrictions because its parent body is owned by the Moscow City Property Department, an entity operating under Moscow Mayor Sergey Sobyanin and Russian President Vladimir Putin. Both were placed under EU sanctions in 2022, meaning any assets under their control within EU territory were subject to immediate freezing.

Once the measures took effect, the Moscow House building could not legally be rented or used to earn income. All related funds and resources were to remain completely immobilised. However, the VDD found that the property continued to function as an active commercial site. Tenants occupied offices, events were hosted, and rent was collected — all of which directly contravened the prohibition on generating revenue from frozen assets. The investigation revealed that tenants even paid service and maintenance fees, ensuring the building’s continued operation. Each such transaction constituted an unauthorised use of sanctioned property, creating a functioning business tied to a sanctioned entity.

This type of infraction, often referred to as the “economic activation of frozen resources,” exposes a key enforcement gap. Unlike digital transactions, which can be screened by financial institutions, property-based sanctions require constant on-the-ground supervision. In this instance, the ongoing rental agreements and service payments effectively revived a frozen asset. Latvia’s Criminal Law Section 84(1) criminalises both direct and indirect violations of international or EU sanctions — covering actions such as arranging rentals or passively allowing sanctioned entities to derive benefit. By invoking this statute, Latvia aligns itself with the EU’s broader effort to standardise sanctions enforcement across Member States, recognising that inconsistent national responses undermine the bloc’s collective measures.

The Moscow House case demonstrates how sanctions violations can masquerade as routine commercial activity. Investigators allege a systematic process in which a frozen property was converted into a source of revenue, disguising the breach under ordinary lease agreements. First, the managers reportedly entered into tenancy contracts with various individuals and organisations. While appearing legitimate, these contracts directly violated the asset-freeze order. Each rent payment, by definition, represented proceeds derived from the unlawful use of sanctioned property.

Second, tenants are said to have paid for utilities, maintenance, and other operating costs — payments that sustained the property’s viability. This indirect transfer of value effectively allowed a sanctioned entity to continue benefiting economically, a practice explicitly prohibited by EU sanctions law. Third, once the funds from these activities entered the financial system, they assumed the appearance of legitimate income. This created a direct link between sanctions evasion and potential money-laundering risk: revenues originating from a sanctions breach were processed through regular payment channels, masking their illicit origin and possibly integrating into lawful economic circulation.

Such conduct illustrates how sanctions violations can evolve into laundering typologies. The proceeds from the unlawful use of sanctioned assets can be reinvested, transferred, or layered into legitimate business activities. As a result, sanctions compliance and AML frameworks must operate in tandem — a sanctions breach is often the predicate offence that generates laundering risk.

Recognising this, the VDD moved swiftly to treat the Moscow House violations as criminal acts in their own right, preventing the proceeds from being further integrated into the financial system. The agency’s referral of the case to prosecutors signals a clear shift from administrative penalties to criminal prosecution, echoing the EU’s push for harmonised treatment of sanctions offences across Member States.

Latvia’s approach fits within a broader European context. Since 2022, the country has emerged as one of the EU’s most proactive enforcers of Russia-related sanctions, freezing hundreds of millions of euros in assets, tightening inter-agency cooperation, and revising legislation to eliminate oversight gaps. The Moscow House case is thus not only a national milestone but also a demonstration of how sanctions enforcement is evolving into a core component of financial crime policy across the EU.

Enforcement, however, remains inconsistent across the bloc. While some Member States still treat violations as administrative offences, others, like Latvia, pursue criminal accountability. By opting for prosecution, Latvia reinforces the principle that sanctions evasion constitutes a serious economic crime, not merely a regulatory lapse. The case also highlights how non-financial assets — real estate, luxury goods, yachts, and art — can become central to sanctions evasion networks when financial channels are cut off.

For the EU, the success of its sanctions regime depends on rigorous national enforcement. The forthcoming directive on harmonising sanctions offences aims to standardise definitions and penalties, ensuring that breaches are uniformly criminalised. Latvia’s model anticipates this reform by integrating sanctions enforcement with its AML and counter-terrorist financing systems.

The investigation also reveals how “representative offices” or “cultural centres” tied to sanctioned governments can function as loopholes in sanctions regimes. Often registered as non-profits, such entities can obscure their links to state ownership and continue operating under the guise of cultural diplomacy. The Moscow House case exposes how these structures can serve as proxies for sanctioned authorities, maintaining commercial activity under legitimate cover.

From a compliance perspective, this development sends a strong warning to property managers, financial institutions, and service providers. Any entity that facilitates payments or services connected to sanctioned property risks criminal exposure. Financial institutions must therefore extend sanctions screening to include property-based income and service payments, ensuring that any funds linked to sanctioned entities are immediately blocked.

The prosecution also delivers a set of strategic lessons for compliance professionals and regulators. First, physical assets demand constant verification — sanctions enforcement cannot depend solely on digital screening. Real-estate audits, tenant reviews, and direct site monitoring are essential. Second, “economic resources” under EU law encompass any property capable of generating value; renting, leasing, or otherwise exploiting sanctioned assets constitutes prohibited activity. Third, indirect support — such as tenants paying for utilities or upkeep — must be recognised as a form of sanctions circumvention. Fourth, effective coordination between AML and sanctions functions is critical, as breaches often produce illicit proceeds that enter the financial system. Fifth, financial intermediaries and service providers have a legal duty to report suspected breaches to national authorities. Sixth, consistent enforcement enhances national and EU-wide credibility, strengthening the deterrent effect of sanctions. Seventh, the proceeds of sanctions evasion are not just violations of foreign policy measures but also predicate offences for money laundering. Finally, awareness campaigns targeting landlords, notaries, and service firms are essential to prevent inadvertent breaches arising from ignorance of sanctions obligations.

Ultimately, the Moscow House affair underscores that the strength of sanctions lies not only in the laws themselves but in how they are enforced. A frozen asset can continue to generate revenue unless authorities actively ensure its inactivity. Latvia’s decision to pursue criminal charges illustrates its determination to close these gaps and uphold the integrity of the EU’s sanctions framework.

For the financial compliance community, the message is unequivocal: sanctions are now inseparable from financial crime compliance. They require the same diligence, monitoring, and escalation processes applied to AML obligations. As the EU broadens its sanctions regime and intensifies penalties, the boundary between sanctions enforcement and anti-money-laundering efforts will continue to narrow.

The Moscow House case therefore stands as more than a local legal dispute. It marks a turning point in Europe’s treatment of sanctions violations — reframing them as serious criminal enterprises that threaten both financial integrity and geopolitical accountability. As enforcement increasingly targets not only banks but also real-estate operations, service providers, and cultural entities, one principle emerges with clarity: sanctioned assets cannot quietly remain productive, no matter how benign their appearance or purpose.

By fLEXI tEAM