Insights Week of 26 June 2023
Sanctions compliance, Fraud, AML, and Other Illicit Finance News
FiveBy this week published a short alert highlighting an advisory that was jointly released by several US departments and USAID about the illicit gold trade in sub-Saharan Africa. The gold sector in Africa is risky because of money laundering, sanctions evasion, corruption, forced labor, and other illicit activities, and recognizing risk indicators is critical to protecting business and preventing reputational damage.
Red flags associated with money laundering, labor and human rights abuses, environmental damage, and corruption must be identified and examined. The use of cash-intensive businesses and operations, fraudulent declaration of gold as scrap as a tax avoidance measure, involvement of high-risk individuals, sanctioned individuals or entities, or government officials flagged for corruption, can all be indicators of illicit activities in the mining sector.
We flag other problematic behavior and typologies as well. Due diligence should include a comprehensive examination of labor practices to steer clear of links to worker exploitation, including children, which is unethical and can cause significant reputational damage. Thorough research can also help US firms avoid being subject to Withhold Release Orders (WROs), which authorize the US Customs and Border Protection (CBP) to detain questionable goods at all US ports of entry unless the importer can prove the absence of forced labor in its shipment’s supply chain, which can negatively impact profits.
FiveBy's expert risk analysts can help your firm recognize risk indicators critical to protecting your business and preventing reputational damage.
For a free consultation that will provide a bespoke solution to your risk assessment needs and critical insights into your potential clients and business partners, click below.
Compliance and Due Diligence
South Korea has sanctioned Choi Chon Gon—a South Korean national who also holds Russian citizenship—for supporting North Korea in violation of UN Security Council sanctions. Choi has been accused of founding a North Korean front company in Mongolia to help the DPRK evade sanctions and secure resources for its missile program. He also may be running a separate, Russia-based trading company in a joint venture with the chief of North Korea’s state-run Foreign Trade Bank branch in Vladivostok. That individual and the two companies have been sanctioned as well.
OFAC this week sanctioned one individual and four entities linked to designated Russian warlord Yevgeny Prigozhin. The entities are located in the Central African Republic (CAR), Dubai, and Russia and are related to Wagner’s activities in Africa, including links to corrupt regimes and gold smuggling operations.
OFAC on Friday sanctioned two Russian officers following a series of OFAC designations that expose Russia’s attempted election interference efforts in the United States and destabilization efforts in Ukraine. OFAC last year designated Aleksandr Ionov and Natalya Burlinova and their organizations for having acted on behalf of the Russian government. The two FSB officers sanctioned Friday—Yegor Popov and Aleskei Sukhodolov—were their FSB handlers.
The United States is considering additional restrictions on exports of AI chips to China, given AI’s increasing importance in various markets. In response to last year’s restrictions, Nvidia made downgraded versions of its A100 and H100 chips for sale to China, but even these chips may be restricted under the new rules, prohibiting their export to China without a license. We recommend extra due diligence and increased monitoring of export restrictions.
The EU this week sanctioned seven Iranians over human rights abuses committed against protesters in the country. Among those sanctioned by the bloc include Seyyed Mohammad Mousvian, prosecutor of Isfahan province, and Ali Zare Nouri, deputy judge and advisor to the provincial criminal court of Isfahan.
The EU’s 11th Russia sanctions package includes key IT providers that work with Russia’s FSB and entities in the Russian defense and financial sectors. The new sanctions package also includes provisions to address "dual-use" technologies. The EU also mandated restrictions on companies and individuals in third countries that are found to be helping Russia evade sanctions, including two companies based in Uzbekistan. BIS in April included Alfa Beta Creative and GFK Logistics Asia, both of which are headquartered in Tashkent, on the Entity List. The full EU announcement and list are here.
The EU plans to keep ballistic missile sanctions set to expire in October under the defunct 2015 Iran nuclear deal. The three reasons cited are Russia’s use of Iranian UAS against Ukraine, the possibility that Iran may transfer ballistic missiles to Russia, and Tehran’s violation of the Joint Comprehensive Plan of Action, from which then-President Trump pulled the United States in 2018.
A new law introduced in the UK this week bans British lawyers from advising Russian companies and individuals on any issue that could benefit Russia economically. The UK provides more than $70 million in legal services to Russian clients annually, and Russia is highly dependent on western legal expertise.
The Swiss Federal Council this week adopted financial sanctions and travel restrictions against five people accused of undermining the sovereignty and independence of Moldova. Switzerland is also expanding its sanctions against Russia to remain in line with the EU's 11th sanctions package.
Crypto exchange KuCoin is introducing new know-your-customer (KYC) rules that will require new users to complete identity verification to access all services. Existing users starting 15 July will not be able to make deposits without completing the new checks. The complete KYC process will require users to provide their name, identification number, and photo, and undergo facial recognition.
A new bipartisan bill—the Sanctions Evasion Whistleblower Rewards Act—will pay informants who have “actionable information” about sanctions evaders. The legislation would expand the Rewards for Justice program to offer rewards for information about the identity or location of individuals and entities that violate sanctions imposed by the United States or the UN.
Canadian legislators are urging the government to impose sanctions against individuals and organizations who spread disinformation. A new report calls for stronger cybersecurity, citing increasingly sophisticated disinformation and foreign influence campaigns by China, Russia, and other aggressors.
The Financial Action Task Force (FATF) says that Panama and the Cayman Islands have made substantial progress strengthening their AML/CFT regimes and could be removed from the organization's grey list soon. The two jurisdictions have made high-level political commitments to work with FATF to strengthen their respective controls.
Russia was not blacklisted by FATF last week, but for the first time an EU member has been placed on the grey list of countries requiring extra monitoring because of insufficient AML/CFT regimes. Croatia has been added to the FATF list, as were Cameroon and Vietnam. Lebanon has managed to stay off the grey list by one mark. FATF on Friday also reiterated that "all jurisdictions should be vigilant to current and emerging risks from the circumvention of measures taken against the Russian Federation in order to protect the international financial system.”
Three companies owned by an arms dealer linked to the children of Myanmar junta chief Min Aung Hlaing are being dissolved. Star Sapphire Phoenix Co Ltd, Star Sapphire Dragon Co Ltd, and Royal Mawtaung Mining Co Ltd are subsidiaries of the Star Sapphire Group of Companies owned by Tun Min Latt, who was arrested last year in Thailand on charges of drug trafficking and money laundering.
Australia has imposed financial sanctions and travel bans on three men involved in the downing of Malaysia Airlines Flight 17 (MH17) over Ukraine in 2014. A Dutch court in November convicted former Russian intelligence agents, Sergey Dubinskiy and Leonid Kharchenko, and Ukrainian separatist leader, Igor Girkin (aka Strelkov), in absentia of murder for their role in the incident.
Binance’s European banking partner, Paysafe Payment Solutions, as of 25 September will stop offering exchange customers access to euro-denominated bank transfers. Binance will be changing the provider for euro deposits and withdrawals through the Single Euro Payments Area (SEPA), which it typically accesses via intermediaries.
Russia’s supreme court has ruled that when criminals convert cryptocurrencies to fiat, those trades can be considered money laundering. The court interpreted the relevant section of the Russian criminal code, which pertains to the “laundering of funds obtained by criminal means,” to apply to all financial transactions involving the proceeds of crime.
Denmark's gaming authority has charged major gambling operator, Danske Licens Spil A/S, with violating the country’s AML/CFT regulations for failing to conduct enhanced due diligence on a particular customer, even though the player’s activities, including the volume of transactions and the number of notifications sent to the Money Laundering Secretariat, warranted extra checks. The operator eventually ended its relationship with the player, but the failure to perform enhanced due diligence still violated Danish law, highlighting the country's low tolerance for violations of money-laundering controls.
Fraud and Abuse
The DOJ today charged a former Pfizer employee, a Massachusetts police chief, a former pharmaceutical executive, and investors in a Trump media venture in separate insider trading cases. Ten defendants were charged with securities fraud and other crimes for stealing a combined total of $30 million by trading on privileged information.
The Justice Department this week announced criminal charges against 78 defendants for alleged participation in health care and opioid abuse fraud schemes worth more than $2.5 billion. In connection with the enforcement action, the DOJ also seized millions of dollars in cash, automobiles, and real estate. The enforcement action included charges against 11 defendants in connection with the submission of over $2 billion in fraudulent claims resulting from telemedicine schemes.
Fourteen people have been charged for their participation in a $53 million fraud scheme. The defendants allegedly submitted at least 29 Paycheck Protection Program (PPP) loan applications that fraudulently inflated payroll expenses, doctoring bank statements and IRS tax forms to falsely reflect business income. They then routed PPP loan funds through a series of bank accounts to create a false paper trail of payroll expenses.
Donald Zampach this week pleaded guilty in federal court to money laundering and social security fraud, admitting that he concealed his mother’s death for more than 30 years, and that he received and laundered hundreds of thousands of dollars in government benefits intended for her, that should have ceased upon her death. Zampach’s mother died in Japan in 1990, and at the time of her death was receiving a widow’s pension and an annuity from the Defense Department.
Raymond Brewer this week was sentenced to more than six years in prison for running a cow manure Ponzi scheme. The $8.75 million scheme hinged on a nonexistent factory that was supposed to create green energy out of cow manure. Brewer falsely claimed to be an engineer who ran a company that built anaerobic digestion plants, and fraudulently convinced investors that the plants would generate millions of dollars in revenue.
The INFORM Consumers Act took effect this week, requiring online marketplaces to verify and disclose information on the identity of its sellers to deter sales of stolen, counterfeit, or harmful products online. Failure to comply could result in as much as $50,000 in fines for each violation.
Russian President Putin this week launched an investigation into Wagner Group chief Prigozhin, whose businesses received $2 billion from the government in the past year, negating previous Russian claims that Wagner was not a government organization. Prigozhin was pardoned and exiled over attempting a coup last weekend, and apparently not only Wagner, but also the finances of Prigozin's catering company will be investigated.
Israel has identified a network that launders millions in digital currencies for Iran and Hizballah and seized $1.7 million in cryptocurrencies this week. As many as 40 addresses were on the seizure list, and the funds were moved first from financial facilitators to hawala services and over-the-counter brokers, and then to Hizballah-controlled addresses at mainstream exchanges. Israel estimates that Hizballah, Syrian operatives, and Islamic Revolutionary Guard Corps-Quds Force (IRGC-QF) have illegally received digital currencies from third parties since the beginning of this year.
Dozens of people have been arrested in a police raid against the 'Ndrangheta organized criminal group, including a former governor of Calabria, Italy—the group's home base. The network operated numerous business enterprises, including real estate, catering, and produce and livestock trading.
Exiled Moldovan politician Ilan Shor, sentenced in absentia for mass fraud, this week announced the creation of a new political bloc to replace a pro-Russian party bearing his name that was banned by court order. Shor said the new group would be known as "Chance, Responsibilities, Implementation" (Shans, Otvestvennosti, Realizatsiya), which spells out his surname Shor in both Russian and Romanian. The initiative will likely be ruled illegal in Moldova, and the new party will almost certainly be sanctioned by the West.
Michael Bostock this week was sentenced to five years in prison for defrauding the VA post-911 GI Bill education program. Bostock—the owner of California Technical Academy (CTA)—and his co-conspirators for 10 years made fraudulent representations to the VA regarding, among other things, veterans’ enrollment in approved courses of study, class attendance, and grades and falsified course completion records to make it appear as if enrolled veterans completed their programs at CTA. Veterans enrolled in CTA’s VA-approved courses received more than $72 million in education-related government benefits.
The Justice Department on Friday announced the arrest of two individuals and unsealed three indictments charging China-based companies and their employees with crimes related to fentanyl production, distribution, and sales resulting from precursor chemicals. China-based chemical company Hubei Amarvel Biotech Co. Ltd.(aka AmarvelBio), as well as its executives and employees have been charged with fentanyl trafficking, precursor chemical importation, and money laundering.
A UK man who made roughly $900,000 in an elaborate Twitter hack and a separate crypto-related SIM-swapping scheme will spend five years in prison. Joseph O'Connor, also known by his social media handle "PlugWalkJoe," in 2020 hijacked prominent accounts on the platform and used them to promote a bitcoin giveaway scam. He also pled guilty to participating in SIM-swapping attacks that targeted high-profile executives in the cryptocurrency industry, stealing almost $800,000 worth of digital currencies.
FiveBy provides a weekly roundup of relevant news and insights to help readers keep abreast of regulatory developments and reputational risks. We hope you find the insights useful. Please feel free to contact us at insightsfeedback@fiveby.com if you have any questions or suggestions.