Insights: Week of July 17, 2023
Sanctions Compliance, Fraud, AML, and other Illicit Finance News
US law firms are reacting to the Biden administration’s expanded sanctions enforcement by growing their compliance teams. Washington DC law firm Akin Gump Strauss Hauer & Feld this week hired three international trade lawyers from Hughes Hubbard & Reed to address increased enforcement of economic sanctions and export controls following Russia’s invasion of Ukraine.
FiveBy in January warned that US firms and financial institutions will need to enhance their compliance efforts, conduct more thorough research into potential clients and business partners, monitor ownership and control structures, and thoroughly understand their supply chains to mitigate not just reputational damage, but also the risk of financial penalties and possible criminal prosecution.
Simple list screening is no longer enough. Regulators are looking for robust compliance programs that research, monitor, and take risk-appropriate actions to ensure that malign actors do not access US tools, technologies, and the financial system writ large.
To find out how FiveBy can help your company improve and enhance compliance efforts, please click below.
Compliance and Due Diligence
OFAC this week sanctioned 95 Russian entities, 18 individuals, and 14 vessels. Included in the list is former Finance Minister Alexey Kudrin, who was widely considered more liberal than most other Russian high-level officials. This batch of designations is meant to impede Russia's access to military materiel, target sanctions evasion facilitators, and those helping Russia access the global financial system.
Treasury this week sanctioned three Belgian nationals and one Mexican for trafficking drugs in Europe and the United States.
The Belgian nationals operate an criminal organization that smuggles significant quantities of cocaine via shipping containers through the Port of Antwerp in Belgium for wider distribution throughout Europe. Their money laundering and supply chain networks are linted to entities based in China, as well as South American cocaine suppliers.
The Mexican national works with La Nueva Familia Michoacana drug trafficking organization, which was sanctioned last November.
In addition, OFAC has sanctioned Jordan “Orce” Kamcev in North Macedonia for threatening stability in the western Balkans by engaging in corruption, money laundering, and other offenses, resulting in the collapse of the country’s special prosecutor’s office.
The United States has issued a new 120-day sanctions waiver to allow Iraq to pay Iran for electricity. The national security waiver allows Iraq to deposit payments into non-Iraqi banks in third countries to avoid Tehran-triggered shutdowns in the middle of sweltering summer heat.
The United States this week has barred 14 Iraqi banks from conducting US dollar transactions, based on intelligence that indicates the banks were engaged in money laundering and fraudulent transactions, some of which may have involved sanctioned individuals. Al Mustashar Islamic Bank, Erbil Bank, World Islamic Bank, and Zain Iraq Islamic Bank are included on the list.
The UK has designated 13 entities and individuals linked to Russia’s Wagner group. Those sanctioned are connected to Wagner activities in the Central African Republic, Mali, and Sudan.
A new bipartisan Senate bill would hold venture capital firms and other large investors accountable for sanctions violations occurring on decentralized finance (DeFi) platforms. If a sanctioned individual uses a DeFi service to evade sanctions, the person who controls the DeFi project would be liable for facilitating the violation. If no one controls the service, investors who contributed more than $25 million into the project would be held accountable.
The Commerce Department has added four companies to the Entity List for trafficking in cyber exploits. BIS on Tuesday added Intellexa S.A. in Greece, Cytrox Holdings Crt in Hungary, Intellexa Limited in Ireland, and Cytrox AD in North Macedonia to the Entity List for supplying spyware that was discovered on the phones of members of the political opposition in various countries.
Separately, the Bureau of Industry and Security has created a list of best practices for US companies to use when they apply for licenses to export medical-related items to Russia, Belarus, and Ukraine’s occupied regions.
A bipartisan group of legislators has introduced a bill that would impose sanctions on regional actors who weaken the Dayton Peace Accords in Bosnia. If the the Upholding the Dayton Peace Agreement Through Sanctions Act passes, it would sanction “those who undermine the Dayton Accords and Bosnian democratic institutions.” It would also encourage the EU to sanction Bosnian leader Milorad Dodik.
Press reports indicate that the United States is readying sanctions against Kyrgyzstan for supplying Russia with restricted equipment, components, and electronics. The new economic measures would follow months of unproductive engagements between Kyrgyz officials and US and European diplomats. Records from early this year show Kyrgyz companies making bulk purchases of sensitive electronics from Chinese and South Korean companies and exporting a nearly identical quantity of the same types of electronics to Russia.
The United States will not yet sanction Mexico for its failure to protect the endangered vaquita porpoise. However, sanctions may be imposed if the vaquita’s situation does not improve within a year.
The EU has informally agreed to military sanctions against Belarus, including restrictions on battlefield equipment. New sanctions are expected next week.
Australia this week sanctioned more Russian individuals and entities, including 35 Russian defense, technology, and energy companies, and 10 Russian and Belarussian individuals. Individuals include Russian Commissioner for Human Rights Tatyana Moskalkova, and the head of Kalashnikov, Vladimir Lepin. Major Russian defense entities include JSC Russian Helicopters and Russian companies involved in nuclear energy and Arctic resource extraction.
A bipartisan group of lawmakers has reintroduced a sanctions bill targeting Cambodia’s leaders in advance of the country’s elections. The Cambodia Democracy and Human Rights Act asks the President to identify to Congress within 180 days of the bill’s passage Cambodians who “directly and substantially prevent” opposition parties, the media, or civil society groups from “exercising their civil and political rights.” It also targets individuals who “engage in or are responsible for any acts” that fall under the Global Magnitsky Human Rights Accountability Act and those who “engage in or support the establishment of installations or facilities” that could be used by China’s military or affiliated entities.
The US Semiconductor Industry Association (SIA) is urging the Biden administration not to implement further limits on chip exports to China, warning that they could destabilize the domestic chip industry. The SIA this week warned that access to China’s chip market was important to the domestic industry and noted that “ambiguous” new rules could invite retaliation from Beijing.
Japan is considering additional economic sanctions on Russia, targeting vehicle exports. Japan since April 2022 already prohibits shipments to Russia of luxury vehicles worth more $43,000, and the planned additional sanctions could cover less expensive used cars that are in high demand in Russia.
Russian oligarch Oleg Tinkov has been removed from the UK sanctions list after billionaire Richard Branson called on his country to lift sanctions against him. Tinkov has publicly condemned Russia’s invasion of Ukraine and given up his Russian citizenship, and he has appealed the UK decision to designate him.
A new MONEYVAL report calls on Romania to further strengthen measures to combat money laundering and the financing of terrorism. MONEYVAL highlighted that Romania has achieved a substantial level of effectiveness and has been commended by other countries for its international cooperation. However, the evaluation found that the country has yet to consider the investigation and prosecution of money laundering an overall priority.
Australia’s Attorney-General is warning that the country could be included on FATF’s grey list if it does not strengthen its anti-money laundering/counter financing of terrorism (AML/CFT) regime. Mark Dreyfus is using the warning to galvanize support for imposing new AML/CFT requirements on lawyers, accountants, and real estate agents, noting that Australia is one of only five nations (that includes the United States, China, Haiti, and Madagascar) that does not impose AML/CFT requirements on these professions.
Senator Chuck Schumer supports sanctions against China over the production of fentanyl and will push to include them in the National Defense Authorization Act (NDAA). The sanctions amendment would also declare fentanyl a national emergency and has bipartisan support in the Senate.
Europe's aluminum industry group is considering lobbying for EU sanctions on Russian aluminum, but would oppose specifically targeting the country's largest producer Rusal. A recent memorandum has noted that Rusal owns Ireland's Aughinish, the EU's largest refinery of raw material alumina, as well as the Kubal smelter in Sweden.
The UK this week imposed sanctions on 13 individuals and one entity—The Federal State Budget Educational Institution Artek International Children's Center. Artek is a Russian youth camp in Crimea, which the UK says is involved in destabilizing Ukraine and undermining its sovereignty by: 1) providing support for Russia’s forced deportation and re-education of Ukrainian children; and 2) operating as a Government of Russia-affiliated entity.
Estonia has extradited an accused Russian intelligence officer to the United States to face charges that he helped orchestrate a scheme to export US technology to be used in the invasion of Ukraine. Vadim Konoshchenok allegedly worked for Russia’s Federal Security Service and was affiliated with two Russian firms—Serniya Engineering and Sertal LLC—that were sanctioned after the start of the invasion for playing a key role in supplying Russia’s war machine.
German financial regulator BaFin this week extended its AML measures against online bank N26. The measures include a special monitor at the bank and a limit on new customers at 50,000 per month. Bafin is also requiring N26 to establish adequate IT monitoring, increase quality assurance, and create effective outsourcing controls.
Emirates Gold DMCC, a gold refinery that reportedly has ties to Zimbabwean businessman Simon Rudland, has been suspended in both the UAE and London. Rudland was featured in a recent Al Jazeera documentary about the Gold Mafia gangs that launder money and smuggle gold through Southern African companies. The refinery has been operating in Dubai for more than 30 years.
Kuwait has prohibited the use of cryptocurrencies in an effort to combat money laundering. The Capital Markets Authority also placed an "absolute" ban on all digital asset mining and prohibited the recognition of crypto as decentralized currency.
A bipartisan group of senators yesterday introduced an AML amendment to the NDAA that includes provisions to prevent the use of crypto assets in illicit financial transactions. The amendment would “require regulators to set examination standards for financial institutions engaged in crypto asset activities” and require Treasury to make recommendations to Congress regarding crypto asset mixers and anonymity-enhancing crypto assets.”
Fraud and Abuse
Chinese police this week arrested 21 members of a major Tether money laundering ring that processed $55 million in USDT across four provinces in China. The in-depth investigation exposed a group of criminals that had been running a USDT over-the-counter (OTC) trading ring since October 2021, purchasing Tether at a low price and reselling it for a profit through WeChat groups.
Former Panamanian president Ricardo Martinelli this week was convicted of money laundering and sentenced to more than 10 years in prison. Martinelli was also ordered to pay a $19.2 million fine for his complicity in a scheme that used public funds to purchase a media conglomerate in which he held a majority stake. This isn’t the only corruption accusation against Martinelli. He also faces money laundering charges in the Odebrecht scandal—a massive bribery case involving multiple public officials across Latin America.
The United States has barred former Panamanian president Juan Carlos Varela Rodriguez, who has been charged with money laundering in Panama, from entering the country. The State Department says that while serving as Panama's vice president and then president, Varela accepted bribes in exchange for improperly awarding government contracts. Varela was also charged with money laundering related to the Odebrecht bribery scandal along with Martinelli.
US authorities have seized $58 million from a bank account in the Bahamas suspected of laundering crypto funds. Officials suspected that illicit actors used the account at Bahamas-based Deltec Bank and Trust for wire fraud, bank fraud, and money laundering and have linked certain Deltec customers to at least 74 shell companies involved in a cross-border scheme that created fake cryptocurrency websites to trick victims into depositing their assets or cash.
El Salvadoran police have arrested more than 100 Colombians for alleged involvement in a microfinancing scheme that laundered money from drug trafficking and other gang activities. The criminal group reportedly made loans to individuals and small businesses at 20 percent interest, using the illicit funds. When the victims could not repay, the group would intimidate them into giving it control of their bank accounts, which they used to move money abroad.
Eddy Alexandre of Long Island, who admitted swindling hundreds of millions of dollars from investors through his EminiFX cryptocurrency and foreign-exchange platform this week was sentenced to nine years in prison. Alexandre in February pleaded guilty to commodities fraud and agreed to forfeit the nearly $249 million he earned illegally through his Ponzi scheme which targeted mostly investors in the Haitian-American community in New York.
Two Florida men last week pleaded guilty to defrauding Medicare by submitting more than $67 million in false claims. Daniel Carver owned and managed call centers that he used to conduct deceptive telemarketing campaigns targeting Medicare beneficiaries to solicit them for unnecessary genetic testing and medical equipment. Louis “Gino” Carver worked for these call centers and acted as a straw owner for a laboratory that submitted false genetic testing claims. The Carvers paid kickbacks and bribes to telemedicine companies in exchange for completed doctors’ orders, sold doctors’ orders to laboratories and durable medical equipment companies in exchange for kickbacks, forged doctors’ and patients’ signatures, and tricked medical providers into ordering medically unnecessary genetic testing.
A postsecondary student in Hong Long was among six people arrested Friday, suspected of helping the an organized crime syndicate launder illegal funds by using e-wallet accounts to trade cryptocurrency, concealing the origins and flow of crime proceeds. The group set up bank accounts on the mainland to collect crime proceeds generated through various scams and then used debit cards to launder the money by purchasing valuables such as gold ornaments and watches in Hong Kong.
National Australia Bank (NAB) will block certain cryptocurrency exchanges, citing a high risk of scams in the industry. NAB did not specify the names of the cryptocurrency exchanges, but said that the new blocks will affect “high-risk” platforms where “scams are more prevalent.” Could this mean more trouble for Binance?
The former executive vice president of an Atlanta engineering firm this week was sentenced to five years in prison for paying bribes to two Atlanta officials in exchange for steering city business worth millions of dollars to his company and evading more than $1.5 million in taxes. Lohrasb “Jeff” Jafari was the executive vice president of PRAD Group, an architectural, design, and construction management firm headquartered in Atlanta that performed services for the city and DeKalb County.
Amazon has agreed to a permanent injunction and a $25 million civil penalty as part of a settlement to resolve alleged violations of the Children’s Online Privacy Protection Act (COPPA), the Children’s Online Privacy Protection Rule (COPPA Rule), and the Federal Trade Commission Act (FTC Act) relating to Amazon’s Alexa. Amazon was accused of retaining children’s voice recordings indefinitely in violation of COPPA’s requirement that these recordings be retained only as long as reasonably necessary. Other allegations include making deceptive representations that Alexa app users could delete their or their children’s voice recordings, when in fact Amazon on some occasions failed to delete all such information at users’ request.
An investigation by a Ukrainian journalist has revealed that Binance’s money processor Advcash may be laundering money for Russia. Research has found that most of the company’s LinkedIn profiles are located in Russia and Ukraine, and Advcash’s helpline numbers have Russian and Belizean area codes, representing jurisdictional risk. In addition, Advcash has claimed partnerships with major Russian banks, including sanctioned financial institutions such as Yandex Money, PrivatBank, AlfaBank, and Sberbank.
A New Jersey man who was twice convicted of defrauding investors out of $230 million and whose lengthy prison sentence was commuted by President Donald Trump is facing new fraud charges. Eliyahu “Eli” Weinstein (aka Mike Konig) is among five men accused of defrauding dozens of investors out of $35 million. He is accused of using a fake name and issuing false promises of access to deals involving scarce medical supplies, baby formula, and first-aid kits supposedly destined for wartime Ukraine.
Ukraine has disrupted a massive bot farm with more than 100 operators allegedly spreading fake news about the Russian invasion, leaking personal information belonging to Ukrainian citizens, and instigating fraud schemes. Police seized computer equipment, mobile phones, and other equipment and insiders in Vinnytsia, Zaporizhzhia, and Lviv were involved in the bot operation.
Ukraine’s security services have exposed the owners and top management of a Kyiv bank they allege is involved in large-scale money laundering by underground online casinos. The bank’s owners allegedly established more than 20 companies, which opened accounts at the bank, and which gamblers at underground online casinos used to deposit money to top up their accounts, indicating payment for non-existent goods and services in the “payment purpose.” IBOX Bank denies laundering more than $136 million since beginning of Russia’s invasion.