Insights: Week of July 24, 2023
Sanctions Compliance, Fraud, AML, and other Illicit Finance News
US regulators yesterday published a compliance note on the importance of voluntarily disclosing potential sanctions violations. The Commerce Department’s Bureau of Industry and Security (BIS), the Justice Department, and OFAC issued a tri-seal note to summarize the procedures and benefits of voluntary self disclosure, highlighting that disclosing potential violations can provide significant mitigation of civil or criminal liability while also helping expose threats to US national security and foreign policy objectives.
Our alert diving into the specifics of the note and reiterating the importance of root cause analysis, lookback, and remediation can help inform decisions on how to best enhance your company’s compliance efforts.
We also stand ready to help your firm or financial institutions implement changes that can help improve compliance and avoid violations. Click below for a free consultation.
Compliance and Due Diligence
The United States this week sanctioned three Malian officials over their alleged ties to the Wagner Group. Defense Minister Sadio Camara planned and organized the deployment of Wagner in the country. Malian Air Force Chief of Staff, Alou Boi Diarra in 2019 received several distinctions from the National Defense University’s Africa Center for his academic accomplishments. Treasury says he promotes Wagner within the Malian Armed Forces and has coordinated with Ivan Maslov, the groups head in Mali. Adama Bagayoko is the Malian Air Force Deputy Chief of Staff and works to secure the Wagner Group’s deployment to Burkina Faso, as well as facilitates the Wagner Group’s access to gold mining in Mali.
OFAC this week sanctioned a senior financier for ISIS-Somalia. Treasury accuses Abdiweli Mohamed Yusuf of playing a key role in the delivery of foreign fighters, supplies, and ammunition on behalf of ISIS-Somalia, which serves as a hub for funds disbursement for the organization.
The fentanyl crisis is a major priority for the White House, and China is demanding that the United States drop some export restrictions in exchange for cooperation in that sphere. Beijing wants the United States to remove the Chinese Ministry of Public Security’s Institute of Forensic Science from the BIS Entity List, on which it was included in 2020 for allegedly participating in a mass surveillance campaign against Uyghur minorities in Xinjiang. The Biden administration is discussing that possibility.
The EU is creating a dedicated sanctions framework for Sudan to eventually target key actors in the ongoing war there. The bloc aims to complete the framework by September. The United States already has an executive order that creates the framework for sanctions.
The EU this week agreed to additional sanctions against Belarus for helping Russia’s invasion of Ukraine and for the continued crackdown on opposition voices. Multiple European diplomats said that the new sanctions will mainly focus on restricting dual-use equipment that can be used on the battlefield, and stopping aviation parts going to Belarus.
Given the recent military coup in Niger, with the country’s army command today declaring its support for a coup instigated yesterday by soldiers of the presidential guard, we recommend extra monitoring for possible sanctions that resemble those imposed against the military junta in Myanmar.
Senator Robert Menendez is urging the State Department and USAID to do more to punish Russian officials responsible for kidnapping Ukrainian children. In a letter, Menendez is urging action in the form of visa bans and financial sanctions, increased public awareness, and greater support for the International Criminal Court (ICC). President Biden has also ordered the United States to share evidence of Russian war crimes with the ICC, and will probably include information on the abductions.
After 14 Iraqi banks were barred from transacting in US dollars last week, accused of money laundering and siphoning money to Iran, dozens of people began protesting outside the Central Bank of Iraq in Baghdad. The banks have issued a joint statement, calling on the Iraqi government to intervene and say they are ready to face an audit.
At least 40 middlemen, including companies with no prior record of involvement in energy, have been handling Russian oil trading between March and June. The new players collectively have become some of the world's largest oil traders. There is no suggestion that the transactions violate sanctions, but they may complicate tracking Russian oil transactions for sanctions enforcement agencies in Europe and the United States.
The European Securities and Markets Authority (ESMA) has withdrawn third-country recognition from three UAE-based clearinghouses following a decision by the European Commission to include the UAE on its list of high-risk countries because of AML compliance deficiencies. The Dubai Commodities Clearing Corporation, Dubai Clear LLC, and Nasdaq Dubai Ltd are no longer included in ESMA’s list of recognized third-country central counterparties.
A former Ukrainian prosecutor who fled to Russia after the fall of his Kremlin-backed regime won a court battle to be removed from the EU sanctions list. Viktor Pshonka and his son were sanctioned by the EU in 2014 as people subject to criminal prosecution in Ukraine for alleged “embezzlement of Ukrainian state funds and their illegal transfer outside Ukraine.” Pshonka can be re-designated on other grounds after the court loss.
Lithuania opposes the easing of Russia sanctions in exchange for a renewed grain deal, from which Russia withdrew this month. An anonymous EU diplomat this week told the press that the EU is ready to listen to Russia's requests conveyed to the UN to extend the Ukrainian grain export agreement. One of the demands is the removal of some sanctions against Russia.
Virginia man, Behrouz Mokhtari, this week was sentenced more than three years in prison for violating sanctions against Iran. Mokhtari pleaded guilty earlier this year to two counts of conspiracy to violate the International Emergency Economics Power ACT (IEEPA). In a separate conspiracy, Mokhtari and a number of Iranian nationals agreed to conduct illicit shipments of petrochemical products to and from Iran, utilizing his front company, East & West Shipping Inc., in Panama.
China continues to send millions of dollars of gear to Russia that could help Moscow’s war in Ukraine. Likely-Russian buyers have taken orders for hundreds of thousands of bulletproof vests and helmets produced by Chinese manufacturer Shanghai H Win, which has seen a surge in business since the war began last year. Silva, one buyer of Shanhai H Win products, located in Eastern Siberia, received an order of 100,000 bulletproof vests and 100,000 helmets. It appears to be a brand new firm (Russian Tax ID 0300008875), with no Internet presence, registered in September last year, and reported zero profits for 2022. The company’s general director is listed as Alexei Tzirenzhapov, who despite having several social media accounts, has very little online activity.
NatWest CEO Alison Rose has resigned from her position after admitting to a “serious error of judgment” when she discussed former Brexit party leader Nigel Farage’s relationship with the private bank Coutts in a BBC interview, claiming the decision to end the relationship was purely commercial. An internal review obtained by Farage showed Coutts' wealth reputational risk committee said his values did not align with the bank's, de-banking him because of his political views. NatWest is 39 percent owned by the UK taxpayers, and efforts to boost transparency are under way.
Law enforcement officials in the UK are warning that the drive to boost transparency of bank account closures after Coutts ended its relationship with Farage could have could undermine active investigations. Planned changes would obligate banks to specify why accounts are being shut down and provide a three-month notice before ending a relationship with a customer, giving clients time to appeal.
The US Senate this week backed bipartisan legislation mandating US companies to report any investments in Chinese technologies. The amendment to the National Defense Authorization Act (NDAA) is a version of the Outbound Investment Transparency Act that targets risks of US foreign investments in countries like China.
Germany next year will create the Federal Bureau of Financial Intelligence. The new agency will centralize AML monitoring and analysis, as well as sanctions enforcement. Germany faced criticism by FATF last year for failing to do enough to combat money laundering, despite being one of the world’s biggest financial hubs.
Russian president Putin yesterday signed a bill that will make the digital ruble a reality in Russia, allowing the central bank to issue its own digital currency. The use of the CBDC may be one way to circumvent the substantial financial restrictions imposed on Russia after its invasion of Ukraine.
Fraud and Abuse
American Express has agreed to pay a $15 million fine for violating the Office of the Comptroller of the Currency’s (OCC) customer identification program rules. The OCC found that Amex “failed to ensure that its third-party affiliate had appropriate call monitoring controls and appropriate mechanisms to document and track customer complaints.” The agency did not identify the affiliate or any of the card companies’ clients.
After HCA Healthcare announced this month that the personal identification data of roughly 11 million HCA patients in 20 states had been exposed in a breach, medical identity fraud is in the spotlight. Just like someone can apply for a mortgage or receive loans using stolen identity information, they can also receive medical care and leave victims with ruined credit because of unpaid medical bills for care they never received.
Seven individuals this week were charged with participating in a conspiracy that stole $11 million from 50 mostly elderly victims in the United States. Victims of the conspiracy called a number they saw on a pop-up or other message on their computers warning that a virus had infected their devices. Someone claiming to work for a tech company would respond, but in reality they were scammers located in India, who scared the victims into giving them money using a variety of different ruses.
Colorado businessman Timothy Shea this week was sentenced to more than five years in prison for his role in the “We Build the Wall” fundraiser—a fraudulent charity that cheated private donors out of $25 million, claiming the money would fund a border wall between the United States and Mexico. Shea was charged with conspiracy to commit wire fraud, conspiracy to commit money laundering, and falsification of records.
Hong Kong police have arrested six men associated with a criminal organization suspected of laundering more than $22 million in a period of seven months. The suspects, five of whom were holders of 33 bank accounts, allegedly facilitated illegal money transfers for the syndicate. The sixth suspect, believed to be a significant member of the syndicate, is accused of using the bank accounts to collect money from phone and online scam victims and helping launder the cash.
Disgraced FTX head Sam Bankman-Fried could be jailed before his fraud trial even begins. A court yesterday imposed a gag order and is considering putting him in jail after he shared his ex-girlfriend’s personal writings with a reporter, which prosecutors claim amounts to witness tampering. His ex-girlfriend, Caroline Ellison, is one of former members of SBF’s inner circle who pleaded guilty to fraud and agreed to cooperate with prosecutors and testify against Bankman-Fried.
California has filed a felony complaint against a family that made $7.6 million from recycling bottles and cans in California that were purchased in Arizona. When someone purchases a plastic or aluminum bottle in California, they typically pay an extra 5 to 10 cents for it, which the consumer can get back by returning the items to a recycling center in the state. Arizona has no such program.
An Australian court this week ordered Meta to pay $14 million for collecting user data through the Onavo app. Facebook used the now-discontinued Onavo to collect users’ location, time and frequency using other smartphone apps and websites they visited for advertising purposes.
A Tennessee husband and wife are facing charges over “Blessings of God Thru Crypto”—an allegedly fraudulent investment scheme that swindled at least $6 million from more than 100 victims in just six months. The CFTC says Michael and Amanda Griffis convinced victims to pay into a multimillion-dollar digital assets commodity pool by claiming that their funds would be used to trade crypto futures contracts. The couple never conducted a single trade.
UK billionaire real estate investor and owner of Tottenham Hotspur football club, Joe Lewis, has been charged in the United States over multiple alleged instances of insider trading. Lewis is accused of tipping off employees, associates, friends, and romantic interests with non-public information about companies in which he had invested, and lending some of them hundreds of thousands of dollars to trade on the knowledge.
The president of Japanese used-car dealership Bigmotor Co. Ltd. will step down after the company’s repair shops were revealed to have been involved in fraudulent insurance claims. According to an outside investigation earlier this month, some Bigmotor managers dented customers’ vehicles by hitting them with golf balls stuffed inside socks.
The owner of Conclave Media and Nationwide Health Advocates has agreed to plead guilty in connection with a $44 million telemedicine fraud scheme involving medically unnecessary durable medical equipment (DME), including orthotics such as back and knee braces, and genetic tests. David Santana entered into business relationships with telemarketing companies who then allegedly paid Conclave and Nationwide on a per-order basis to generate orders for DME and genetic testing for Medicare beneficiaries.
Former real estate investor Sean Tissue (aka Sean Ryan) this week was sentenced to 78 months in prison for his role in a $3 million investment and bankruptcy fraud scheme from 2015 through 2021. Tissue and his co-conspirators made numerous fraudulent representations to potential investors from Israel, India, South Africa, and other countries, in an effort to convince them to invest in supposed real estate in Michigan, Texas, and other locations, providing false documents to investors.
A decentralized autonomous organization (DAO) focusing on gaming this week warned its users that some of its X (formerly Twitter) accounts were compromised. Treasure says that it does not have airdrops, new mints, or anything else planned and said that its Playontreasure and Playbridgeworld accounts were taken over by hackers.
A Chinese marketing firm linked to China’s state police and other government bureaus is exploiting newswire services to place pro-Beijing stories on the websites numerous news outlets across the United States. Shanghai Yihuan Cultural Communication Co., Ltd.—which goes by the brand name Haixun Press—says on its website that it can plant news articles globally and boost the content by providing paid inauthentic social media likes on platforms including X, Facebook, and Instagram.
Two cybercriminals in the infamous Bitfinex Bitcoin heist of 2016 have reached a plea agreement. Heather Morgan (aka Razzlekhan) and Ilya Lichtenstein, are accused of laundering nearly 120,000—billions of dollars— in Bitcoins, which were illicitly acquired from Bitfinex. The details of the deal have not been made public.
Booz Allen Hamilton has agreed to pay the United States more than $377 million to resolve allegations of violations of the False Claims Act. The settlement resolves allegations that from approximately 2011 to 2021, the company improperly charged costs to its government contracts and subcontracts that should have been billed to its commercial and international contracts.
TRM Labs, in a new report, says that global terrorist groups associated with ISIS routinely use crypto for fundraising, which in some cases helps them secure supporters. According to TRM, multiple pro-ISIS groups in Tajikistan raised around $2 million in Tether (USDT) last year. The use of cryptocurrencies for fundraising is relatively new for terrorist groups, which tend to favor more traditional methods of transferring funds and do not always have the tech resources to transact in crypto.
At least $31 million in Ether, TRON, and Bitcoin has been stolen from payment processor Alphapo’s hot wallets. According to on-chain sleuth ZachXBT, the funds were stolen on the Ethereum network, then swapped for ETH before being bridged to the Avalanche and Bitcoin blockchains. The hack may have been caused by a leak of private keys.
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 these insights useful. Please feel free to contact us at insightsfeedback@fiveby.com if you have any questions or suggestions.