Insights: Week of August 7, 2023
Sanctions Compliance, Fraud, AML, and other Illicit Finance News
US regulators tend to recognize significant events and anniversaries with new sanctions and financial restrictions. Three years ago this week, Belarus held its presidential elections that resulted in mass protests after the country announced that Aleksander Lukashenko won his sixth term with more than 80 percent of the vote. International monitors have labeled all but the first of Lukashenko’s election victories fraudulent, and protests were suppressed by Belarussian authorities, including arrests, the use of rubber bullets, and accusations of torture of advocates. Sanctions resulted stemming from accusations of election fraud and suppression of peaceful protests.
OFAC this week sanctioned five entities, one aircraft, and 8 individuals in Belarus this morning on the anniversary of the 2020 fraudulent elections. The action, according to OFAC, targets those involved in the Belarussian regime’s continued repression of civil society, complicity in Russia’s invasion of Ukraine, and enrichment of Belarussian dictator Lukashenko.
Canada this week also targeted Belarus with sanctions on the anniversary of the country’s discredited election. The United States, the UK, New Zealand, and the EU also imposed additional sanctions on the anniversary.
OFAC, along with partners and allies, on February 24th released more than 200 new designations against Russia. The junta in Myanmar was hit with new sanctions on the anniversary of the coup that ousted the democratically elected government of Aung San Suu Kyi.
We recommend active monitoring of significant events, such as elections, mass incarcerations, protests, significant military actions, and human rights violations as part of your compliance program, to determine and assess possible new sanctions and other restrictions. Anticipating new regulatory developments can help your firm or financial institution be proactive in understanding the risks of new customers or business partners.
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Compliance and Due Diligence
PBS over the weekend aired a follow-up story to its March report about Haas Automation supplying critical parts to machines that make Russian weapons. Haas at the time denied doing business with Russian holding company Abamet that supplies Haas parts to Russian weapons manufacturers and claimed it “voluntarily” stopped all business with Russia. The current report claims that Haas continues to supply the Russian military with high-precision machines, albeit indirectly. Many of the spare parts for high precision machines that make equipment for the Russian military appear to be made specifically for a Haas model VF-2YT machine tool, one of which is owned by the instrument building plant NPZ in Novosibirsk. Procurement records show the NPZ plant is one of Abamet's clients, and Haas parts are likely reaching NPZ via a firm in China called Suzhou Sup Bestech Machine Tools Co., LTD. - parts that were custom-ordered to maintain the Haas machine at NPZ. Suzhou Sup Bestech Machine Tools Co., LTD. doesn't seem to have a Web site or phone number, and was set up just two weeks after Haas “officially” pulled out of Russia. Haas has not responded to this latest report and has previously stated that sales in Russia are taking place through third-party entities against its policies.
The United States and the UK have imposed sanctions against former Lebanon central bank governor Riad Salameh for abuse of power and corruption. Treasury says Salameh enriched himself and his associates by funneling millions of dollars into European real estate. Also sanctioned were Riad’s brother, Raja Salameh, and personal assistant Marianne Hoayek. Diverted funds were frequently transferred property management companies in France, Germany, Luxembourg, and Belgium that were registered in the names of either Salameh’s son, Nady Salameh, or Salameh’s former partner, Anna Kosakova, who were also sanctioned by OFAC.
The European Council last week imposed new sanctions on Belarus in response to its involvement in Russia’s invasion of Ukraine, expanding the ban on exports to Belarus to several highly sensitive goods and technologies which contribute to the country’s military and technological enhancement. This, as leaders in Poland and Lithuania warn that Wagner mercenaries may be getting ready to destabilize NATO’s eastern flank and Poland plans to deploy more troops to its border with Belarus.
The UK this week added new designations against Russia and Belarus. The sanctions include individuals and entities based in Russia, Turkey, Dubai, Slovakia, and Switzerland. The companies sanctioned include electronics and defense equipment producers who have exported microelectronics and drones to Russia to help in its war against Ukraine. The UK has also targeted an Iranian drone maker.
Niger’s military junta has rejected diplomatic attempts to reinstall the country’s ousted president Mohamed Bazoum. Nigerian President Bola Tinubu ordered the new sanctions through Nigeria's central bank, aimed at pressuring those involved in the takeover. The EU—as we projected—is preparing sanctions against members of the junta. Protests are taking place in the country, with some protesting the coup, and others protesting ECOWAS sanctions. Should protests turn violent, we assess that the United States will also create a sanctions regime for the country.
President Biden has issued an Executive Order that restricts US investments in Chinese technology. The order covers advanced computer chips, microelectronics, AI, and other technologies and seeks to limit China’s ability to use US investment funds to upgrade its military.
The United States has not renewed a sanctions waiver that permitted humanitarian aid transactions to reach Syria after February’s deadly earthquake. OFAC this week did, however, publish a Syria sanctions compliance guidance on the provision of humanitarian aid to the country.
OFAC this week issued three counternarcotics designations. The three individuals Treasury sanctioned are Sinaloa cartel members, and the action was coordinated with Mexican authorities.
The American Bar Association this week voted to impose a more explicit obligation on attorneys to research potential clients in an effort to reduce the facilitation of money laundering and other financial crimes. This is an effort to calm Treasury concerns about the profession and discourage possible regulatory action.
Treasury is working on a proposed rule that would effectively end anonymous luxury home purchases in the United States that have allowed corrupt oligarchs, terrorists, and other illicit actors to hide assets. The rule is expected to require real estate professionals to report the identities of beneficial owners to FinCEN. Anticorruption advocates and lawmakers have long demanded such a rule to address money laundering through real estate.
El Salvador’s central bank has authorized Binance to provide crypto custodial services and digital wallets, as well as start operating a digital asset exchange program, two years after the country declared bitcoin as legal tender. Binance is the first company to operate a crypto exchange in the country.
Ukraine’s National Agency on Corruption Prevention has added paintings and sculptures that are thought to have been bought and sold in recent years by Russian oligarchs to its “war and sanctions portal.” The database helps art market participants check the origins of the art they’re purchasing. Russian oligarchs, kleptocrats, and other illicit actors are known to use the art world to launder assets.
At least 82 Russian oligarchs are allegedly involved in manufacturing weapons for Russia’s war in Ukraine, secretly providing support through their firms. Russian billionaire Mikhail Shelkov owns metallurgical company VSMPO-Avisma, which manufactures titanium that is used in the production of armored vehicles and aircraft involved in the conflict, and contributes the most to Russia’s war. Some others are sanctioned, but many are not.
Kharon research shows that a network of companies in China, India, and Turkey is supplying Iran with centrifuge components and other western products for Tehran’s ballistic missile program, despite extensive restrictions. Treasury says that US-designated, Tehran-based PB Sadr has served as a “key intermediary” for the procurement of parts on behalf of Iran’s military, and companies in China, Turkey, and India have used PB Sadr to sell metals and centrifuges to Iran.
Treasury has seized $26 million in diamonds for alleged links to Russia. The diamonds were shipped by subsidiaries of India’s diamond companies based in the UAE. The head of India’s diamond industry group claims he is engaging with OFAC on the matter, claiming that no payments were made to sanctioned entities, and any direct import of diamonds from Russia is minimal.
Fraud and Abuse
Former FBI agent Charles McGonigal may plead guilty to working for US-designated Russian oligarch Oleg Deripaska in violation of US sanctions. The former head of counterintelligence at the FBI’s New York office was indicted this year for violating sanctions, conspiracy, and money laundering, and was separately charged in Washington DC for hiding $225,000 he allegedly received from a former Albanian intelligence officer.
Global engineering company Siemens is cooperating with an Austrian investigation into allegations of possible corruption associated with hospital building contracts. This is not the first time Siemens has gotten in trouble with authorities. After Russia invaded and illegally annexed Crimea, several Siemens turbines sold to Russia were installed in the embargoed region, leading to an investigation. The company in 2008 also pleaded guilty to violations of the US Foreign Corrupt Practices Act and agreed to pay $450 million in penalties.
Interpol, along with the FBI and other international partners, this week shut down the "16shop" phishing-as-a-service platform, which sold kits that allowed criminals to send scam emails and steal personal information that was used to extract money from victims. The platform's administrator has not been found yet, but he may be based in Indonesia. The platform’s servers were hosted by a company based in the United States
The government has changed its mind about not charging Sam Bankman-Fried with campaign finance violations. Prosecutors allege that tens of millions of dollars in customer deposits were used to make campaign donations as part of the wire-fraud and money-laundering charges.
The Canadian civil forfeiture case against Paul King Jin has exposed a Hong Kong developer’s ties to the Chinese criminal underworld. The $746 million investigation into money laundering through British Columbia casinos and Silver International—an underground bank—identified Everwell Knight Limited as being used by Jin to launder alleged criminal proceeds. Corporate records revealed that Hong Kong property developer and Communist Party supporter, Yu Shunhui, owns Everwell, underscoring the importance of comprehensive research into possible customers, potential business partners, and their associations to uncover ties to criminal activity.
The Hong Kong Securities and Futures Commission (SFC) is warning the public about unlicensed virtual asset trading platforms that claim to have submitted license applications with the agency. According to the SFC, the platforms have been setting up new entities to provide virtual asset services, and their offerings may not comply with legal and regulatory requirements under the agency's new licensing regime.
Eighteen venture capital firms, including Sequoia Capital, Sino Global, and Temasek, have been named in a class action suit for their links to FTX. The suit alleges that the firms were responsible for aiding and abetting the FTX fraud, violating several securities laws, and stealing customer funds. The firms claim they conducted due diligence, including reviews of FTX’s finances and regulatory checks, but found no red flags.
Hong Kong authorities have arrested a cosmetics saleswoman on suspicion of laundering $115 million in criminal proceeds using 13 bank accounts belonging to two shell companies. The shell companies claimed they were involved in the import-export business and electronics trade. Import-export businesses are particularly vulnerable to money laundering.
Maximus Okwudili Adiele on Friday was sentenced to five years in prison for laundering more than $2 million in dirty money generated from online romance scams. Adiele controlled a dozen bank accounts through which he laundered the fraud proceeds. Many of the victims of the scam were elderly individuals who lost their life savings.
Google has been accused of widespread ad fraud in a proposed class action lawsuit. A recent report from an ad campaign analytics firm suggested that Google frequently violated its own standards with the placement of TrueView video advertisements and misled advertisers, charging “hefty amounts” for online ads which were not served as agreed.
Israeli national, Shai Cohen, has been charged with leading a visa fraud scheme to facilitate the illegal entry and employment of noncitizens in the United States. Cohen allegedly helped individuals fraudulently obtain B-1/B-2 tourist/visitor visas by misrepresenting the true purpose of their travel to the United States, and helped with travel. He then employed the noncitizens at various kiosks he owned and operated in Virginia and Maryland, compensating them with under-the-table cash payments or stored value payment cards.
Zelle scammers are posing as bank imposters trick customers into sending them money through the quick pay app. Impostors are texting victims and asking whether they used Zelle to send money. When the victim says they did not, the scammers call them immediately and trick them into refunding their own money through Zelle, when they are, in fact, sending money to the crooks. They also tell victims to ignore bank alerts, claiming they are taking care of the fraud during the call.
Heather Morgan and Ilya Lichtenstein’s plea agreements are now public. The two have been charged with laundering millions of dollars in bitcoin from Hong Kong-based exchange Bitfinex. Until now, neither Morgan nor Lichtenstein were implicated in the Bitfinex hack itself, but in the plea agreement, Lichtenstein admitted to have been the hacker. He faces up to 20 years in prison. Morgan could get up to five.
Former NBA player Terrence Williams has been sentenced to 10 years in prison for leading a scheme to defraud the NBA health and welfare plan out of more than $5 million. From at least 2017 through at least 2021, Williams and others submitted fraudulent claims for reimbursement of medical and dental services that were not actually rendered. Williams offered to provide fake invoices to support the fraudulent claims, written by his co-defendants, including a dentist in California and doctors in California and Washington state.
The Social Security Administration is worried that criminals are using AI to make fraudulent schemes more effective and profitable. Recently, an AI-powered chatbot was used to impersonate Social Security beneficiaries and divert benefit payments to illegitimate accounts. The administration has created an internal task force to study the technologies and determine the resources that will be needed to investigate fraud.
A Connecticut man fraudulently got nearly $300,000 in Home Depot credit by walking into stores in several states and returning expensive doors without a receipt. Henrique Costa-Mota dressed like a contractor, entered the stores empty-handed, loaded the doors onto a cart, and took them to the service department to return them, accepting store credit as a payment and redeeming it at other stores. If the return was denied, he would take the doors without paying for them and return them at another store. Home Depot allows customers to return items without a receipt, but identification is required to prevent abuse. Costa-Mota used his own and several fraudulent ID cards to conduct the returns.
The SEC has charged DEBT Box, the company’s four principals, and 13 other defendants in a fraud scheme that raised roughly $50 million. The defendants are accused of selling unregistered securities called “node licenses,” telling investors that the licenses would mine cryptocurrency that would increase in value, when in reality, the defendants were creating the crypto using code on a blockchain.
Curve Finance and other victims of this week’s $62 million crypto heist have offered hackers a 10 percent bounty in exchange for the return of the rest of their tokens. An unknown hacker exploited a bug to drain crypto tokens from Curve, Metronome, and Alchemix. Hackers are increasingly accepting bounties, choosing to get a fraction of their spoils rather than face prosecution and prison.
Attorneys representing Tesla CEO Elon Musk are calling for a dismissal of a multi-billion dollar case accusing him of insider trading with Dogecoin. Musk’s lawyers say that the lawsuit is based on “often silly tweets” about DOGE. Musk is also accused of market manipulation.
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.