Insights: Week of August 28, 2023
Sanctions Compliance, Fraud, AML, and other Illicit Finance News
This week saw further unrest in western Africa, as military officers in Gabon seized power after the country’s election body announced that President Ali Bongo won a third term. The officers said that the election results were canceled, state institutions were dissolved, and borders closed, with Bongo placed under house arrest. This is the eighth coup in the region since 2020 and comes barely a month after a military junta in Niger toppled that country’s president. Other coups in this time period include Mali, Guinea, Burkina Faso, and Chad.
The Economic Community of Central African States (ECCAS), condemned the coup and said it planned an "imminent" meeting of heads of state to determine how to respond.
EU foreign ministers this week agreed to lay the legal groundwork for Niger sanctions, which will mirror those already imposed by The Economic Community of West African States (ECOWAS) and will include humanitarian exemptions. ECOWAS imposed sanctions after the coup, but the junta has not backed down.
Russia this week pledged at the United Nations to keep providing "comprehensive assistance" to Mali. Russia’s Wagner mercenaries are engaged in security cooperation with the Malian forces, and Moscow this week used its veto power to block a UN Security Council resolution on sanctions against Mali that was jointly drafted by France and the UAE and that would have extended UN sanctions and independent monitoring in Mali for another year.
Transacting with entities in Mali is still risky, however. US Executive Order 13882 blocks property and suspends entry into the United States of individuals contributing to instability in Mali. The EU can impose asset freezes and travel bans against individuals and entities responsible for threatening peace, security, and stability in Mali or obstructing the political transition there. The UK implemented its own sanctions regime for the situation in Mali after it exited the EU.
We judge that additional sanctions following the coups in Niger and Gabon could be on the horizon. Monitoring the volatile environment in Africa is critical to ensuring that your firm or financial institution remains compliant with all relevant laws and regulations. Closely examining all applicable licenses and exemptions and consulting with certified experts and counsel about the risks of transacting with entities in the region will help keep your company on the right side of the law.
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Compliance and Due Diligence
OFAC today sanctioned two individuals and one entity under the North Korea sanctions regulations for supporting the development of weapons of mass destruction and ballistic missiles by North Korea. Sergey Kozlov is a Russian individual who is the general director of Intellekt LLC, which was also sanctioned today. Given recent reporting that Russia is engaging with the DPRK to obtain more munitions for its war in Ukraine, we judge that more designations are on the horizon for military cooperation between the two countries.
More than 160 members of Congress are cosponsoring HR 3774—dubbed the SHIP Act (Stop Harboring Iranian Petroleum Act)—that targets illicit purchases of Iranian oil. The bipartisan legislation would impose sanctions on foreign ports and refineries that process petroleum exported from Iran and extend primary and secondary sanctions to any entity that deals in Iranian-origin petroleum, including vessels engaging in ship-to-ship transfers.
India has asked the United States to allow the release of $26 million belonging to at least two Indian diamond firms that was frozen by banks because of US sanctions imposed against Russian state diamond entity, Alrosa. The funds were frozen when UAE-based units of the unspecified Indian companies tried to buy rough diamonds. The Indian firms claim that the payments were meant either for non-sanctioned Russian entities or for orders completed before the sanctions on Alrosa were imposed in 2022.
The G7 group of countries and the EU are expected to issue additional rules to further stem the flow of revenue to Russia’s war chest via the diamond trade. Russia is the world’s largest diamond exporter by volume.
Secret documents show that Russian President Putin moved his £100million superyacht from Hamburg, Germany, to Kaliningrad three weeks before Russia invaded Ukraine to avoid having it sanctioned and seized after the war began, suggesting that Putin knew the consequences before he launched his invasion and tried to mitigate personal repercussions. Putin’s ownership or control of the “Graceful” was confirmed when a Russian publication tracked its movements and matched those to Putin's own travels.
Commerce Secretary Gina Raimondo this week rejected demands by Chinese leaders to ease US export controls on technology with potential military uses. Raimondo also conveyed US concerns about the conditions faced by foreign companies in China and messaged that US firms consider China “uninvestable.” The Chinese leaders requested that the US reduce controls on exports of technology with possible military uses and withdraw an order by President Joe Biden that restricts US investment in Chinese companies involved in military development.
The Bureau of Industry and Security (BIS), ahead of Raimondo’s trip to Beijing, removed 27 Chinese entities, such as chemical firm and lithium battery material maker Guangdong Guanghua Sci-Tech Co. and sensor maker NanJing GOVA Technology Co., from its “Unverified List,” which restricts a company’s ability to buy American technology.
The United States has expanded the restriction of exports of Nvidia and AMD AI chips beyond China to other regions, including some countries in the Middle East. Normally, these restrictions are implemented for national security reasons, indicating that the Biden administration may be concerned about sensitive technologies making their way to China via the Middle East.
Switzerland this week announced proposed regulations to strengthen its AML measures in an effort to shed its reputation as a destination for illicit proceeds. If approved, the new regulations will expand the scope of due diligence and reporting obligations for lawyers, accountants, and other professions involved in establishing trusts and holding companies, or managing real estate transactions. In addition, the Swiss government plans to create a beneficial owner registry that will list true owners behind shell companies that are often used to launder money, but unfortunately, the register will not be public.
Russia is adapting to Western sanctions on its military supply chain by using shady shipping and logistics companies to import more armed drones from Iran. Five Russian-flagged ships: the Baltiyskiy-111, Omskiy 103, Skif V, Musa Jalil, and Begey have traveled across the Caspian Sea to ports in Iran 73 times during the past year. None of the vessels are sanctioned. Ukraine intelligence suggests that Russia is adjusting to sanctions by turning to companies and ships that have fewer overt links to the Russian state and that haven’t yet been targeted by Washington.
Binance is reevaluating its Russian business, including considering a full withdrawal from the country, after removing sanctioned Russian banks Tinkoff and Sberbank from its peer-to-peer (P2P) trading service. The exchange has acknowledged previous compliance failings but said it is now serious about following rules. Binance also has removed Banco de Venezuela as a payment method from the P2P service and banned Russian residents from using fiat currencies other than the Russian ruble.
Tinkoff Bank and Sberbank are also no longer available on the list of P2P transactions on Bybit and OKX crypto exchanges.
Mastercard and Visa are stepping back from their card partnerships with Binance because of all the regulatory scrutiny surrounding the crypto exchange. Visa stopped issuing new co-branded cards with Binance in Europe as of July, and Mastercard will end its card partnership with Binance entirely in September.
The Singapore Golf Association (SGA) is engaging with its compliance officers over money laundering concerns in the sector in the aftermath of Singapore’s largest takedown of a money-laundering and forgery ring, several of whom were members of the Sentosa Golf Club. Golf clubs typically limit their number of members, but most memberships can be traded like a commodity and can cost as much as hundreds of thousands of dollars.
Singapore’s Council for Estate Agencies is investigating property agents who might have facilitated deals linked to the $737 million money laundering case mentioned above. Property agencies are required to conduct due diligence on their clients when they facilitate real estate transactions, and those who fail to comply with AML rules can be disciplined with financial penalties and suspension or revocation of licenses.
Yandex founder Arkady Volozh is asking the EU to remove sanctions against him. Volozh has finally spoken out publicly against Russia’s war in Ukraine, calling it “barbaric,” and the co-founder of Russian Google (aka Yandex) now wants to be removed from the EU’s sanctions list. He was designated in June 2022.
The Biden administration is opening talks for temporary sanctions relief in Venezuela in hopes of raising oil supply by reviving Chevron drilling projects. If talks are successful, Venezuela could add 200,000 barrels a day by 2025 and reach 1 million barrels per day as a result of licenses issued by OFAC.
Fraud and Abuse
An infamous scam artist who was convicted of multiple frauds in New York in the 1980s is now accused of targeting new victims in Los Angeles. David Bloom, once known as the "Wall Street Whiz Kid," is facing multiple counts of securities fraud and theft. Bloom served eight years in federal prison in the 1980s, and then was charged again upon his release and served an additional five years.
The FBI and European law enforcement agencies have dismantled a network of hacked computers that had been used to defraud victims of hundreds of millions of dollars. More than $8 million in cryptocurrency was seized from Russian hackers responsible for Qakbot. Roughly 200,000 systems were infected in the United States, and 700,000 worldwide. Qakbot is one of the longest-running criminal botnets.
The SEC late Monday filed a sealed motion related to its lawsuit against Binance. A sealed motion allows the SEC to file sensitive or confidential information without revealing the contents publicly. The SEC is likely trying to avoid interfering with a Justice Department criminal investigation, given recent reporting about a continued DOJ probe.
Roman Storm, the co-founder of Tornado Cash, has been released on bail after being arrested last week on charges of money laundering, sanctions violations, and operating a crypto scheme that helped North Korean hackers launder billions in stolen cryptocurrencies. The Justice Department accused Storm and the other Tornado Cash cofounder, Roman Semenov, of being responsible for laundering criminal proceeds through their mixing tool and of knowingly helping criminals conceal illicit proceeds.
The founder of the classified site Backpage[dot]com will face his second trial (the first one ended in a mistrial in September 2021) on charges of facilitating prostitution and money laundering in what authorities say was a scheme to knowingly sell ads for sex on the site. Prosecutors say Backpage’s operators ignored warnings to stop running prostitution ads, some involving children. Backpage employees allegedly would identify prostitutes through Google searches, and offer them free ads. Michael Lace is also accused of using cryptocurrency and wiring money to foreign bank accounts to launder the revenues earned from these ad sales.
The Organized Crime and Corruption Reporting Project (OCCRP) is accusing India’s Adani Group of investing hundreds of millions of dollars in publicly traded stocks through opaque Mauritius-based investment funds. The OCCRP alleges that Nasser Ali Shaban Ahli and Chang Chung-Ling, who are said to have longstanding business ties to the Adani family, have bought and sold Adani stocks through offshore structures. Short seller, Hindenburg, this year documented its investigations about massive fraud and stock manipulation by Adani.
A prominent Bitcoin address, which was initially funded with 9,999.99 BTC from Binance in May 2018, has come under scrutiny for allegedly laundering approximately $265 million through various Bitcoin mixers. The address in question, 1EU2pMence1UfifCco2UHJCdoqorAtpT7, spread the amount across smaller deposits, ostensibly to avoid detection, even though using a centralized exchange as a mixer would have been more effective for such a large amount if the source of the funds was legitimate. Laundering would be necessary if the funds were illicitly obtained.
A class action lawsuit against Seagate Technologies seeks to recover losses on behalf of investors who were impacted by alleged securities fraud between September 15, 2020 and October 25, 2022. The complaint alleges that Seagate made false statements about its violation of export controls in its hard disk drive sales to Huawei, which resulted in an ongoing investigation by the Commerce Department and exposed Seagate to hundreds of millions of dollars in fines, as well as losses for investors.
India’s Enforcement Directorate (ED) is investigating a major cryptocurrency scheme that involves the laundering of funds from Dubai to India. The ED has identified five companies involved so far that have been investing in real estate in Dubai using cryptocurrencies and transferring the proceeds by converting it to Indian currency through remittances. One of the companies being investigated is Zanmai Labs Pvt Ltd, also known as WazirX.
Seven defendants this week were charged with 18 counts of wire fraud for scamming mostly retired and elderly victims out of more than $30 million. The victims were induced by the defendants to invest in Noah Event Centers—an unprofitable enterprise sustained only through new investor funds. The defendants misappropriated and diverted money meant for the development and construction of new event centers to pay large commissions, Noah’s operations, prior investors, construction costs of other event centers, and rent on previously sold Noah Event Centers.
Some investors are suing Disney, claiming the company lied about its losses related to its Disney+ streaming service and assertions that the platform would be profitable by the end of 2024. Disney+ lost four million subscribers in the first three months of this year.
Hong Kong authorities this week claim to have dealt a significant blow to a criminal enterprise involved in money laundering, high-interest lending, and illegal gambling. A total of 83 individuals was apprehended, and more than $1.5 million has been seized. The gang leader and his family were arrested last week for allegedly laundering nearly $8.7 million in illicit gains. Investigations revealed significant disparities between the family’s reported total income, expenditures, and bank account records.
An extensive Triad money laundering network has been shut down in Hong Kong, and 458 people were arrested for participating in an operation that used crypto trades to launder the proceeds of 314 crimes. Evidence seized included bank cards, documents, mobile phones, and computers, as well as cash. The crimes included e-shopping fraud, fraudulent investment deals, phone scams, romance scams and job scams.
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.