Insights: Week of September 11, 2023
Sanctions Compliance, Fraud, AML, and other Illicit Finance News
FinCEN last week issued a financial trend analysis (FTA) highlighting patterns and trends in Bank Secrecy Act (BSA) reporting on suspected evasion of Russia export controls. The BSA reports analyzed for this FTA indicate almost $1 billion in suspicious activity, particularly in the electronics and industrial machinery sectors.
Risky foreign jurisdictions flagged in in the FTA include China, Hong Kong, and Singapore, as well as Central Asian countries that act as transshipment points for restricted goods and technologies.
Identifying risky goods, geographies, and examining customers, leadership, and business partners of potential clients and counterparties are just a few of the strategies firms and financial institutions can employ to ensure they are compliant with US sanctions and export restrictions.
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Compliance and Due Diligence
OFAC today sanctioned 168 individuals, vessels, and entities who are profiting from Russia’s war in Ukraine and facilitating Russia’s access to restricted goods and technologies. Many of the individuals and their linked entities are considered by the United States and partners to be war profiteers, including Andrei Bokarev, who served as President of Transmash and is linked to other Russia-based rail-related manufacturing firms, along with his wife. Bokarev is also a board member of the US-designated Russian Association of Employers the Russian Union of Industrialists and Entrepreneurs (RSPP). OFAC also issued General License 72, authorizing the wind down of transactions with several entities that were blocked today. Most of the entities are located in Russia, but also UAE, Turkey, Finland, and Belgium.
The EU this week extended sanctions until March15, 2024 against those responsible for undermining or threatening the sovereignty and territorial integrity of Ukraine. Asset freezes and travel bans will continue against nearly 1800 individuals and entities. Sanctions against four individuals—Alexander Shulgin, Grigory Berezkin, Farkhad Akhmedov, and Russian military official Georgy Shuvaev, who was killed in Ukraine—have not been renewed. Meanwhile, another Russian oligarch has lost his lawsuit to be removed from the bloc’s sanctions list. Russian steel billionaire Victor Rashnikov will remain designated by the EU after the bloc’s General Court in Luxembourg this week dismissed his appeal. Rashnikov made his fortune as the owner of Magnitogorsk Iron & Steel PJSC, known as MMK, among the nation’s biggest steelmakers.
OFAC this week sanctioned four individuals and three entities under its terrorism authorities. The network of Hizballah operatives and financial facilitators in South America and Lebanon are involved in financing the terrorist group. The sanctions include Amer Akil Rada—an operational member of Hizballah who carried out the terrorist attack against the Asociacion Mutual Israelita Argentina (AMIA) in 1994 that killed 85 people.
Senator Bob Menendez this week urged the United States to impose sanctions on Azerbaijani President Ilham Aliyev, accusing him of starting a campaign of genocide against ethnic Armenian enclave Nagorno-Karabakh. Menendez pointed to comments by a former International Criminal Court prosecutor, who accused Azerbaijan of waging the “invisible genocide weapon” of starvation by blocking food and aid to the residents of Nagorno-Karabakh.
The House of Representatives this week passed the MAHSA Act that toughens sanctions on Iran. The Mahsa Amini Human Rights and Security Accountability Act (MAHSA) was first introduced in January after Iranian authorities murdered 22 year old Mahsa Amini for not wearing a hijab and sparked nationwide protests; it requires the President to report to Congress every year whether those officials should remain under current sanctions. The House also voted to target Iran’s production and exports of missiles and drones with sanctions.
Are more sanctions against the Myanmar junta on the way? A rebel group in Myanmar is urging the UN and other international bodies to impose more effective sanctions against the ruling junta following another attack on a school that killed 5 people. UN human rights expert for Myanmar, Tom Andrews, this week also called on the United States to further tighten sanctions on the country's military rulers to include their main revenue source, the state oil and gas enterprise. The EU last year imposed sanctions on MOGE, and we have been expecting OFAC to do the same. In addition, former Australian economic adviser to Myanmar’s deposed leader Aung San Suu Kyi is calling on Canberra to impose sanctions on all Myanmar state-owned banks.
The EU on Friday sanctioned six individuals responsible for human rights violations in Russia and in the illegally occupied territories in Ukraine. The individuals include prosecutors and judges active in courts established by Russia in Crimea, who were involved in the politically motivated court proceedings against Vladyslav Yesypenko, a journalist who was sentenced to six years in prison, and Nariman Dzhelyalov, a Crimean Tatar.
Turkish president Erdogan at the G20 summit last week tried to convince leaders to meet some of Russia’s demands to restore the Black Sea grain deal. Ankara is asking world leaders to resume the insurance of Russian grain and fertilizer cargoes on the Lloyd's of London insurance market and to reconnect Russian banks to the SWIFT banking messaging system. The UN has informed Russia that it could potentially reconnect to the SWIFT international payments system within 30 days via a subsidiary.
A major Chinese defense company has built a radar chip with a record power output using semiconductor technology that is subject to strict US restrictions. The chip can generate radar signals that are two orders of magnitude higher than the performance of similar power-amplifying chips in most existing radar systems.
Taiwan's Financial Supervisory Commission for Virtual Currency Management this month will issue 10 guiding principles for virtual asset providers. The guidelines aim to ensure that crypto businesses establish review mechanisms, keep customers payments separate from their own tokens, and comply with AML laws. It also plans to decree that unregistered overseas firms should not solicit business in the country.
The UAE’s Executive Office for Control and Non-Proliferation has published guidance, providing a consolidated list of terrorist and proliferation financing red flags, including those that may be related to sanctions evasion. Red flags include, but are not limited to, multiple ATM cash withdrawals in short succession in jurisdictions that border sanctioned countries and the exchange of virtual assets in sanctioned or otherwise risky geographies.
The EU has threatened consequences for those involved in organizing the illegal elections in illegally occupied Ukrainian territories, with Germany outright threatening new EU sanctions. Russia claims Putin’s party United Russia has won handily, and Brussels responded by condemning the vote and futile attempt at legitimizing its occupation of Ukrainian territories.
The Biden administration has waived sanctions on the transfer of $6 billion from South Korea to Qatar to be given to Iran in exchange for the eventual release of five US citizens held by Tehran. The administration has also agreed to release five Iranian citizens held in the United States.
Greece’s shipping sector is making significant profits shipping Russian oil, but Greek shipowners have also been selling secondhand tankers to Russia-linked buyers. Greek ships currently account for almost 50 percent of tanker capacity out of Russian ports, up from 33 percent before the invasion. In the 12 months since Russia’s invasion began, Greek owners have sold some 125 crude and vessel carriers to the tune of $4 billion. Sounds like we know where future sanctions will focus.
CFTC official Christie Goldsmith Romero this week advocated for a national fraud registry to make finding records of financial fraud convictions or civil penalties easier for investors and law enforcement. The regulator wants a searchable, centralized database of financial misconduct. But what single agency would host the database, and where would the funds come from?
Fraud and Abuse
Belarussian citizen and Miami resident Sergey Karpushkin this week pleaded guilty to violating US sanctions and money laundering by helping buy $139 million in metal products from companies owned by sanctioned Russian oligarch Sergey Kurchenko, who was sanctioned by OFAC in 2015 for misappropriating Ukrainian state assets. Karpushkin conspired with others to use Florida-based Metalhouse LLC to enter into contracts and purchase orders for pig iron, steel billets, and wire rods from Kurchenko’s companies, received tens of thousands of tons of metal products from the companies, and agreed to share the profits.
A former hotel operations manager at Aria Resorts in Las Vegas has been arrested on computer crime and money laundering charges after stealing more than $770,000 from the hotel during the past year. An observant coworker said that he noticed a significant lifestyle change in Brandon Johnson, looked into Johnson’s work transactions, and upon discovering a number of unusual transactions and immediately notified his manager. Johnson was moving money back and forth between several Chase accounts and spending the funds on expensive dinners, private jet flights, and shopping sprees. A marked change in lifestyle is one of the warning signs of someone who may be engaged in espionage or corruption.
Hong Kong police have arrested five men in a crackdown on criminal organizations responsible for laundering $13.4 million through prepaid cards. The five men are allegedly linked to eight local companies that used prepaid cards and Apple iTunes cards in Hong Kong. The cards were purchased with illicit funds and distributed to a network of people to spend in different areas.
South Korea's leading semiconductor producer, SK hynix, has launched an investigation into how its chips made their way into Huawei's Mate 60 Pro, despite there being no existing supply agreement between the firms. SK hynix’s chips were discovered when the device was disassembled.
Ukrainian President Volodymyr Zelensky has vetoed a law passed by Ukraine’s parliament that would have reinstated mandatory disclosures of assets by Ukrainian lawmakers—with a yearlong delay—as not being strong enough. He wants disclosures to be immediately publicly available. Zelensky has made fighting corruption a critical part of his agenda.
The Justice Department Friday unsealed a criminal complaint charging Mina Tadrus, the founder and CEO of Tadrus Capital, with wire fraud in connection with a scheme to steal from the company’s clients. Tadrus allegedly stole at least $5 million from the Egyptian-American Coptic Christian community through a scheme built on false promises that his purported AI-driven hedge fund would earn them guaranteed annual returns of 30 percent or more, when in reality he just used new investor money to pay the guaranteed monthly returns and line his own pockets.
Hackers who took control of Ethereum founder Vitalik Buterin's X account have stolen more than $691,000 after posting a malicious phishing link that gained access to people's wallets. The majority of the stolen assets was in the form of nonfungible tokens (NFTs). Buterin has since confirmed that the hack was the result of a SIM-swap attack. Fraudsters usually use SIM swapping as a way to receive one-time security codes from banks, cryptocurrency exchanges, and other financial institutions.
The OSCE is urging member states to stop exploiting “national security” to spy on journalists. An OSCE report last week highlighted that digital surveillance technology is often justified under the pretext of national security—a practice that can be misused for political purposes.
Karl Greenwood, co-founder of OneCoin with missing “Crypto Queen” Ruja Ignatova, this week was sentenced to 20 years in prison and ordered to pay $300 million. OneCoin, established in 2014, marketed and sold a fraudulent cryptocurrency by the same name, using what essentially was a multi-level marketing scheme. OneCoin members received commissions for recruiting others to purchase cryptocurrency packages that had no actual value. Numerous misrepresentations, including that OneCoin had a private blockchain, were made to investors.
Decentralized crypto exchanges are often used for wash trading fraud, in which scammers trade tokens between themselves, manipulating the market and artificially increasing prices, giving the illusion of liquidity, which generates interest among other crypto investors. Solidus Labs has found that at least $2 billion in crypto on Ethereum-based decentralized exchanges has been wash traded since September 2020.
Crypto exchange CoinEx this week witnessed significant outflows to an address with no prior history, resulting in the creation of a dedicated task force to investigate the issue. The total losses could be more than $27 million. CoinEx has reassured all its customers that all the affected parties will receive 100 percent refund and promised to release a detailed report soon.
The SEC has won its lawsuit against Airborne Wireless Network and a California man who covertly led the company in a $45 million pump-and-dump scam. The SEC alleged that Kelly Kabilafkas bought millions of shares in the company and artificially inflated the stock price from August 2015 to May 2018, subsequently dumping the overpriced shares and pocketing about $23 million. The scheme also used misrepresentations in regulatory filings. Airborne also fraudulently raised more than $22 million from investors.
Five individuals have been taken into custody for their roles in a $13 million fraud and money laundering conspiracy. The conspiracy involved a scheme to defraud clients of Bluebell International LLC and Bluebell National LLC which included a Houston-based energy company. Edward Ok and others falsely claimed they had the ability to provide billions of dollars in loans because they were connected to high net worth international family offices. They allegedly charged their clients large upfront fees to apply for the loans knowing they had no intention of providing the funds.
Suspected members of the nearly billion-dollar money-laundering syndicate arrested in Singapore purchased almost $60 million in luxury properties in London in 2021. The biggest transaction involved the simultaneous purchase of two adjoining properties in Oxford Circus, acquired jointly by a Jersey-based entity called New Yihao Limited that listed Su Haijin as its only beneficial owner. Su was arrested in Singapore last month with at least $117 million in assets linked to him and his wife.
The Monetary Authority of Singapore (MAS) has banned the founders of Three Arrows Capital for nine years, prohibiting them from operating in the country’s financial services industry. Su Zhu and Kyle Davies cannot perform any regulated activity or participate in the management of, act as a director of, or become a substantial shareholder, of any capital market services firm. MAS investigated and reprimanded the firm last year for providing false information about its activities.
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