Insights: Week Of December 12, 2022


Complexities of Sanctions Evasion

Illicit actors’ efforts to hide and transfer assets continue to evolve and become more complex. Research into layers of shell companies that own US assets and family members and friends of sanctioned individuals is critical to mitigating the risk of enforcement actions and reputational damage.

  • A Russian tanker chartered by a South Korean company that conducted a fuel transfer to a Chinese vessel bound for North Korea shows a method by which the DPRK continues to evade sanctions. A Financial Times/RUSI investigation tracked a shipment of marine oil from South Korea to North Korea’s exclusive economic zone under a deal brokered by a Chinese shipping agent. Russian tanker, the Mercury, chartered by a South Korean firm, carried the cargo from Gunsan port in South Korea and anchored for several hours alongside a Chinese-owned, Togo-flagged ship, the Shundlli, in the Yellow Sea. Data from the Mercury’s automatic tracking system showed that the vessel was considerably lighter after encountering the Shundlli, indicating that its cargo was unloaded during the meeting. The Shundlli then entered North Korea’s exclusive economic zone and anchored near Nampo port that is known for illicit oil deliveries.
  • Russia continues to obtain US chips despite US sanctions using intermediaries and shell companies in Turkey, Hong Kong, and others. Azu International Ltd Sti in Turkey has been shipping US computer parts to Russia. The company has exported at least $20 million worth of components to Russia, including chips made by US manufacturers, and is part of the supply chain that is allowing Russia to bypass western sanctions. A Turkish businessman, who manages a German IT wholesaler, Smart Impex GmbH, cofounded Azu International. Before the invasion, Russian custom records show that Smart Impex shipped US and other products to a Moscow customer that recently has imported goods from Azu.

Complex sanctions evasion methodologies pose regulatory risks if US firms and financial institutions fail to perform robust due diligence research on counterparties and can cost millions of dollars in fines. But the risks don’t end there. Ethical issues can lead to adverse media coverage and reputational risk. A transaction that is technically legal can cause significant reputational harm if companies fail to do extensive research, especially on charitable campaigns and “humanitarian organizations” that may be controlled by sanctioned individuals or adversarial nations.

FiveBy can provide the insights your company needs to avoid both regulatory and reputational risk. Click below for a free consultation.


Compliance and Due Diligence

The United States has removed several Chinese companies from the Unverified List because Beijing permitted site visits to verify the legitimacy of the firms. Chinese memory chip maker, YMTC, along with dozens of other Chinese companies, were added to the Entity List this week because of concerns that YMTC could divert US technology to Huawei and Hikvision. The Financial Times reported this year that YMTC may have violated US export controls by supplying Huawei with Nand memory chips for its smartphones. The Commerce Department also removed nine Russian entities from the Unverified List and added them to the Entity List because the United States has been unable to conduct inspections to determine if they can be trusted to receive sensitive US technologies.

Senator Marco Rubio has introduced the Uyghur Human Rights Sanctions Review Act, which would require the Treasury Department to immediately make sanctions determinations for Chinese companies Hikvision, Dahua, Tiandy Technologies, and BGI. OFAC, in consultation with the State and Justice Departments, would have to determine within 30 days of enactment whether these companies meet the criteria for Global Magnitsky designations for human rights violations. The Biden administration this week blacklisted Tiandy for being linked to the repression of the Uyghur population in China and providing US made technology to the IRGC.

Rubio also this week introduced the “Averting the National Threat of Internet Surveillance, Oppressive Censorship and Influence, and Algorithmic Learning by the Chinese Communist Party Act” (the ANTI-SOCIAL CCP Act) that would ban the ByteDance-owned TikTok from operating in the United States altogether. If signed into law, ByteDance would be included on the SDN list.

A bipartisan group of lawmakers has introduced a bill that would impose more sanctions on Huawei and other Chinese 5G companies, adding them to the SDN list for engaging in economic espionage against the United States.

OFAC this week sanctioned additional Russian banks and financial institutions, as well as Russian oligarch Vladimir Potanin and his family members. Treasury designated Potanin’s commercial bank Rosbank that he acquired earlier this year. US persons and entities have until 15 March to wind down all activities with Rosbank, but OFAC has issued a general license allowing certain energy-related transactions. Seventeen subsidiaries of VTB were also added to the SDN list.

EU leaders this week agreed on a ninth package of sanctions against Russia, designating nearly 200 more individuals and barring investment in Russia’s mining industry. The bloc also is targeting Moscow’s access to drones and is sanctioning officials responsible for stealing children from Ukraine. The sanctions will target three banks — the Russian Regional Development Bank, Credit Bank of Moscow, and Dalnevostochny Bank — and four media outlets. The package also includes export restrictions on more chemicals and technologies used for military purposes.

FinCEN this week issued a Notice of Proposed Rulemaking (NPRM) regarding access to beneficial ownership information required by the Corporate Transparency Act. The proposed regulations specify how government officials would access beneficial ownership information; how certain financial institutions and their regulators would access this information; and the standards that will be used to protect this information. Comments will be open through Valentine’s Day.

Elizabeth Warren has introduced a bipartisan bill to limit money laundering in the crypto industry. The new bill would apply the same AML regulatory requirements to crypto firms as banks and other traditional companies must obey.

The UK this week sanctioned 12 senior Russian commanders for their involvement in the Russian military and Iranian businessmen and officials involved in the production and/or supply of drones to Moscow. The list includes Major General Robert Baranov, identified by Bellingcat as the commander of a unit responsible for programming and targeting Russian cruise missiles which have been raining on Ukraine. Three Iranians and one Iranian company have also been designated.

Five Russian nationals, including a likely FSB officer, and two US residents have been indicted for illegally exporting sensitive US technology to Russia. The Bureau of Industry and Security (BIS) has also suspended the export privileges of Boris Livshits, Svetlana Skvortsova, Aleksey Ippolitov, Advanced Web Services, and Strandway for 180 days for illegally procuring and shipping military and sensitive dual-use US technologies to Russian end users, including the US-designated Serniya Network that was sanctioned in late March for facilitating the procurement of critical western technologies for Russia.

The United States this week sanctioned the son of Zimbabwe’s president, along with three other individuals for their ties to US sanctioned businessman Kudakwashe Tagwirei. Emmerson Mnangagwa Jr has been in charge of his father’s interests related to Tagwirei. The senior Mnangagwa has been sanctioned for roughly 20 years.

The EU this week imposed sanctions on eight individuals and four entities for illegally providing support and funds to the DPRK’s nuclear and missile programs. The Ministry of Rocket Industry and its subsidiary, the Korean Rounsan Trading Corp., have been designated for being directly involved in providing support for North Korea’s nuclear, ballistic missile, and other WMD programs.

Although the Ultimate Fighting Championship (UFC) has repeatedly denied that its business has connections to US-designated Chechen leader Kadyrov, US officials say they are aware of the apparent ties between UFC athletes and strongman. Kadyrov owns several businesses tied to mixed martial arts that have been sanctioned by OFAC, including Akhmat MMA, and yet, the main event for UFC 282 last weekend featured Magomed Ankalaev, who has been sponsored by Akhmat for nearly his whole career, competing for the light heavyweight championship.

The UN Security Council has adopted a blanket sanctions exemption to enable the delivery of food, medicine, and humanitarian aid that is applicable across all UN sanctions regimes. The United States drafted Resolution 2664 with Ireland to protect humanitarian assistance.

Fraud and Abuse

Sam Bankman-Fried, the former CEO of FTX, has been arrested in the Bahamas on charges of wire fraud, conspiracy, money laundering, and security fraud. Bankman-Fried also faces civil action from the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and state banking and securities regulators. A senior FTX executive tipped off Bahamian authorities to possible misuse of funds at the exchange several days before FTX collapsed. Ryan Salame, the former co-CEO at FTX Digital Markets, told island regulators that client assets were transferred to Alameda Research to “cover financial losses” at the trading firm.

The criminal indictment unsealed this week reveals that Bankman-Fried’s lies and fraud went all the way back to the founding of FTX in 2019 when he repeatedly lied to customers, investors, and lenders about how deposits were handled at the exchange. The SEC complaint states that for three years, Bankman-Fried misappropriated billions in customer deposits to fund his business and political activities. The CFTC also filed civil charges, alleging that Bankman-Fried, FTX, and sister company, Alameda Research, had defrauded customers and investors by manipulating the prices of certain digital assets, front-running other traders on the FTX platform, and lying about the location and use of customer funds.

The Justice Department may charge Binance with money laundering, as well as unlicensed money transmission, money-laundering conspiracy, and sanctions violations. DOJ officials have already discussed plea deals with Binance’s attorneys, and some prosecutors believe that charges against Binance’s executives, including CEO Changpeng Zhao, are justified by the evidence. DOJ is divided about how to charge Binance.

Eight men in Texas, who allegedly used their social media influencer statuses to manipulate stock prices, have been charged in a $100 million pump-and-dump scheme. The men had a combined following of 1.5 million people on Twitter and used it, alongside messaging platform Discord, to promote themselves as successful traders and encourage fans to invest in selected shares, selling them off once they increased in worth.

The former nurse of late Venezuelan President Chávez and her husband this week were found guilty of money laundering in connection to $4.2 million in bribes paid by US-designated billionaire media mogul Raul Gorrin in exchange for approving lucrative currency transactions when Claudia Diaz served as the country’s treasurer. Diaz and her husband received payments from companies controlled by Gorrin through accounts in Miami used to pay for the couple’s lavish lifestyle. Gorrin purchased luxury properties in Miami through several holding companies, facilitated by a Miami attorney who acted as gatekeeper for sanctioned Venezuelan regime insiders.

German police this week conducted nationwide raids on 50 properties, targeting an organization suspected of racketeering, forgery, and fraud linked to emergency Covid aid. Hundreds of officers stormed the properties before dawn in raids targeting the Al-Zein clan.

A South Florida woman claiming to be a psychic has been sentenced to federal prison along with her partner for conning a victim out of more than $3 million, stopping only after the victim could no longer afford “money-cleansing rituals.” Samantha Stevens portrayed herself as a psychic and fortune teller in 2012 when she met a victim in Miami, gained her trust, and convinced her that a curse had been placed on her and her family, claiming she needed to perform rituals on large sums of money in order to lift the curse. 

A Las Vegas businessman is one of four men arrested as part of a federal investigation into a multimillion-dollar fraud scheme. Martin Mizrahi and three other men allegedly defrauded banks, businesses, and individuals of more than $9 million through compromised email addresses and credit cards. Fraudulent charges made through point-of-sale credit card machines came from companies owned by Mizrahi and another defendant.

Eva Kaili, a vice president of the European Parliament and vocal defender of Qatar, was arrested last week and has been removed from her position. Her partner has confessed to playing a role in a Qatar graft scandal, admitting to taking bribes from Qatar to influence European Parliament decisions on the country. Meanwhile the socialist group in the parliament has asked several of its members to step down from key posts as the investigation into the scandal widens.

North Korea is grabbing up US dollars and other hard currency. The country is smuggling coal and stealing cryptocurrency and selling smartphones and other imported goods to the rich, as well as collecting “loyalty” donations in exchange for political favors. Customers can use US dollars at state-run stores to pay for international brands of instant noodles, deodorant, diapers, and other products, while change is returned in North Korean won.

Chinese police in Inner Mongolia have arrested 63 people for laundering $1.7 billion in cryptocurrency. The group collected illicit funds from online pyramid schemes, fraud, and gambling and converted the proceeds into Tether, distributing the funds across multiple, anonymous crypto accounts before exchanging the virtual currency into renminbi.

A US jury has awarded Kazakhstan’s BTA bank damages of more than $100 million ($218 million if you include interest over the past nearly 10 years) resulting from a money laundering and fraud scheme by Mukhtar Ablyazov, who served as the bank’s chairman from 2005-2009. The multi-billion dollar theft resulted in the Bank’s nationalization, costing taxpayers more than a billion dollars. The defendant, Triadou SPV, is a shell company created and controlled by Ablyazov’s son-in-law Ilyas Khrapunov, which received more than $70 million in money stolen from BTA, which it invested in real estate in New York City and elsewhere in the United States.


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