Insights: Week Of September 12, 2022

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The United States is considering possible economic measures against China to prevent it from invading Taiwan. The island’s de facto ambassador in Washington this week hosted international lawmakers and urged them to adopt greater deterrence against China’s aggression. Reuters explains that following China’s military exercises after House Speaker Nancy Pelosi’s recent visit to Taiwan, the Biden administration began to discuss possible sanctions as a deterrent against an attack.

What could US sanctions look like?

The full range of options includes a designation on President Xi himself and other Chinese leaders, excluding Chinese banks from global markets, and bans on US listings of Chinese firms, as well as restrictions on imports of Chinese goods and curbs on Chinese energy projects. Asset freezes of Chinese officials, companies, and institutions and further restrictions on transactions that benefit China’s military-industrial complex could also be on the table.

The United States, however, will most likely limit sanctions to avoid major disruptions to global markets. Certain Chinese officials, companies, and other entities that would be involved in an attack on Taiwan could land on OFAC’s SDN list. Limited financial measures against Chinese banks are also possible—especially banks that are linked to the Chinese Communist Party.

Regular monitoring by policy professionals and sanctions experts will help US firms and financial institutions keep abreast of developments in the volatile and increasingly complex China sanctions space. Regular policy assessments can provide insights into risks associated with transacting with Chinese entities.

FiveBy’s certified sanctions analysts can help. For a consultation with our experts, click below.


Compliance and Due Diligence

Treasury this week designated an additional 76 Russian individuals and entities as a continued response to Russia’s invasion of Ukraine, including Task Force Rusich, a neo-Nazi paramilitary group that has participated in the attack and two of its senior leaders. Others included on the Specially Designated Nationals (SDN) List run the gamut from Maria Lvova-Belova—Russia’s Presidential Commissioner for Children’s Rights who leads Russia’s efforts to kidnap thousands of Ukrainian children to Russia—to new designations on Chechen leader Ramzan Kadyrov and his immediate family members.

The State Department also sanctioned Russia’s Main Intelligence Directorate (GRU) for being involved in Russia’s ongoing military aggression against Ukraine, particularly in filtration and forced deportation activities, which violate the Fourth Geneva Convention. The Bureau of Industry and Security has also added more items that can be potentially useful for the Kremlin’s chemical and biological weapons production capabilities to its restricted list.

OFAC this week published guidance regarding Tornado Cash and its use. The FAQs focus on “dusting”—nominal transactions sent from Tornado Cash into an account—for which OFAC does not plan enforcement. Further, transactions initiated before the designation on August 8 can be completed with a specific license granted by OFAC, and Treasury stresses that the discussion, teaching, copying and publication of Tornado’s open-source code are not prohibited.

OFAC has also sanctioned IRGC-connected actors responsible for conducting cyber attacks, including ransomware, which is a significant priority for the US government. The designations are part of a joint action with the Justice and State Departments, the FBI, NSA, CYBERCOM, and the Cybersecurity and Infrastructure Security Agency (CISA) and include 10 individuals and two entities—Najee Technology Hooshmand Fater LLC and Afkar System Yazd Company—owned and managed by Mansour Ahmadi and Ahmad Khatibi Aghda respectively.

A vessel managed by a Greece-based firm transported coal from a port in Russia late last month, after EU sanctions on the commodity had come into force. The company that manages the Stavros, Athens-based Eastern Mediterranean Maritime, claims there was no sanctions violation if the destination of the coal wasn’t in the EU. The European Commission, however, has previously clarified that sanctions apply to any coal shipments originating in Russia, regardless of their destination.

The United States may be considering sanctions on Iran-linked entities for the attack on Salman Rushdie. Designations could include the 15th Khordad Foundation in Iran—a charity operating under the supervision of the Office of the Supreme Leader that has a bounty on Rushdie’s head—and some Iranian media organizations, including the Fars news agency, that have also publicly pledged to contribute to the bounty.

The EU has officially extended sanctions targeting Russian individuals and entities for another six months until 15 March 2023 in response to Russia’s continued aggression in Ukraine. This is normally just a formality, but was recently threatened by Hungary that insisted that three Russian oligarchs be removed from the sanctions list.

A bipartisan group of US Senators has introduced legislation designating Russia as a state sponsor of terrorism. The designation would allow Russia to be sued in US courts for its actions in Ukraine, as well as tighten sanctions. The Biden administration opposes the designation, but House Speaker Pelosi supports it and has promised that Congress will designate the country if the State Department does not.

The United States and the EU are increasing pressure on Turkey to enforce sanctions on Russia. The United States is focusing on Turkish banks that have integrated into Russia’s Mir payments system. Five of Turkey’s largest banks—VakıfBank, Ziraat Bank, İş Bank, DenizBank, and Halkbank—are members of the Mir payment system, which was developed by Russia’s central bank as a domestic alternative to Visa and Mastercard. Russia’s central bank today pledged to keep expanding the number of countries that accept its Mir bank cards after this week’s designations also targeted people and entities accused of helping Moscow circumvent financial sanctions.

Senator Marco Rubio is calling for sanctions against Algeria for purchasing Russian weapons in violation of the Countering America’s Adversaries Through Sanctions Act (CAATSA).

Myanmar may be placed on the Financial Action Task Force’s (FATF’s) blacklist of countries not complying with AML/CFT regulations. FATF members are expected to approve the decision during discussions in Paris next month, further damaging the junta’s already limited ability to attract or retain foreign investment. Most banks and financial services would likely avoid servicing accounts linked to Myanmar rather than perform the “enhanced due diligence” required for a country on the FATF blacklist.

The Central Bank of Ireland has fined Danske Bank nearly $2 million for AML/CFT transaction monitoring failures. The violations were found to be mainly caused by historical data filters in Danske’s automated transaction monitoring system.

Fraud and Abuse

The executive of the Netherlands’ largest supermarket chain, Jumbo, is accused of laundering illicit funds through sponsorship contracts in Dutch motor sports. A home owned by Frits van Eerd—the supermarket chain mogul—and a vehicle at Jumbo headquarters were searched by authorities this week, and one individual was arrested.

The Asset Recovery Agency in Kenya has dropped money laundering charges against three Nigerian companies—Flutterwave, Korapay, and Kiwipay—after declaring that the response given regarding the source of possibly laundered funds was satisfactory. The agency in April requested that a high court freeze $48.6 million belonging to the three firms, alleging that the funds were proceeds of money laundering and that the executives were backed by a powerful politician.

FATF and INTERPOL have launched a joint initiative to deprive illicit actors of proceeds and recover illicit assets. Asset recovery often lags behind other enforcement efforts, because stolen assets are often moved out of countries quickly and channeled to or through multiple countries.

Electronic payments provider ePayments is officially closing its business operations. The financial services provider was one of the largest in the UK, but after being ordered almost three years ago to cease operations by the Financial Conduct Authority (FCA) due to alleged weaknesses in its “financial crime controls” and years of restructuring efforts, the company was unable to satisfactorily meet the FCA’s requirements.

Australia’s second biggest casino operator, Star Entertainment Group, has been found unfit to hold a casino license in Sydney after an inquiry into alleged breaches of AML laws released its report. Huge amounts of money were disguised by the casino as hotel expenses and vast sums of cash evaded AML protocols several times, mostly through a secret room with a second cash cage.

Saudi Arabia has confiscated $1.06 billion from a criminal group accused of money laundering. One Saudi citizen and five individuals with other Arab nationalities have been sentenced for committing financial crimes related to bank accounts and commercial registries..

The Enforcement Directorate of India (ED) has unfrozen the bank accounts of the Indian crypto exchange WazirX, which had been frozen since early August. The exchange says that it has been cooperating with local authorities in their AML investigation, which targeted 16 fintech companies and instant loan apps, some of which solicited services from the exchange. The ED accused WazirX of processing $130 million in transfers to wallets under investigation for illegal activities.

The Australian financial crimes regulator (AUSTRAC) this week opened an investigation into British sports betting company Entain Plc to assess its compliance with AML/CFT laws. The UK gambling regulator last month fined Entain $19 million, its biggest fine, for what it called “completely unacceptable anti-money laundering and safer gambling failures.”

Thirteen bank accounts of companies linked to Pakistani Prime Minister Shehbaz Sharif’s younger son, Suleman Shehbaz, have been ordered frozen by a special court in Lahore. The case pertains to a multi-million dollar money laundering case, in which Prime Minister Shehbaz and his sons have been charged for alleged money laundering.

Three Iranians have been charged with trying to extort hundreds of thousands of dollars from organizations in the United States, Europe, Iran and Israel—including a domestic violence shelter—by hacking in to their computer systems. The criminal charges do not specify a connection to Iran’s government, but the defendants—Mansour Ahmadi, Ahmad Khatibi, and Amir Hosssein Nickaein—were designated by OFAC this week as being linked to the IRGC’s malign cyber activities.

Spanish police this week arrested the head of one of Europe’s biggest money-laundering rings, John Francis Morrissey, which had ties to a Costa del Sol drug cartel and used the sale of high-end vodka to restaurants as a cover. The operation used the so-called “hawala” traditional money transfer system, widely used in Pakistan and the Middle East, to launder more than 200 million euros in less than a year.

FBI, CISA, NSA, CYBERCOM, Treasury and international partners have released an advisory on cyber security, detaining how Iranian cyber actors continue to exploit known vulnerabilities on unprotected networks to extort victims, including US critical infrastructure. NSA and its partners recommend that organizations, especially those with ties to critical infrastructure networks, use the guidance to mitigate risk of compromise.

The United States has recovered more than $30 million worth of cryptocurrency stolen from online game, Axie Infinity, by North Korean Lazarus Group hackers. The recovered amount constitutes only a fraction of the more than $600 million stolen by Lazarus in March from Ronin Network, a sidechain built for the Axie Infinity game.

Attorneys for Forge Consulting, LLC this week announced that the company will sue disbarred attorney Alex Murdaugh and Bank of America. The company claims its reputation was damaged when Murdaugh used the name of the firm to defraud his clients and colleagues and Bank of America failed to properly verify the identity of the owner of the fraudulent account.

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