Insights: Week Of August 15, 2022

Courtesy of Wikimedia Commons

A possible merger between Russian metals giants Norilsk Nickel (Nornickel) and RUSAL is raising questions about a new Russian “champion” that may be sanctions-proof.

Would the entity be too big to sanction because of its potentially outsized role in supplying the raw materials needed for the transition to renewable energy and to industries such as aircraft production, canning, construction, and electronics, among others?

Could the entity be legally blocked if its corporate structure included Russian oligarch Vladimir Potanin’s Interros Holdings retaining a plurality of shares (about 28 percent according to one estimate) and RUSAL owning another 25 percent?

Would the reputational risk of doing business with an entity that may not be blocked, but is significantly linked to a UK-sanctioned Russian oligarch and a US-designated key player, who has worked with the Kremlin to conduct aggressive influence operations, allegedly engaged in money laundering and bribery, has links to Russian organized crime, and has ordered the murder of a businessman, be too significant?

US firms should look beyond simple majority control and analyze other available information, including plurality ownership (especially if outsized compared with other owners), the board nomination and election process, and reports on key decisions and day-to-day operations. Expert analysts can inform your decisions about the risks your firm may face when dealing with complex entities.

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Compliance and Due Diligence

The pressure to sanction Burma’s energy sector continues to grow after reports of recent torture and execution of pro-democracy activists. Congress appears to be inching toward passage of the Burma Act, which would impose mandatory sanctions on Myanma Oil and Gas Enterprise—a vital source of revenue for the military junta (Tatmadaw).

Russia is sidling closer to Burma, becoming more accommodating toward the junta in a likely effort to gain a foothold in the Indo-Pacific through the country. Earlier this month, Russian Foreign Minister Sergey Lavrov visited Burma and met military leaders to discuss security and economic issues. Last month, military leader Min Aung Hlaing met with Russia’s  senior defense officials, with both sides pledging deeper military ties and cooperation on nuclear energy.

Japan’s largest brokerage, SBI Holdings, will close its crypto mining operations in Russia because of the uncertainties associated with sanctions imposed on the country. The continued decline of cryptocurrencies also contributed to the decision.

Eurasian Resources Group (ERG) has halted iron ore supplies to US-designated Russian company MMK from its Kazakh operation because of western sanctions imposed on the company and its majority owner Viktor Rashnikov earlier this month. MMK was once the main buyer of iron ore from ERG’s SSGPO unit, which now only exports iron ore to China.

Russia has moved into third place on a list of countries outside mainland China that use the yuan for global payments. Before the invasion of Ukraine, Russia had not even been included on the list published by the SWIFT messaging firm, but now that sanctions have drastically reduced its access to the global financial system and the US dollar, only Hong Kong and the UK use the yuan more.

Belarusian Railways has teamed up with cargo owners and logistics companies from Belarus, Russia, Kazakhstan, Azerbaijan, and China, to develop 40 new transport and logistics routes to deliver Belarusian products to more than 20 countries. The Transport Ministry says that Belarus is increasingly shipping volume to Azerbaijan, Georgia, Kazakhstan, Tajikistan, Russia, and Uzbekistan, and the number of container trains from Belarus to China has increased fivefold, helping mitigate western sanctions.

An  oil-blending scheme by Iran and its shipping industry allies reported by the Wall Street Journal last month was abandoned by Tehran after the operation attracted attention in 2020 and some of the actors involved pulled out. Iran has now changed its strategy, using shell companies to significantly expand its tanker fleet under foreign flags to obscure Iranian ownership and using location-spoofing devices to transmit false data about the location of its vessels to evade sanctions.

New legislation in the Senate seeks to make permanent the sanctions on Iran’s energy industry that were first imposed in 1996. The bill would extend the restrictions imposed in the Iran Sanctions Act of 1996 beyond 2026, when they are due to expire.

The United States last week told India that it was being used to export fuel made from Russian crude to New York in violation of US sanctions. Apparently, an Indian ship picked up oil from a Russian tanker on the high seas and brought it to a port in Gujarat on the west coast, where it was refined. The refined output then was put back on that ship and set sail without a destination until it received its objective mid-seas and sailed on to New York.

Binance CEO, Changpeng Zhao, a few years ago considered using Malta as a home for the cryptocurrency exchange, likely because the island had a reputation for having a lax AML regime. Binance, however, abandoned its plan to seek a license to operate the exchange in Malta because Zhao grew nervous about the stringent AML protocols included in the license conditions and the level of financial disclosure required. Zhao’s dealings with the Mediterranean island fit a wider pattern, a Reuters investigation has found. In public, Zhao repeatedly said he welcomed regulatory oversight, but at the same time, Binance was withholding information about its finances and corporate structure from regulators.

The EU plans to create a sixth “Anti-Money Laundering Authority” that will be specifically responsible for regulating the cryptocurrency industry. AMLD6 would be entrusted with monitoring crypto service providers, especially those deemed “high-risk,” unlike earlier AML regulations that only provided frameworks for EU nations to gather and share information.

The EU is divided about whether to impose a visa ban on Russian tourists. Individual countries are already taking measures to limit Russian visitors, and Russians are reportedly scrambling to get visas before any possible restrictions are implemented. Finland and Estonia have joined Latvia, Lithuania, and Czechia in limiting or cancelling visas for Russian citizens. Estonia has started blocking Russian visas this week, Finland will cut back on the number of visas issued starting next month, and Denmark says that if the EU fails to impose common rules, the country will change Danish visa policies for Russians. German Chancellor Olaf Scholz opposes an EU-wide travel ban for Russians.

Fraud and Abuse

Hugo Velazquez, the Vice President of Paraguay, has withdrawn from the presidential race and resigned from his party following the US decision to blacklist him from entry over “significant” acts of corruption. The State Department last week sanctioned Velasquez for involvement in graft and bribery.

India’s AML agency has frozen assets worth $46.4 million from the local entity belonging to crypto exchange Vauld for facilitating “crime-derived” proceeds from predatory lending firms. Flipvolt Technologies, the India registered entity of Singapore-headquartered Vauld, was used to deposit funds by 23 entities, including non-banking financial companies and fintech firms, into wallets controlled by Yellow Tune Technologies. The Enforcement Directorate (ED) says Flipvolt maintains lax AML standards and has no enhanced due diligence mechanisms or methods of filing suspicious activity reports.

The Netherlands has extradited a Russian national to the United States for allegedly conspiring to launder cryptocurrency. Denis Dubnikov is accused of laundering the proceeds of Ryuk ransomware. Dubnikov is scheduled for a five-day trial in October and could receive a statutory maximum of 20 years in prison.

Two former Pennsylvania judges, who orchestrated a scheme to send children to for-profit jails in exchange for kickbacks, this week were ordered to pay more than $200 million to their victims. Mark Ciavarella and Michael Conahan, shut down a county-run juvenile detention center and accepted $2.8 million in illegal payments from the builder and co-owner of two for-profit facilities. Ciavarella, who presided over a juvenile court, pushed a zero-tolerance policy that guaranteed kids would be sent to PA Child Care and its sister facility, Western PA Child Care.

Police in Argentina have arrested 24 members of Buenos Aires Yoga School, charging them with belonging to a cult that has victimized hundreds of people, forcing them to give up all their assets, enslaving them, and even forcing them into prostitution. The arrests included 84-year-old Juan Percowicz, who was charged with similar crimes in 1993, but somehow escaped justice because of his connections with local politicians and international human rights organizations.

Asset managers are tightening controls on personal communication tools such as WhatsApp in an effort to prevent inappropriate communications between staff and clients. As the Covid pandemic forced more finance staff to work from home in 2020, regulators began to focus on the use of unauthorized messaging tools to discuss issues that might impact markets. Banks have been fined or have set aside more than $1 billion to cover regulatory penalties for these transgressions, but fund firms are also increasing their scrutiny of how staff and clients interact.

A board member for the Tokyo Olympics and three others this week were arrested on bribery charges. Haruyuki Takahashi allegedly received $380,000 from business suit retailer Aoki Holdings, an official partner of last year’s pandemic-delayed 2020 Olympic Games. Aoki chairman, Hironori Aoki, and two other executives from the retailer were also arrested.

Real estate sales in Baghdad, are booming, with experts attributing this phenomenon to money-laundering and efforts by corrupt officials to keep their wealth in assets instead of banks. A source in the Prime Minister’s office says that as the government clamped down on corruption and prevented the transfer of funds in large quantities abroad, seizing bank accounts and cash, corrupt officials have resorted to investing their money in real estate.

Kevin Lee Co this week in California was sentenced to 10 years in prison for wire fraud, money laundering, and submitting false statements to a financial institution. Co pled guilty to wire fraud and money laundering after embezzling $4.8 million from his former employer, Holt of California, and using the money to buy luxury cars, home furnishings, NFL and NBA season tickets, and spending roughly $1 million for an online video game. While out of custody and awaiting sentencing on those charges, Co defrauded federally insured financial institutions by submitting false statements to qualify for loans that were part of the Paycheck Protection Program.

South Korea’s anti-money laundering authority says 16 foreign crypto firms have been operating in the country without proper regulatory approval. The Korea Financial Intelligence Unit (KoFIU) accused KuCoin, MEXC, Phemex,, Bitrue,, Bitglobal, CoinW, CoinEX, AAX, ZoomEX, Poloniex, BTCEX, BTCC, DigiFinex and Pionex of advertising crypto and offering services to Koreans without obtaining required registrations. Credit card transfers and transfers of crypto assets to and from these firms will be blocked, and the agency also warned crypto users against engaging with unregistered platforms because of possible information breaches and hacking efforts that could leave them vulnerable to abuse.

A California man this week was sentenced to 46 months in prison for his participation in a large-scale “grandparent scam.” Jack Owuor was part of a network of individuals who tricked elderly Americans across the United States into paying them tens of thousands of dollars by contacting the victims by telephone and impersonating a grandchild, other close relative, or friend, and convincing them to pay money to get them out of legal or medical trouble.


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