Insights: Week of May 16, 2022

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The Tax Justice Network in its 2022 Financial Secrecy Index this week identified the United States as the most secretive jurisdiction in the world, jumping to the top spot from second place last year and responsible for 5.74 percent of the world’s financial secrecy. Although the United States has taken steps to address the loopholes and lax regulations that allow illicit actors to exploit the US financial system, funding and capacity constraints have delayed the implementation of laws such as the Corporate Transparency Act (CTA), whose goal is to help end the abuse of anonymous shell entities by requiring that companies report beneficial owners to a registry maintained by FinCEN.

  • In light of this development, Senators Sheldon Whitehouse (D-RI) and Chuck Grassley (R-IA) this week sent Senate appropriators a bipartisan request for the maximum possible funding for FinCEN to support implementation and enforcement of key anti-money laundering (AML) and anticorruption reforms.
  • Acting FinCEN director Him Das last month testified before the House Committee on Financial Services that many of the agency’s staffing requests remain unfunded, despite being mandated by the Anti-Money Laundering Act (AMLA) of 2020, including personnel needed to implement the beneficial ownership framework under the CTA, enforcement personnel, innovation experts, data scientists and emerging technology experts, and others.
  • Legislators this week approved a $40 billion aid package to Ukraine, which includes $52 million in emergency funds to help FinCEN meet the requirements of the CTA and the AMLA.

The selection of the United States as the most secretive country in the world almost certainly has prompted US officials to accelerate the implementation of measures aimed to enhance transparency and accountability in the US financial system. The additional funds will likely accelerate efforts to impose additional AML monitoring and reporting requirements on the real estate sector and other gatekeeper professions, including attorneys and insurance companies, mandate suspicious activity reporting, and establish AML/CFT programs that would require the adoption of AML/CFT policies, designation of compliance officers, and the creation of testing and customer due diligence programs.

Compliance and Due Diligence

The UK this week sanctioned several Russian airlines to prevent them from selling their coveted landing slots worth £50 million at major UK airports. Aeroflot, Russia’s largest airline, Ural Airlines, and Rossiya Airlines are now sanctioned. Aeroflot is subject to an asset freeze, and UK airspace is already closed to Russian aircraft.

The EU’s sixth package of sanctions has been blocked even after a number of proposals had been softened, including possible exceptions to the oil embargo. Several EU countries claim that the proposed oil embargo will be catastrophic for Europe. Hungary continues to block an EU oil embargo on Russia and is demanding between €15 and 18 billion to finance “the investments and compensate for… the [ensuing] price rises which necessitates a total modernization of Hungary’s energy structure.” EU’s foreign policy chief Josep Borrell says Hungary’s objections are economic rather than linked to PM Orban’s historically close ties to Russia, and therefore easier to overcome. Borell also dismissed reports that Hungary’s oil veto was linked to its disapproval of the EU’s designation of Russia’s top cleric, Patriarch Kirill, for his support for Russia’s war on Ukraine.

The Biden administration is developing plans to further limit Russia’s oil revenues with the long-term goal of destroying the country’s central role in the global energy economy. The proposed measures include imposing a price cap on Russian oil, limiting profits, and backed by secondary sanctions on countries that violate US restrictions by blocking them from doing business with American companies. The United States could also cut off most Russian access to payments for oil by issuing a regulation that requires foreign banks dealing in payments to put the money in an escrow account, giving Russia access to the funds only to purchase essential goods like food and medicine.

The NGO Swissaid says that Switzerland has recorded a significant increase in gold imports from the UAE since the introduction of sanctions against Russia for its invasion of Ukraine and is calling for more transparency to determine whether this gold is coming from Russia. Swiss gold refineries have stopped importing gold directly from Russia, but the NGO fears that Russian gold is entering Switzerland via Dubai.

Russia is possibly planning to accept Bitcoin and other cryptocurrencies as a form of payment to mitigate harsh international sanctions. Minister of Industry and Trade Denis Manturov says Russia is planning to legalize Bitcoin and other cryptocurrencies to bolster its economy, and that the government and the Central Bank are on board with the plan. This is after the Central Bank pushed for a complete crypto ban, claiming it would undermine the Russian economy.

Turkey seems to be demanding the removal of CAATSA sanctions imposed on Ankara over its purchase of the S-400 missile defense systems from Russia, as well as its re-inclusion in the F-35 advanced aircraft program in exchange for not opposing NATO membership for Finland and Sweden. Turkey also claims that the two countries are harboring members of separatist militant Kurdistan’s Workers Party, also known as PKK, who Turkey claims are terrorists.

The United States has relaxed some sanctions against Venezuelan oil, allowing discussions to take place between the Maduro regime and Chevron. Current sanctions prohibit Chevron from doing business with the Venezuelan government, only allowing the company to carry out essential maintenance work in the country. OFAC also will delist Carlos Eric Malpica, a former Venezuelan state oil official and nephew of the first lady, Cilia Flores. Venezuela has confirmed the decision but is demanding a complete removal of US sanctions.

OFAC this week imposed sanctions on Lebanese businessman, Hizballah official, and financial facilitator, Ahmad Jalal Reda Abdallah, and the companies he owns. In its press release, Treasury specified that Ahmad Abdallah coordinates business activities and budgets with sanctioned senior Hizballah financial facilitators. In addition, Islamic Revolutionary Guard Corps (IRGC) officials have helped facilitate financial transfers for Ahmad Abdallah’s businesses, many of which are located in Iraq and benefit Hizballah.

The United States warned this week that North Korea has sent thousands of highly skilled IT workers to foreign jurisdictions to earn revenues that contribute to the DPRK’s weapons programs and facilitates sanctions evasion by allowing it access to global currencies. The advisory, issued by the Treasury and State Departments, cautions that North Korean individuals will pose as other nationals and gain employment as freelance developers and other IT workers to gain access to IT systems. The advisory also provides a list of red flags.

The Biden administration has eased some restrictions against Cuba by reinstating the Cuban Family Reunification Parole (CFRP) Program and expanding “consular services and visa processing, allowing more Cubans to join their families in the United States through regular migration channels.” The CFRP permits up to 20,000 immigration visas to be issued to Cuban nationals each year.

A restructuring firm that was supposed to advise the Russian London-listed gold miner Petropavlovsk has resigned from the advisory role, demonstrating the effectiveness of EO 14071 that prohibits services, including management consulting, to any Russian person or entity. US-based AlixPartners stepped back from its role with the gold producer earlier this month following the imposition of new restrictions.

The White House this week signaled that it would remove five groups from the list of foreign terrorist organizations (FTOs), and OFAC today removed the FTO designations of Aum Shinrikyo, Euzkadi Ta Askatasuna, Gama’A Al-Islamiyya, Kahane Chai, and Mujahidin Shura Council In The Environs Of Jerusalem. These groups are still sanctioned under Executive Order (EO) 13224 as specially designated global terrorists.

The Cyprus Securities and Exchange Commission has unveiled a new online platform for the Cyprus Beneficial Ownership Register of Express Trusts and Similar Legal Arrangements (CyTBOR) which will be accessible starting on 17 June. CyTBOR allows searches for up-to-date information and data about the beneficial owners of trusts and similar legal arrangements, facilitating direct searches for the settlors, trustees, protectors, beneficiaries, and any other natural persons exercising final control over the trust through direct or indirect ownership.

Fraud and Abuse

Layers of companies and trusts indicate that former president of Rosneft, Eduard Khudainatov, who currently is not subject to sanctions, is the “straw owner” of at least two mega-yachts that belong to sanctioned Russian individuals. The United States alleges that the “true beneficial owner” of the Amadea, is sanctioned Russian billionaire Suleiman Kerimov, while the Scheherazade belongs to Putin himself. Court filings in Fiji, where the United States is trying to seize the $325 million Amadea, reveal what US officials allege is a nest of offshore shell companies that were set up with the help of a yacht broker to conceal the true owners of both vessels.

A team of researchers with Sensity, a security firm focused on deepfake detection, has demonstrated that the “liveness test” used by banks and financial institutions to capture a user’s face in real-time to match it to their selfie or photo ID can be bypassed by using AI-generated images. This development has the potential to undermine know your customer (KYC) methodologies in banks’ efforts to conduct customer due diligence (CDD), as well as CDD efforts in fintech, insurance, crypto, and gambling sectors.

A new report released by the Global Initiative Against Transnational Organized Crime (GI-TOC) says that the latest commodity being trafficked from Southeast Asia to China is human beings—specifically, brides. “The number of women and girls traveling from Cambodia to China for forced or arranged marriages has surged since 2016, and experienced a further spike since the beginning of the COVID-19 pandemic in the first quarter of 2020,” GI-TOC explained. An increasing number of the women who wound up trafficked to China reported finding themselves in abusive or dangerous situations.

Mastercard and Visa, which together process three-quarters of all US credit card payments, process funds for businesses with extensive records of fraud, according to an investigation by BuzzFeed. Because credit cards have become an essential part of global commerce, they are commonly used by scammers to sell everything from fake miracle cures, to multilevel marketing schemes, and pump-and-dump investment scams. And because the credit card companies collect a percentage of every sale, legitimate or not, there is little incentive to stop transacting with risky financial institutions and companies.

The US government has recovered more than $15 million from Swiss bank accounts belonging to operators behind the “3ve” online advertising fraud scheme. The 3ve ad fraud campaign—also known as Eve—infected more than 1.7 million devices with the Kovter botnet, a click-fraud malware that would quietly run in the background while connecting to sites to consume advertisements. The campaign would then direct infected devices to connect to these sites to view their ads. To the advertisers, these appeared as legitimate ad impressions, for which they were billed. The funds recovered were part of the Final Order of Forfeiture related to United States v. Sergey Ovsyannikov, one of the conspirators in the global ad fraud campaign.

A Venezuelan cardiologist has been charged with using and selling ransomware in profit-sharing agreements with cyber criminals. Moises Luis Zagala Gonzalez treated patients, but also created and profited from selling the tools for conducting ransomware attacks, training the attackers to extort victims and boasting about successful attacks, including by malicious actors associated with the government of Iran. Zagala in 2019 began advertising a new tool online—a “Private Ransomware Builder” he called “Thanos.” He allowed illicit actors to either buy a “license” to use the software for a certain period of time or join what Zagala called an “affiliate program,” in which he provided user access to the Thanos builder in exchange for a share of the profits from ransomware attacks.

After Costa Rica declared a state of emergency last week because of malicious hacking into its government systems, the Russian ransomware gang Conti escalated its rhetoric, urging the citizens of the country to revolt if Costa Rica refuses to pay the ransom. The group also chided the Chaves government for potentially putting too much faith in the United States to bail it out. Given previous reports about Conti’s support of Russia’s invasion of Ukraine and the Kremlin’s known links to cyber crime, the group may be acting as a force multiplier in Russia’s hybrid warfare efforts against the West.


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