The Treasury Department this week issued a finding of violation against MidFirst Bank in Oklahoma—an action which highlights the importance of real-time screening. Although MidFirst avoided a monetary penalty for processing 34 payments on behalf of two individuals who were sanctioned by OFAC under the Weapons of Mass Destruction Proliferators Sanctions Regulations, its sanctions compliance failure serves as a lesson to other financial institutions, as well as mars its reputation. Most of the violations occurred within hours of OFAC’s designations, and the bank relied on its screening vendor to catch newly sanctioned individuals and entities, which only updated its screening of the bank’s customers once a month.
After discovering the violations and reporting them to OFAC, MidWest changed its compliance procedures to include a manual process that will notify it “of all OFAC list updates” and to manually rescreen the customer base whenever OFAC updates the SDN list, highlighting the importance of human-driven analysis and monitoring to supplement automated tools in real time.
The Wall Street Journal reported this week the advantages of using AI to help detect financial crimes, noting that AI could improve efficiencies to allow firms and financial institutions to better direct investigative resources. AI tools are, indeed, useful in increasing productivity and performance when detecting illicit financial transactions and sanctions evasion. However, identifying constantly evolving evasion methodologies and money-laundering techniques, foreign name variations, tax ID number fraud, and jurisdictional adjustments that allow bad actors to slip by automated screening processes, requires linguistic and regional expertise provided by experienced and certified analysts.
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Compliance and Due Diligence
How can Russia circumvent the EU ban on Russian gold that was passed by the bloc this week? Gold represents Russia’s biggest non-energy export, and the EU has agreed to ban Russian gold imports, as well as freeze the assets of Sberbank, Russia’s biggest bank. Counterfeit trade will probably help Russia mitigate some of the effects of the EU sanctions, and as usual, India and China will likely pick up at least some of the slack.
Russia has been diversifying its payment strategies, expanding the use of non-western currencies to circumvent sanctions. Moscow in April began accepting payments in Chinese yuan in exchange for coal and oil shipments. An Indian cement producer also used Chinese yuan to buy Russian raw materials. In addition, India is apparently refining a portion of the crude oil it buys from Russia and selling it to the EU and United States.
The House of Representatives this week approved a Countering America’s Adversaries Through Sanctions Act (CAASTA) sanctions waiver for India for its purchase of the Russian S-400 missile defense system. The amendment to the National Defense Authorization Act urges the Biden administration to provide the waiver to help deter aggressors like China.
President Biden has signed an executive order to punish wrongful detention of US citizens abroad by authorizing government agencies to impose sanctions or other punitive measures on groups and governments that are detaining Americans. The James W. Foley Legacy Foundation—named after an American journalist abducted and killed in Syria—says that more than 60 Americans are currently wrongfully detained in 18 countries, including Russia, Iran, and Venezuela.
A DC circuit court this week upheld a Commerce Department decision to hold FedEx liable for shipments that violated the Export Control Act. The federal government claimed that the shipper knew or should have known that “its screening software did not flag a transaction unless the name of the recipient/consignee exactly matched the full name of the entity” on the Bureau of Industry and Security’s (BIS) “Entity List,” even where the “address information was identical or nearly identical.” The company had sent items to Syria, the UAE, and China without obtaining the required licenses.
Hong Kong-based textile and apparel manufacturer the Esquel Group has failed to have BIS restrictions removed against one its subsidiaries over alleged links to forced labor in China’s Xinjiang region, where China’s Uyghur population is detained. The US Court of Appeals denied a bid by Changji Esquel Textile Company, which has a spinning mill in Xinjiang, for a preliminary injunction against its inclusion on the “Entity List.”
Latvia is accusing eight former ABLV Bank managing employees, including the bank’s former co-owner, Ernests Bernis, and former deputy chairman of the board, Vadims Reinfelds, of laundering 2.1 billion euros. FinCEN announced in February 2018 its plans to name the bank as a financial institution of primary money laundering concern for assisting with North Korea’s nuclear arms program, as well as illegal financial activities in Azerbaijan, Russia, and Ukraine.
The EU has lifted sanctions on Syrian airline Cham Wings, after the company was blacklisted in December for flying migrants to Belarus to help President Lukashenko fulfill his promise of flooding the EU with illegal migrants. The EU claims Cham Wings ceased the activities for which it was sanctioned. The airline has been sanctioned by the United States since 2016 under the Syria program for transporting militants, weapons, and other equipment in the Syria conflict.
Deutsche Bank has agreed to pay $7.1 million and accept an administrative penalty notice to end an investigation into its failure to file 701 suspicious activity reports. Law enforcement officials in Germany in April raided Deutsche Bank’s headquarters in Frankfurt as part of the probe.
China is asking the UN human rights chief to bury a highly-anticipated report on human rights violations in Xinjiang. In a letter to Michelle Bachelet, China expressed “grave concern” about the Xinjiang report asking to stop its release. China’s request is evidence of Beijing seeking to pressure Bachelet directly.
The State Department is threatening additional sanctions against Iran if it proceeds with plans to sell drones to Moscow. Russian officials have visited Iran at least twice in the last month to examine unmanned aerial systems (UAS) capable of carrying weapons.
A UN official this week said that the employment of North Korean workers to reconstruction projects in Donetsk and Luhansk regions in Ukraine would be a violation of UN sanctions. Russian Ambassador to Pyongyang, Alexander Matsegora, said in an interview that North Korean construction workers would be enormously helpful in restoring the infrastructure in the “people’s republics” in Ukraine’s Donbas region.
Fraud and Abuse
Ukraine has created a temporary special commission to monitor donated Western weapons flowing into the country in response to what Kyiv says is a Russian smear campaign accusing Ukraine of corruption and fomenting doubts and concerns in the West about the country’s ability to effectively handle and monitor the arms. The $40 billion military and humanitarian aid package that Congress approved in May includes reporting requirements, as well as regular briefings to lawmakers about the flow of weapons.
The Biden administration is investigating Huawei over concerns that its equipment on US cell towers could capture sensitive information, such as military readiness and drills, from military bases and missile silos that the company could then transmit to China. If the Commerce Department determines that Huawei poses a national security threat, it could ban all US transactions with the company and require US carriers that still rely on its equipment to quickly remove it, or face fines or other penalties.
Russian oligarch Roman Abramovich has claimed his companies do not supply materials for Russia’s military. Turns out that’s not true. Contracts from Russia’s public procurement website show that Evraz’s Russian subsidiaries have have supplied Russia’s National Guard, as well as factories that supply the military and produce explosives and tanks. Russia is in the process of scrubbing and classifying information in its tax registries and government contract databases, which will make military-end-use compliance research more challenging.
European authorities have arrested a Belgian national who is believed to have laundered millions of euros in illicit profits following. The individual is believed to have provided money-laundering services to an international drug cartel. The cash from the drug trade would first be collected in Belgium and used to purchase expensive luxury vehicles in another European country. The vehicles were then exported to other countries where they were first rented out and then sold.
Some people have turned to hacking gas pumps as a way to counter skyrocketing gas prices. Since March, police have arrested at least 22 people across the country for exploiting vulnerabilities in gas pump equipment, using hacking tools that are sometimes easily available online for purchase.
Sherry Xue Li and Lianbo Wang this week were arrested and charged with multiple counts of fraud after allegedly fraudulently selling Chinese and Singaporean contacts access to former President Trump. The two were charged with illegally using funds from Chinese and Singaporean investors to donate $600,000 to Trump’s re-election campaign in 2017. The couple was charged in a New York court with wire fraud conspiracy, money laundering conspiracy, and conspiracy to defraud the United States as well as obstructing Federal Election Commission laws.