Insights: Week Of January 16, 2023

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This week, we are watching escalating violence in Ukraine alongside developments coming out of Davos 2023 and turmoil in the crypto sphere.

Russia’s invasion of Ukraine was centerpiece in Davos this week, where the top lawmakers and politicians addressed the consequences of the war and its negative impact on multiple key sectors, such as energy and finance in addition to security. An increasing number of key Russian entities are complicit in the Kremlin’s war in Ukraine, such as nuclear energy conglomerate Rosatom, which may disrupt the global market as Ukraine’s Western allies threaten more sanctions against the Kremlin. As the scope of sanctions widens, Western companies in affected sectors face increased risk of sanctions violations.

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Compliance and Due Diligence 

Highlighting growing enforcement measures, financial crime-related penalties on financial institutions increased by more than 50 percent in 2022 to $5 billion. Anti-money laundering, sanctions violations, and insufficient know-your-customer systems were among the top reasons for penalties. As penalties are often levied several years after the infractions, the number will likely increase more in coming years due to the 2022 flurry of sanctions on Russia.

The United States has moved to seize more than $1 billion in illicit assets since Russia’s invasion of Ukraine began last year. In an interview with 60 Minutes, Deputy Attorney General Lisa Monaco said that aircraft in Switzerland and the Middle East have been grounded, smugglers in Europe have been arrested, and money launderers have been charged in the UK.

Documents revealing Rosatom’s support for Russia’s military strengthen the case for Western sanctions against Russia’s nuclear power agency. Rosatom has supplied “components, technology and raw materials for missile fuel” to Russian arms companies. Rosatom so far has not fallen under Western sanctions due to its role in ensuring nuclear power safety.

The US intends to designate the Wagner Group as a “significant transnational criminal organization” in the coming days. The group has exploited natural resources in countries such as the Central African Republic, Mali, Sudan, and Ukraine. Since 2022, the Wagner Group has significantly expanded its mining projects in the Central African Republic to take in profits of nearly $1 billion. These funds support the group’s and the Kremlin’s military activities abroad, presenting a funding source outside its sanctioned Western assets.

In a nonbinding resolution on Thursday, a large majority of the EU Parliament voted for imposing sanctions on and placing Iran’s Revolutionary Guard on the EU terrorist list in response to the Iranian government’s violence and murder of protesters.

Amid its struggle with US sanctions, Venezuela’s PDVSA has suspended most of its crude oil exports. Since the 2019 sanctions imposition, PDVSA has relied on obscure middlemen to export oil, hurting its profits. The middlemen, who primarily sell to Asian countries, are most affected as US oil firm Chevron Corp is not affected by the suspension.

Meanwhile, Russia is considering increasing its oil exports, as it expects Western sanctions to reduce its output and exports by the end of March. Though China and India have increased their oil purchases from Russia, rising freight costs, high discounts, and the logistics of setting up new shipping routes all pose challenges to the Russian energy sector’s growth and stability. Despite Russian officials’ claims that the sanctions will have little effect, oil price caps could lead to $150 billion loss this year for Russia.

After Russia’s vicious attack in Dnipro last weekend, the EU is seeing renewed calls to sanction Russia’s diamond industry. Previously, because of pressure from Antwerp, the diamonds have been left alone. But now diplomats from Poland and Lithuania are demanding harsher sanctions, including on Russia’s diamond mining industry. Russia’s diamond conglomerate Alrosa is sanctioned by the United States and the UK, but the diamond trade continues, pouring billions into Putin’s pockets. A spokesperson for the Antwerp World Diamond Centre said that more than 10,000 jobs could be lost in Belgium if further prohibitions are placed on Russian rough. In 2021 approximately 36 percent of Alrosa’s diamond revenue was generated from sales in Belgium.

UK-based air freight company CargoLogicAir is facing difficulty paying its creditors due to Western sanctions on its beneficial owner, Alexei Isaikin. The company is seeking an OFSI license to access funds contained in its stock, which requires using a software system blocked by sanctions. Additionally, Microsoft has blocked access to the company’s electronic records. The company has halted its operations due to bans preventing it from making deliveries to the United States and EU.

Russians became the top foreign buyers of Turkish real estate last year, working to invest money abroad as sanctions were imposed. Russian nationals bought a record 16,312 homes in Turkey in 2022, displacing Iranians to second place. Meanwhile, the Biden administration is offering to sell Turkey F-16 aircraft and will ask for Congressional authorization to do so in an effort to prompt Ankara to agree to allow Finland and Sweden into NATO. Given Turkey’s human rights abuses, the purchase of the S-400 from the Russians, the refusal to impose sanctions, and helping Iran launder money, it is doubtful that deal will be approved. Russians have also become the top buyers of property in Dubai.

Another sanctioned hardliner, Zheng Yanxiong, has been appointed as China’s top representative officer in Hong Kong. As the inaugural director of the Office for Safeguarding National Security in Hong Kong, Yanxiong was one of the officials designated by the United States for undermining Hong Kong’s autonomy. The office has broad powers to investigate major cases and supervise the Hong Kong government’s implementation on national security law.

Tech supply chains fall woefully short in forced labor due diligence. A report found little to no improvement in tech companies’ practices since 2020 and that tech companies offload the risk to third-party suppliers. The report called for both buyers and suppliers to “to monitor, report and mitigate human rights abuses in their supply chains.”

Deutsche Bank named Laura Padovani as its new chief compliance officer. This appointment occurred while the bank faces scrutiny in Germany and the United States over its compliance practices. In Germany, the bank faces a threat of fines if it does not implement anti-money laundering controls by mid-2023. In September, it paid $200 million in US regulatory fines over its record-keeping practices.

Big US banks will be broken up if they cannot remediate their regulatory lapses, according to Acting Comptroller of the Currency Michael Hsu. Hsu, along with the Biden Administration, sees these lapses stemming from sheer size rather than management or organizational problems. While the US government has not called for any specific banks to break up, it could eventually call on large banks reduce their size by “divesting businesses, curtailing operations and reducing complexity.”

Binance claims that it has foiled a money-laundering attempt on rival exchange Huobi, helping the Chinese business recover 124 Bitcoin worth $2.58 million. Binance’s CEO, Changpeng Zhao claims that a hacker used Harmony Bridge and attempted unsuccessfully to launder the proceeds from the theft using Binance. The hacker then resolved to use the Huobi exchange, but the Binance team helped freeze the hacker’s account.

TikTok has revealed a $1.5 billion plan reorganizing its US operations, which includes US government and independent oversight into its algorithms, a key concern for US policymakers who view the app as a threat to US citizens.

Ireland’s Data Privacy Commissioner (DPC) fined Meta’s WhatsApp 5.5 million euros for breaking EU privacy laws. The DPC told WhatsApp that it would additionally need to improve its personal data handling practices. WhatsApp is appealing the fine.

Fraud and Abuse

The Biden administration will likely implement a cybersecurity policy enabling US agencies to hack foreign networks, enabling retaliation against malicious actors threatening US public safety. This policy will be implemented through public-private partnerships.

Sweden has sentenced two brothers for spying on Sweden for Russia. Peyman Kia and Payam Kia were sentenced to life and 10 years in prison respectively for aggravated espionage. The brothers procured documents about Sweden’s military capabilities and passed on information to Russia, including by using a camera hidden in a car key.

An investigation found that 94 percent of forest carbon offsets by Verra Carbon are worthless. Verra Carbon is the world’s largest carbon offsets provider, which companies, such as Disney and Gucci, purchase to label products as “carbon neutral.” However, most of Verra Carbon’s credits are “phantom credits” and in reality, do not reduce carbon or benefit the environment.

Though Arizona-based Transaction Record Analysis Center (TRAC) is an obscure nonprofit, it is home to a database with providing US law enforcement, without a warrant, the ability to conduct surveillance on “more than 150 million money transfers between people in the U.S. and in more than 20 countries.” This access is legally possible due to looser regulations on money-services companies than those on banks. Alarm in Congress could lead to heavier privacy regulations on money-services companies.

A UK court sentenced four men to 15 years in prison for laundering approximately $26 million in cryptocurrency between October 2017 and January 2018. The group exploited a loophole in an Australian cryptocurrency exchange to launder the funds.

Security analyst, Jon DiMaggio, used fake personas to communicate with cyber criminals, gaining insight into one of the world’s most notorious ransomware groups, LockBit. DiMaggio claims that the group’s members are using Elon Musk’s Starlink and laundering money through China and Hong Kong. LockBit’s leadership has been using the pseudonym LockBitSupp to communicate with the criminal community on the dark web, claiming to access its back-end infrastructure via Starlink and relying on Bitcoin exchanges in Hong Kong and China to launder the proceeds of ransomware campaigns. LockBit also has ties to the Blackbasta ransomware group (fka Conti), who are working for the Russian government, providing direct technical support to the FSB.

Controversial Congressperson George Santos received campaign contributions from the cousin of sanctioned US oligarch, Viktor Vekselberg. Andrew Intrater and his wife each gave the maximum $5,800 to Santos’s main campaign committee and tens of thousands more since 2020 to committees linked to him. Intrater also invested hundreds of thousands of dollars into Harbor City, Santos’ former employer that was alleged to have been running a Ponzi scheme.

A breach at Norton LifeLock has exposed thousands of customers to identity theft, with their accounts compromised in recent weeks, potentially allowing criminal hackers access to customer password managers. Gen Digital, the parent company of Norton LifeLock, said that the likely culprit was a credential stuffing attack—in which previously exposed or breached credentials are used to break into accounts on different sites and services that share the same passwords—rather than a compromise of its systems.

UK authorities have seized £10million worth of stock during a suspected money laundering probe into a luxury watch shop whose clientele includes Premier League footballers and rappers. The National Crime Agency (NCA) confiscated more than 300 timepieces last year from WatchTrader & Co after a surveillance operation that resulted in four arrests.

The former president of FTX is trying to distance himself from the scandalous firm as he tries to launch a new venture. Brett Harrison is not being charged with any crimes while he was with the company, and he is starting a new software company that will offer algorithmic trading services to crypto investors and provide access to both private and public markets.

A Gloucester accountant was arrested for “calculated and persistent fraud” against her clients, stealing nearly £150,000 from 2016 to 2017. Sophie Workman opened 40 bank accounts under different names and created fake invoices to steal from her clients.

In Connecticut, federal officials recovered $3 million in cryptocurrency from a phone fraud scheme targeting the elderly. Using technology making their phone number appear as though it came from a legitimate government agency, callers claimed a victim’s identity was compromised. The caller then asked for money for “safekeeping” and promised to return it with interest once the “identity thief” was caught.

FiveBy provides a weekly roundup of relevant news and insights to help readers keep abreast of regulatory developments and reputational risks. We hope you find the insights useful. Please feel free to contact us at if you would like other issues included in these articles.

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