Insights: Week Of January 30, 2023

Courtesy of Pxhere

Transparency International this week released its Corruption Perceptions Index. Only a few countries improved their fight against corruption, including the United States, Ukraine, Greece, and some countries in eastern Europe and Africa. Russia’s rating dropped, dragged down by last year’s invasion of Ukraine and the subsequent crackdown on protests, independent media, and political opposition. Unfortunately, the UK took a tumble as well, dropping seven places to rank 18th after a year of political scandals. Social discontent has been on the rise in 130 countries, with 42 percent of protests “driven by the people’s discontent with the levels of corruption in government.” 

Because the White House in 2021 designated corruption and kleptocracy as core national security interests, the increase in corruption may lead to more regulations and additional designations. In Russia, corruption and kleptocracy clearly erode democratic institutions, resulting in a rise in authoritarianism that threatens the security of its neighbors and works to undermine democracy and good governance throughout the world.  

  • Ukrainian president Zelensky continues his campaign against corruption in Ukraine in part to court western aid and possible EU membership. Ukrainian authorities this week found that more than $1 billion was embezzled at Ukraine’s biggest oil company, Ukrnafta, and its biggest refiner, Ukrtatnafta. Corrupt Ukrainian oligarch Ihor Kolomoiskiy, who in 2020 was indicted by the United States in connection with large-scale bank fraud, previously held stakes in both firms. 
  • Leaked emails show that a secretive, Kremlin-linked organization successfully bribed several EU politicians who helped push Moscow’s agenda, including pro-Russian policies on Ukraine, in exchange for cash and perks. The International Agency for Current Policy, run by Russian parliamentary staffer Sargis Mirzakhanian, gave cash to EU politicians to propose pro-Russia motions in their local legislatures and paid activists to write pro-Kremlin articles in European media outlets, according to Mirzakhanian’s leaked emails.  
  • A group of pro-Russia activists in Germany donated funds to a Russian army division fighting in Ukraine—funds that were used to purchase restricted communications equipment. The couple at the center of the group, Elena Kolbasnikova and Max Schlund, handed cash to a Russian officer late last year. A Reuters report in January showed that Kolbasnikova and Schlund have links to the Russian state through the Berlin arm of Rossotrudnichestvo—a UK- and EU-sanctioned Russian government agency that uses soft power tools such as cultural exchanges and rallies to promote Russia’s agenda. 

Entities and individuals involved in corruption may not be sanctioned, but transacting with them may still be risky. They may be included on the US, EU, UK, or other sanctions lists in the short-term. They may represent a fraud risk. They may be linked to corrupt elites, requiring enhanced due diligence and monitoring. In today’s volatile regulatory environment, US firms and financial institutions need help keeping track of changes in sanctions, money-laundering methodologies, and reputational risks. Click below to engage with certified financial crimes experts for analytic support. 


Compliance and Due Diligence

The United States, UK, and Canada this week imposed new sanctions on Myanmar on the two-year anniversary of the coup that deposed the country’s democratically elected government. Several individuals and entities were targeted, including an arms dealer and the Union Electoral Commission for its efforts to invalidate the results of the November 2020 election. Australia joined the its allies with sanctions of its own.

OFAC this week released designations targeting a global sanctions evasion network that supports Russia’s military-industrial complex pursuant to EO 14024. As we have been flagging recently, regulators are focusing on individuals and entities that facilitate sanctions evasion and make our sanctions programs less effective. Igor Zimenkov—a Russia- and Cyprus-based arms dealer—leads the evasion network and works closely with his son Jonatan Zimenkov to enable sanctions evasion by Russian defense sector entities. OFAC also listed two cryptocurrency wallets connected to the Zimenkovs.

OFAC this week sanctioned the board of directors of the Paravar Pars Company that was designated in September for producing unmanned aerial systems (UAS), including the Shahed-171 drones, for the IRGC Aerospace Force and Iran’s navy. Two Iranian naval vessels have also been designated.

OFAC this week sanctioned three individuals—a Mexico-based drug trafficker and his two associates—for procuring precursor chemicals to manufacture and traffic fentanyl and other synthetic drugs to the United States. Jose Angel Rivera Zazueta has been working with US-designated Shanghai Fast-Fine Chemicals to procure various precursor chemicals, which are often fraudulently labeled. The network then produces fentanyl, ecstasy, ketamine, and other drugs for trafficking to the United States.

The Commerce Department this week blacklisted seven Iranian entities for alleged assistance to Russia’s military and defense industrial base. The seven that were added to the Entity List include already sanctioned entities: Design and Manufacturing of Aircraft Engines; Islamic Revolutionary Guard Corps Aerospace Force; Islamic Revolutionary Guard Corps Research and Self-Sufficiency Jihad Organization; Oje Parvaz Mado Nafar Company; Paravar Pars Company; Qods Aviation Industry; and Shahed Aviation Industries.

The EU has pledged more sanctions against Russia before the one-year mark of Vladimir Putin’s invasion of Ukraine on February 24. Sanctions will include “an additional price cap on Russian petroleum products,” according to European Commission chief Ursula von der Leyen.

Russia obtained millions of NXP and Nexperia microchips produced by Dutch manufacturers for use in defense systems and equipment despite sanctions. A recent investigation revealed that the chips were handled by resellers and sold to three Russian defense sector companies using a group of Chinese companies. The revelations highlight the importance of research into sellers and resellers, which we flagged in an advisory last year.

China’s top nuclear-weapons research institute purchased sophisticated US computer chips at least a dozen times since 2020, circumventing US export restrictions. The state-run China Academy of Engineering Physics obtained the semiconductors made by US companies such as Intel and Nvidia despite being included on the Entity List since 1997.

Iran and Russia have linked their banking systems to help conduct financial transactions, given that many of the banks involved have been ejected from SWIFT. About 700 Russian and 106 non-Russian banks from 13 different countries could be connected to this communication and transfer system.

The United States, Japan, and the Netherlands have agreed to restrict exports of silicon chips and chip-making technology to China. The agreement would extend export limits the United States implemented in October to businesses headquartered in Japan and the Netherlands, including ASML Holding, Nikon Corp., and Tokyo Electron.

EU-sanctioned Belarussian oligarch Aliaksandr Shakutsin continues to run a profitable business in Germany despite sanctions. SV Maschinen supplies agricultural machinery to Eastern Europe. The ownership structure of SV Maschinen changed in September 2020 shortly before sanctions were imposed on Shakutsin. The restructuring left Lithuanian company EM System as 70 percent owner of the firm, which is linked to a sanctioned Lithuanian firm, Amkodor Holding, which has been operating at a loss—and at the expense of Belarussian taxpayers’ money—for several years. Amkodor’s operations are supported personally by Lukashenko, who approves the company’s requests for loans.

House Republicans have sent a letter to the White House, urging President Biden to consider Global Magnitsky (GLOMAG) sanctions against the Turkish officials behind a $500,000 bounty for information leading to the capture of basketball star Enes Kanter Freedom, who has been speaking out against President Erdoğan’s regime and its human rights abuses. Kanter Freedom is also a US citizen, so a NATO ally putting him on a capture list for merely speaking out is a bad look.

Russia is getting help from its neighbors to obtain goods, evading sanctions. Smartphone shipments to Armenia have increased significantly, and at the same time, Armenia has also increased smartphone shipments to Russia. Same goes for washing machines, computer chips, and other goods. As we have previously highlighted, US companies must closely examine the end users of their products to ensure that their goods and technologies are not ending up in prohibited hands.

The Biden administration has stopped providing US companies with licenses to export to Huawei as it moves toward a possible total ban on the sale of US technology to the Chinese firm. The Commerce Department has notified some US companies that it would no longer grant the export licenses.

Russia and Iran are flying false flags from countries such as Panama, Liberia, and the Marshall Islands—countries that are economically weak and that allow malign states to register their vessels for a low fee. The lower fee comes with less service, but also less scrutiny, and Russia and others have begun switching their registrations or even sailing under these countries’ flags without informing them.

Senate Republicans are hoping to end the Biden administration’s ability to waive sanctions on Iran and permit a Russian energy company to make billions helping the Islamic Republic develop its nuclear program by making it impossible for the White House to renew these sanctions waivers. Although a previous version of the bill failed to pass during the last Congress, the latest version could attract bipartisan support due to a growing appetite on the Hill to penalize Russia for its use of Iran-made weapons in Ukraine.

A new publication analyzing the scope and characteristics of global trade-based money laundering (TBML) finds that this illicit activity poses complex problems for law enforcement while also undermining global development. “Trade-Based Money Laundering: A Global Challenge” analyzes the numerous challenges of TBML from a global policy perspective.

Iraq’s nomination to the Egmont Group of Financial Intelligence Units this week was accepted by the representatives of the Egmont Group sponsoring countries. Iraq’s AML/CFT Office will join the international organization that facilitates cooperation and intelligence sharing among  members’ financial intelligence units.

Fraud and Abuse

Courtesy of Pixabay

A wealthy Russian businessman with ties to the Kremlin this week went on trial, charged with participating in a scheme that generated tens of millions of dollars in illegal trading profits using corporate information stolen through hacking. Prosecutors say Vladislav Klyushin’s company, M-13, not only worked for the Kremlin but also employed a former Russian military intelligence officer wanted by the US government for his alleged involvement in hacking interference in the 2016 presidential election.

Spanish police this week arrested the CEO, sales executive, and marketing director of cryptocurrency exchange Bitzlato, whose owner has been arrested and charged with illicit financial activities, for their alleged involvement in money laundering. Simultaneous raids also took place in the United States, Cyprus, France, and Portugal.

The fraud allegations against the Adani group have caused political discontent in India. Morning sessions in both chambers of India’s parliament on Friday were adjourned amid opposition demands of an investigation into allegations against the firm. So far roughly $108 billion has been wiped out from Adani’s market value. Founder, Gautam Adani is perceived as being close to Prime Minister Modi and has long faced allegations from opposition politicians that he has benefited from his political ties.

Canada’s FINTRAC this week published an alert about laundering the proceeds of the illegal wildlife trade to help businesses subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act better identify and report financial transactions related to the illegal wildlife trade. The alert was developed in support of Project Anton, a new international public-private partnership developed to improve awareness and understanding of the global threat posed by illegal wildlife trade and targeting the laundering of its proceeds.

Canadian national Ka Yeung Marvin Chan this week was sentenced to 14 months in prison for his role in a conspiracy to smuggle reptiles from the United States to Asia. Chan and his partner bought ball pythons, blood pythons, common tegus, Argentine tegus, and iguanas, which are protected under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) and worked with another conspirator to smuggle the reptiles out of the country using fraudulent export paperwork and a CITES permit belonging to the third participant in the scheme.

Two people with more than 80 bank accounts have been arrested and charged in Melbourne, Australia, for participating in an alleged $25 million money laundering syndicate. One individual acted as a drug mule for a Malaysian criminal organization and helped collect more than $10 million before depositing it into various bank accounts. A woman is also accused of funneling cash into cryptocurrencies over a three-month period.

A court has approved Deutsche Bank’s $26.3 million settlement of a lawsuit that accused the bank of misleading investors about its client vetting, including of Russian oligarchs and Jeffrey Epstein. The approval resolves a class action suit filed in 2020 over the bank’s AML and KYC processes. 

Randall Crater, the founder of the My Big Coin cryptocurrency and payment service, this week was sentenced to more than eight years in prison for marketing and selling a fraudulent virtual currency and operating an unlicensed virtual currency exchange. Founded in 2013, My Big Coin claimed to offer virtual payment services through a fraudulent digital currency, which Crater misrepresented to investors between 2014 and 2017.

Silvergate Bank is under investigation by the Justice Department for its dealings with cryptocurrency exchanges FTX and Alameda Research. The ongoing investigation is part of a larger investigation into money laundering activities conducted through virtual currency exchanges.

“Pig-butchering” is a form of crypto theft that involves similar tactics to the classic romance scam, but involve criminal syndicates slowly developing a relationship with the victim (fattening them), before disappearing with their money. Organized crime groups are using UK shell companies to carry out the fraud. Analysis has identified 168 companies in the UK accused of running fraudulent cryptocurrency or foreign exchange trading schemes, with roughly half likely to be linked to pig-butchering scams.


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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