Insights: Week Of February 13, 2023

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As the first anniversary of Russia’s invasion of Ukraine approaches, additional sanctions are on the horizon, and enforcement against individuals and companies helping Russia evade sanctions and export restrictions will almost certainly become more rigorous. According to US Undersecretary of State for Political Affairs, Toria Nuland, upcoming G-7 sanctions “will expand and deepen previously imposed restrictions in certain categories, related, in particular, to limiting the flow of technologies and equipment for the Russian defense industry, etc.” There will also be restrictions against countries that help Russia evade sanctions, and not just China, Iran, and North Korea.

The Justice and Commerce Departments this week launched the Disruptive Technology Strike Force to target illicit actors, strengthen supply chains, and protect critical technologies from being acquired or used by nation-state adversaries, such as China, Iran, North Korea, and Russia. Among other goals, the task force will focus on investigating and prosecuting criminal violations of export controls.

  • The media this week reported that the tenth tranche of EU sanctions against Russia will be worth more than €11 billion in lost trade. Rosatom and Alrosa will still not be included on the sanctions list, but imports of Russian rubber and asphalt will be banned, and RT’s Arabic service will be blocked from EU territory. In addition, exports of  electronic circuits and components, thermal cameras, radios, and heavy vehicles will be prohibited. The latest package also may force banks to report information on Russian Central Bank assets, as well as strengthen reporting obligations on assets of sanctioned Russian companies and oligarchs.
  • The EU is discussing whether to sanction Dubai-based shipping company, SUN Ship Management Ltd, which is suspected of helping Russia circumvent restrictions on its oil exports. The company probably took ownership of a fleet of Russian oil tankers that were no longer allowed to ship oil because of sanctions on Russian-owned entities in April 2022, which allowed the vessels to continue operating.
  • Banned hardware is still making its way into Russia, despite sanctions and despite US tech companies leaving the country. The hardware is being supplied by a network of third-party vendors in Turkey and China.
  • The European Bank of Reconstruction and Development believes that significant increases in trade flows with Russia’s neighbors involve sanctions evasion. Armenia’s trade with Russia has doubled since the war began, Kyrgyzstan’s trade tripled, and trade with Turkey has also increased.

As Russia’s war in Ukraine continues, even unintentional violations of sanctions and export restrictions could harm US firms’ reputations and bottom lines. Monitoring developments in countries such as Armenia, Kazakhstan, Kyrgyzstan, Turkey, and the UAE, where companies are possibly helping Russia evade sanctions and acquire restricted technologies, is critical. Keeping track of the Bureau of Industry and Security (BIS) Entity List to avoid violating export controls is vital.  Avoiding transactions with entities and individuals who may be linked to sanctioned Russian entities, oligarchs, and elites can help mitigate reputational risk, even if those transactions are technically legal.

FiveBy IntelSentry can help you mitigate the regulatory risks that accompany increased sanctions and export-control restrictions and efforts to enforce existing regulations. FiveBy’s expert, certified analysts can help determine whether customers and potential business partners present a sanctions, money laundering, politically exposed person (PEP), jurisdictional, or reputational risk, performing analysis in more than 15 foreign languages and using foreign databases and other tools to provide insights and inform business policies.

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Compliance and Due Diligence

The Commerce Department last week added six Chinese entities that are involved in the manufacture of military reconnaissance balloons for China to the BIS Entity List. The list was published in the federal register this week. The entities are: Beijing Nanjiang Aerospace Technology Co., Ltd.; China Electronics Technology Group Corporation 48th Research Institute; Dongguan Lingkong Remote Sensing Technology Co., Ltd.; Eagles Men Aviation Science and Technology Group Co., Ltd. (EMAST); Guangzhou Tian-Hai-Xiang Aviation Technology Co., Ltd.; and Shanxi Eagles Men Aviation Science and Technology Group Co., Ltd.

China this week sanctioned Lockheed Martin and a subsidiary of Raytheon over arms sales to Taiwan in retaliation for the Biden administration’s handling of their spy balloon. Both companies have been added to China’s “unreliable entity” list and are barred from importing, exporting, and investing in China.

Politicians and human rights groups in Europe are calling for sanctions to be imposed on US-designated Chinese official Erkin Tuniyaz, the governor of China’s Xinjiang region, who is implicated in the mass incarceration of Uyghurs there. Tuniyaz was supposed to have visited London this week but canceled the trip after MPs urged the government to prevent him from entering the UK. The Foreign Office says that Tuniyaz was not invited and was not guaranteed an audience with a minister.

Iran is using boats and a state-owned airline to smuggle new types of advanced long-range armed drones to Russia. The higher-flying drones going to Russia for use in its war in Ukraine are designed to deliver bombs and return to base intact. Most of the drones were secretly picked up by an Iranian vessel from a base on the coast of the Caspian Sea and transferred to a Russian navy boat at sea, while others were sent on a state-owned Iranian airline.

Russia is demanding that sanctions on its agricultural exports be removed before the Black Sea grain deal is renewed. The Black Sea Grain Initiative, signed by Russia and Ukraine last July, created a safe corridor to allow the grain to be exported from Ukrainian ports blockaded by the war.

The EU is adding Russia to its blacklist of noncooperative jurisdictions because it concluded Moscow failed to address harmful practices on intellectual property and tax issues before talks halted following the invasion of Ukraine. The bloc this week also added the British Virgin Islands, Costa Rica, and the Marshall Islands to the list. Qatar was granted additional time to implement tax reforms, but will be blacklisted if the government fails to deliver on its commitments.

New York regulators have directed crypto company, Paxos Trust, which issues and lists Binance’s dollar-pegged cryptocurrency, BUSD, to stop creating more of the token. BUSD, also known as Binance USD, is a stablecoin backed by US dollars on a one-to-one basis, which Binance and Paxos partnered to launch it in 2019.

North Korean Lazarus group is using Sinbad—probably a successor to Blender, which was sanctioned by OFAC last year—to launder stolen cryptocurrencies. Tens of millions of dollars have passed through Sinbad since it was launched in October, and according to crypto firm Elliptic, Blender and Sinbad have technical similarities.

Massachusetts Senator Elizabeth Warren is reintroducing legislation to regulate the crypto space. Warren is citing issues such as national security, consumer protections, sanctions evasion, and environmental impact in her efforts to pass the Digital Asset Anti-Money Laundering Act. However, other points of view provide reasons why lawmakers should not support the controversial legislation.

Russian sympathizers abroad have turned to cryptocurrencies as the only working method to donate funds to the Russian military. Coindesk assesses that a significant part of the $1.8 million in crypto donated to supply the Russian army in Ukraine went through centralized exchanges, including Russian Garantex and Bitzlato, which are both suspected of processing large amounts of illicit funds. In some cases, after engagements with law enforcement, centralized exchanges have frozen crypto donations to the Russian military, but often blockchain transactions are too fast for law enforcement to track, and anti-money laundering controls can be evaded.

Oleg Deripaska is challenging last year’s decision by Strabag SE co-owner Hans Peter Haselsteiner to remove Deripaska’s delegate from the supervisory board. The oligarch’s holding company, Rasperia Trading Ltd., was blocked from using its voting rights, so Deripaska is suing in a case that will clarify whether EU sanctions only apply to asset and dividend freezes, or whether they also limit additional rights, such as nominating board members.

The EU general court this week ruled that the EU had every right to sanction Belarus’s space regulator, Belaeronavigatsia, after the country’s president Lukashenko diverted a Ryanair passenger plane in 2021 to arrest a young blogger, Roman Protasevich and his girlfriend. The court said the state-owned regulator could not reasonably have been unaware that its role in the diversion of flight FR4978 to Minsk contributed to the “repression of civil society and democratic opposition in Belarus.” Belaeronavigatsia can still appeal to a higher court.

The Swiss government will not confiscate private Russian assets in the country to help rebuild Ukraine, assessing that this would violate Swiss law. Bern, however, says that it is engaged in other international discussions, including on the potential confiscation of Russia’s Central Bank currency reserves and other state assets.

Fraud and Abuse

The Securities and Exchange Commission (SEC) has charged crypto developer Do Kwon and his company Terraform Labs with defrauding investors in a multibillion dollar scheme. Kwon founded blockchain platform Terraform Labs and raised billions of dollars from investors beginning in April 2018 by selling a series of interconnected digital assets, many of which were unregistered securities. Both TerraUSD—an algorithmic stablecoin, which derived its value through another paired token called Luna—lost nearly all their value last year. The SEC claims investors were misled about the stability of the Terra coin.

The CEO of crypto trading platform EminiFX, Eddy Alexandre, has pleaded guilty to commodities fraud in a New York district court, agreeing to pay back millions to investors who lost funds to his “cryptocurrency investment scam.” Alexandre will pay more than $248 million in forfeiture after admitting to luring investors by fabricating weekly returns of at least 5 percent. He failed to invest a substantial portion of his victims’ money and even used some funds for personal purchases.

A TikTokker has some useful lessons to help avoid fraud. Someone calling and claiming to be from a bank at night? The caller asking the target what kind of phone they use? These are almost certainly red flags. Scammers can get pretty sophisticated, especially when so much information on potential victims is available on the Internet.

An article by Transparency International shows that corruption contributed to the earthquake death toll in Turkey. The construction industry in Turkey flourished with major government concessions given to construct roads, airports, bridges, hospitals, and other infrastructure. However, the roads and airports in the earthquake areas, some of which were built recklessly on top of a fault, collapsed along with critical public buildings like hospitals due, in part, to a lack of audits, conflicts of interest between construction and auditing firms, bribery, and other forms of corruption.

ASML Holding says that a former employee in China stole data about its technology. The Dutch technology company, which makes machines needed to produce high-end chips, initiated an internal investigation and tightened security controls after recently discovering the data breach. ASML says that export controls may have been violated, exposing the company to a potential regulatory backlash. The revelation comes just as the Netherlands and Japan agreed to restrict exports of some advanced chipmaking machinery to China.

Russian publishers have lost access to foreign books because of companies pulling out of the country after its invasion of Ukraine, so they’re planning to sell books by “retelling” western bestsellers. Russia’s largest publisher, Eksmo-AST, this week released 3,000 copies of Prince Harry’s memoir “Spare” as a “summary, which involves the retelling of its main theses.” This move almost certainly allows Russian publishers to also censor the text to favor messaging by the Kremlin.

Google assesses that Russian state-sponsored hackers have inundated Ukrainian targets with “near-constant digital attacks” in the year since the invasion. Google’s Threat Analysis Group (TAG) says that Russian government-backed attackers last year increased their hacking attempts on Ukrainian users by 250 percent compared with 2020, targeting the ministries of Defense, Foreign Affairs, and others. Russian hackers have also increased their targeting of NATO—especially Poland, Germany, and the Baltic states—efforts that will almost certainly continue increasing this year.

Undercover reporters have recorded a group of covert cyber influence specialists as they pitched their services, which involve using hacking, forging blackmail material, spreading disinformation, planting false intelligence, physically disrupting elections, and deploying targeted social media campaigns. The group, which calls itself “Team Jorge,” claims to have worked on dozens of presidential elections around the world and charges millions of dollars in fees. In efforts to identify the leader of the group, reporters eventually discovered that his real name is Tal Hanan, a self-described “counterterrorism expert,” who has been cited in the media as a cybersecurity specialist.

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 have any questions or suggestions.

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