Insights: Week Of February 20, 2023

On the one-year anniversary of Russia’s invasion of Ukraine, the international community is working to impose additional harsh sanctions on Moscow, working to stem Russia’s ability to procure weapons and technologies and fund its continued aggression. OFAC this morning sanctioned 252 individuals, vessels, and entities in coordination with G7 partners. This list also includes entities helping Russia’s evasion efforts, as well as additional financial sector entities, including Credit Bank of Moscow, Lanta Bank, MTS Bank, Metallurgical Investment Bank, and others. Treasury has also announced a new determination targeting the Russian metals and mining sector under Executive Order (EO) 14024, meaning that persons operating in that sector are subject to US sanctions.

The Financial Action Task Force (FATF) this week suspended Russia’s membership in the organization, which almost certainly will result in increased Russian illicit financial activity. With more than 200 new OFAC designations and more than 80 additions to the Commerce Department’s Bureau of Industry and Security (BIS) Entity List, compliance departments will be pressed to ensure US firms and financial institutions are not transacting with the sharply rising number of sanctioned or restricted entities or those helping Russia evade sanctions. Monitoring of the rapidly changing regulatory environment is key, as is a comprehensive understanding of what sanctions and restrictions apply to what entities and individuals.

  • In prepared remarks this week, Treasury Deputy Secretary Wally Adeyemo laid out the Biden administration’s continued strategy to erode Russia’s ability to wage war. The approach will focus on continued collaboration with allies and partners, use of additional sanctions and export controls, and improved information sharing. At the same time, the United States will continue to identify and disrupt specific channels that allow Russia to fund and equip its military with sanctions and export controls. And finally, the United States will engage directly with companies and jurisdictions helping Russia wage war, warning them of the consequences.
  • The Commerce Department’s Bureau of Industry and Security (BIS) today issued two separate final rules, including more than 80 companies in Russia, China, Canada, Luxembourg, and others on the Entity List on national security grounds and for acting contrary to the foreign policy interests of the United States. The listings prohibit the targeted companies from purchasing items that are either made in the United States or include US technology or software. Commerce will also take action alongside G7 partners and allies to align measures on industrial machinery, luxury goods, and other items, as well as issue new restrictions to prevent components found in Iranian drones from making their way onto the battlefield in Ukraine, according to the White House.
  • The UK today imposed sanctions against Russia, designating 80 individuals—including high-level officials from Russia’s state-owned nuclear giant Rosatom, military officials, Nord Stream CEO Mattias Warnig, and five senior Iranian executives in Qods Aviation Industry, the company that manufactures unmanned aerial systems (UAS) used in Ukraine. The UK also sanctioned 12 entities, including four banks, further cutting Russia off from the global financial system. The UK also banned the export of every item that has been found to be used by the Russians on the battlefield in Ukraine.
  • Japan is preparing a new package of sanctions against Russia in coordination with G7 partners. Japan will also press third parties to suspend military support to Russia.

FiveBy’s expert, certified analysts can help you make sense of the new flood of designations and new export restrictions, providing insights into risky entities and informing your company’s policies. IntelSentry will help monitor developments by providing insightful, in-depth reports and assessments not just about current sanctions, AML, and trade compliance regulations, but possible developments on the horizon.

Click below for a free consultation and demo, and don’t forget to download our free white paper which discusses the challenges US firms and financial institutions are facing with increased regulator focus on enforcement of existing regulations.

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Compliance and Due Diligence

The EU is still negotiating its tenth sanctions package, and negotiations seems to have stalled. Poland objected that the proposed restrictions on imports of synthetic rubber from Russia were not strong enough. In an effort to appease other countries that rely on those imports, the Commission suggested setting a quota limit at 560,000 metric tons, but trade data indicates that synthetic rubber imports from Russia have not exceeded that quota in the last decade anyway, making these restrictions meaningless. Russian diamonds still will not be sanctioned, and Poland’s request to make designating family members and close allies of Russian oligarchs simpler is also excluded.

In addition to suspending Russia’s membership, FATF this week also added South Africa and Nigeria to its grey list of countries requiring extra monitoring for shortcomings in their AML/CFT regimes.

US Treasury this week sanctioned six Mexican nationals—members of the Sinaloa cartel—and six entities linked to them under the illicit drugs EO 14059. This network of individuals and entities, led by brothers Ludim and Luis Alfonso Zamudio Lerma, is responsible for diverting illicit precursor chemicals to the cartel, enabling the production of fentanyl and other illicit drugs.

EU countries are investigating a surge in exports to countries in Russia’s geographic vicinity in an effort to stem sanctions evasion. Germany plans to crack down on companies that help Russia evade sanctions, including threatening criminal prosecution for false export declarations. The German economy ministry says companies will have to provide transparent “end-use statements” as part of their export declarations, guaranteeing their goods will not be sent to Russia. With regulators increasingly focused on enforcement, insights into end-users and supply chains are ever more critical.

EU ambassadors this week extended sanctions on individuals linked to Russia’s war for six months after Hungary decided not to demand the removal of four Russian individuals from the EU’s sanctions list. Hungary almost certainly demanded the six-month extension, rather than the proposed 12 months, to give itself more opportunities to sabotage future renewals.

The G7 nations are creating a new tool to coordinate enforcement of existing sanctions on Russia, in an effort to improve compliance. The “Enforcement Coordination Mechanism,” will improve information sharing, including about countries and firms suspected of aiding Russia’s war in Ukraine by facilitating sanctions evasion or helping Russia access prohibited tools and technologies.

Ukrainian President Zelensky has submitted a resolution to the Ukrainian Rada, endorsing the National Security and Defense Council’s decision to impose sanctions on Russian financial institutions, including the Russian central bank, insurers, nonbank credit institutions, payment system operators, stock market participants, insurance companies, investment funds, and any entities working in the Russian financial sector. These sectoral sanctions will be effective for 50 years.

Congressman Mike Gallagher has written a letter to Treasury Secretary Janet Yellen, demanding that companies involved in China’s spying program be included on OFAC’s non-SDN Chinese Military Industrial Complex List (NS-CMIC). Gallagher also wants OFAC to “order all entities on the NS-CMIC List to be subject to full blocking sanctions.”

Former OFAC official Brian O’Toole and Ambassador Dan Fried are evaluating the impact of 2022 sanctions on Russia. They argue that sanctions have hurt Russia’s economy and degraded Russia’s military capabilities. Sanctions are not the only tool in the toolbox, and they are a long game. This year is about plugging the holes and ensuring compliance.

Moldova is calling on the EU to sanction a fugitive oligarch accused of helping Russia set the stage for a coup. Ilan Shor is already sanctioned by the United States and the UK, but Moldova’s foreign minister says he has been spreading social unrest with backing from Moscow in an effort to topple the government in Chisinau. Shor fled Moldova in 2019 after being convicted of money laundering and embezzlement in a bank fraud that saw $1 billion stolen from the country. Moldova is seeking Shor’s extradition from Israel.

Poland and the Baltic countries want to make sanctioning family members and allies of Russian oligarchs easier by expanding the definition of “leading businesspersons operating in Russia.” Hungary opposes this move.

Fraud and Abuse

Courtesy of Pixabay

The Justice Department today unsealed an indictment charging Russian national, Ilya Balakaev, with smuggling devices commonly used in counterintelligence operations to Russia and North Korea. Balakaev’s company, Radiotester LLC, entered into multiple contracts with the Russian FSB to repair spectrum analyzers and signal generators that are frequently used to sweep for surveillance bugs and transmit covert communications.  Because the devices were not readily available in Russia, the defendant created a network of individuals in the United States to purchase the equipment he used to repair the FSB devices in violation of US sanctions.

Wagner chief Evgeny Prigozhin in 2021 submitted a utility bill in his mother’s name as identification requested by London-based law firm Discreet Law for an AML check. Prigozhin is sanctioned by the United States, UK, and EU and is on the FBI’s most wanted list, but the firm accepted a copy of his passport and a gas bill in the name of his then 81-year-old mother, Violetta, for an address in St Petersburg as sufficient identification before accepting him as a client and proceeded to sue Bellingcat journalist Eliot Higgins on Prigozhin’s behalf. Attorneys are considered gatekeepers who allow sanctioned individuals and other illicit actors to gain access to global financial and legal systems.

Theresa Anne Chabot this week was sentenced to 57 months in prison for laundering money collected from various overseas wire fraud schemes through her company, Avalanche Creek LLC. Authorities estimate the fraud losses from schemes that targeted elderly, lonely victims and investors interested in funding natural resources, were about $5.4 million. The Secret Service in 2019 warned Chabot that she was acting as a “money mule,” and banks closed several of her accounts over concerns about fraud. Chabot, however, continued to open more than 50 bank accounts to deposit the funds before transferring them out of the country.

A federal grand jury this week indicted four founders of decentralized finance (DeFi) cryptocurrency investment platform, Forsage, for their roles in a global Ponzi and pyramid scheme that raised approximately $340 million from victim-investors. Vladimir Okhotnikov (aka Lado), Olena Oblamska (aka Lola Ferrari), Mikhail Sergeev (aka Mike Mooney, aka Gleb, aka Gleb Million), and Sergey Maslakov—all Russian nationals—allegedly coded and deployed smart contracts that automatically diverted investors’ funds to earlier Forsage investors as soon as a victim invested money.

UK citizen Christopher Emms has been arrested for illegally providing cryptocurrency and blockchain services to North Korea. Emms, who is wanted by the FBI for helping North Korea evade sanctions using cryptocurrencies, was arrested in Moscow by the Russian bureau of INTERPOL. After Saudi Arabia last year rejected the US government’s extradition request for Emms, he moved to Russia, where he was offered residency.

A South Florida art dealer this week pleaded guilty in federal court to a scheme involving the sale of fake works of art. Daniel Elie Bouaziz pleaded guilty to a single count of money laundering in exchange for 16 other counts related to fraud and embezzlement being dropped. Prosecutors said Bouaziz, the owner of Danieli Fine Art and Galerie Danieli in Palm Beach County, sold counterfeit artwork to a customer in October 2021 including pieces he claimed were authentic Andy Warhol originals.

A human rights group in Congo-Brazzaville in a report this week accused the central African nation’s government of hundreds of abuses, including torture and electoral fraud. The Development Actions Centre said it had documented 572 rights violations last year, including torture and prisoner abuse in which security officers beat suspects with hammers. The group also says that parliamentary elections held in July were marked by “massive fraud.”

Six Nigerian nationals—three residing in the UK and three residing in Spain—have been charged with operating a large transnational inheritance fraud scheme. The suspects, for more than five years, allegedly sent personalized letters to elderly consumers in the United States falsely claiming that the sender was a representative of a bank in Spain and that the recipient was entitled to receive a multimillion-dollar inheritance. Victims were told they needed send money for delivery fees, taxes, and payments to avoid questioning from government authorities before they received their inheritance. The suspects used a complex web of US-based former victims, whom the defendants convinced to serve as money mules.

Genaro García Luna this week was convicted in New York of taking millions of dollars in bribes from the violent drug cartels he was meant to be pursuing in Mexico. García Luna apparently was on the payroll of the Sinaloa cartel nearly the entire time he ran the equivalent of Mexico’s FBI and subsequently when he served as the country’s public security secretary. García Luna continued relationships with some US intelligence and law-enforcement officers he met in office after he left Mexico in 2012 and moved to Miami, where he opened a private security firm that specialized in Mexican issues that relied on his continued relationships with corrupt officials in Mexico.

An international businessman this week was extradited to the United States from Peru, charged with money laundering and drug distribution. Jianxing Chen since at least 2016 allegedly led a network of couriers who funneled the proceeds of drug sales across the United States to locations in New York City, where the money was laundered and sent to cartels in Latin America.


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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