Insights: Week Of February 27, 2023

FiveBy Director of Risk Intelligence, Irene Kenyon, this week appeared on the New Paradigms webcast to discuss sanctions against Russia a year after the invasion of Ukraine.

How has the regulatory environment changed?

Have sanctions against Russia been effective?

How are the complexities associated with today’s volatile global sanctions environment making compliance work more challenging?

Compliance work is  becoming more complex as US and European regulators continue to focus on enforcement of existing sanctions and export controls, issuing guidance, and stepping up prosecutions of violators.

The Justice and Commerce Departments, along with OFAC, this week issued a joint compliance note on Russia-related sanctions evasion and export control violations. The note provides guidance and red flags that may indicate a third-party intermediary may be helping Russia and other malign actors evade sanctions and export controls. It also advises that Bureau of Industry and Security (BIS) and OFAC enforcement and targeting actions should be carefully reviewed, as they often reflect certain tactics and methods used by intermediaries facilitating sanctions evasion and will help US firms detect illicit activity in their own systems.

The Biden administration is hiring 25 new prosecutors to investigate violations of sanctions and export controls. The hiring spree is part of a broader ongoing effort to ensure that companies and other third parties are not helping Russia evade US sanctions.

The EU is also increasing pressure on third countries and companies that help Russia evade sanctions. The newly-appointed EU Special Envoy on Sanctions Implementation says that now that the tenth package of sanctions has been passed, the European Commission plans to shift focus to ensuring compliance with existing restrictions.

In today’s complex regulatory environment, FiveBy’s expert, certified analysts can help research and investigate possible attempted sanctions violations, recognize and identify sanctions evasion, export control violations, and money-laundering red flags, and help companies comply with US laws and reduce their risk exposure.

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Compliance and Due Diligence

OFAC today sanctioned six Russian individuals—three under the Global Magnitsky Act, and three under Executive Order (EO) 14024 for being involved in human rights abuses against Vladimir Kara-Murza. Human Rights First has been pushing the Biden administration to sanction those involved with Kara-Murza’s arrest. He’s been in jail for nearly a year for speaking out against Russian aggression in Ukraine. Senators Risch and Menendez in September wrote a letter to President Biden asking him to determine whether Kara-Murza’s arbitrary detention constitutes a gross violation of human rights and whether sanctions should be imposed on those responsible.

The Biden administration this week added 38 companies—most based in China—to the BIS Entity List. They include firms that support Beijing’s military modernization or produce technology that risks being diverted for military purposes, such as Russia’s war in Ukraine.

Secretary of State Antony Blinken this week announced new US sanctions in coordination with OFAC against Iran, targeting the country’s petroleum and petrochemical trade. OFAC sanctions include the Bushehr Petrochemical Co. and certain vessels. The newly sanctioned entities also include shipping companies: 1) China-based Global Marine Ship Mgmt. Co. Ltd., 2) Shanghai Xuanrun Shpg. Co. Ltd., 3) UAE-based Swedish Management Co. SA., 4) Iranian Shiraz Petrochemical Company, 5) Vietnam-based Golden Lotus Oil Gas and Real Estate Joint Stock Company, which “have engaged in the transport or sale of Iranian petroleum products.”

OFAC this week sanctioned a timeshare fraud network linked to Mexico’s Cartel de Jalisco Nueva Generacion (CJNG). The press release details the typology normally used in timeshare fraud to help companies and individuals identify the risks. The action was taken in coordination with the Mexican government.

Senators Elizabeth Warren, Chris Van Hollen, and Roger Marshall are demanding that Binance “provide transparency about potentially illegal business practices,” adding that the exchange and its related entities “have purposefully evaded regulators, moved assets to criminals and sanctions evaders, and hidden basic financial information from its customers and the public. The letter was sent to Binance in the aftermath of several damning Reuters investigations into money laundering and other illicit financial activity on the platform.

Brazil has allowed two sanctioned Iranian ships to dock, and Iran is sending military assets to Latin America to reinforce relationships with anti-US governments, particularly in Venezuela. Senator Ted Cruz is urging the White House to impose sanctions on Brazil and wants the Biden administration to reevaluate Brazil’s cooperation with the United States on counterterrorism efforts.

The United States is discussing possible sanctions against China with allies to coordinate support should China send lethal aid to Russia. The G7 allies have warned China against sending weapons to Russia to use in its war against Ukraine. China has denied allegations that it planned to do so.

OFAC this week imposed sanctions on three entities and two individuals who generate revenue and resources for North Korea’s regime. DPRK firms—Chilsong Trading Corporation and Korea Paekho Trading Corporation—and Democratic Republic of the Congo-based construction firm, Congo Aconde SARL, established by two North Korean individuals to support the regime, have all been included on the SDN list.

Officials from the United States, UK, and EU are pressing the UAE to halt exports of critical components and technologies to Russia. Exports of electronic parts from the Emirates to Russia increased by more than sevenfold last year. The UAE exported 15 times more microchips to Russia in 2022 than during the previous year. The Gulf country also exported 158 drones to Russia last year.

A bipartisan group in Congress wants the Biden administration to sanction Iran’s parliament in response to the regime’s crackdown on protesters. The group of 26 representatives notes that in March 2022, the Biden administration sanctioned members of the Russian Duma (parliament) and said the same pressure should be applied to Iran.

Legislation authorizing the Biden Administration to ban TikTok in the United States has advanced through a key House committee, despite opposition from Democrats. Ranking Democrat Gregory Meeks opposed the bill, saying it needed further work and risks getting ahead of a national security review that’s underway, indicating the bill may not pass the US Senate.

FATF this week noted in a report that criminals seek to exploit the art and antiquities market—which has a history of privacy and use of third-party intermediaries—to clean dirty funds, while terrorist groups can use cultural objects in their regions to finance their operations. The report includes a list of risk indicators that can help compliance professionals identify suspicious activities.

Executives working for Gazprombank Switzerland, the financial arm of Russian gas exporter Gazprom, this month will be tried in Zurich. They are accused of failing to exercise due diligence in their dealings with Sergei Roldugin, a close associate of Russian President Putin, who has been helping Putin hide his assets.

The House Financial Services Committee this week advanced several China-related sanctions bills, moving them toward a likely floor vote. The bipartisan nature of these bills suggests they could pass the Senate and be signed into law this year. The proposed legislation includes:

  • H.R. 554, which would allow the Treasury secretary to bar Chinese officials and their families from receiving services from US financial institutions
  • H.R. 510, which would pressure the IMF to oppose an increase of the Chinese renminbi in Special Drawing Rights
  • H.R. 803, which directs US officials to exclude Chinese officials from meetings of the G20 and other bodies
  • H.R. 540, which directs US officials to support Taiwan membership in the IMF. This also was referred to the Foreign Affairs Committee
  • H.R. 1156, which requires Treasury to issue a report on the economic risks from the Chinese financial sector
  • H.R. 839, to pressure the IMF to advocate for more transparency from China on its exchange rate

OFAC this week sanctioned Mexican arms trafficker Jesus Cisneros Hernandez for supporting the CJNG. Cisneros Hernandez has conspired to purchase high-powered firearms in Wisconsin, smuggle the firearms to Mexico, and supply the firearms to CJNG. He was charged with 22 counts of various firearm-related violations in federal court in 2021.   

Danish insulation manufacturer Rockwool is under investigation for potential sanctions violations after a media report alleged the company’s products were used in Russian military equipment. The products are available in Russia through distributors, highlighting the critical need to monitor adverse media reports, examine sellers and resellers, and know end-users of your firm’s products.

The EU has extended until February 2024 sanctions on Belarus for its continued persecution of opposition voices and support for Russia’s war on Ukraine.

The Commerce Department and other government agencies during the last fiscal year approved nearly 70 percent of export license applications involving China. Although, license applications for China had  much longer average processing times—77 days—than other cases, the majority was eventually approved.

Some Venezuelan companies are using the Tether stablecoin (USDT) to evade sanctions and settle payments with foreign customers and providers. Local reports indicate that although the most popular use case for the stablecoin involves its purchase for devaluation-shielding purposes, a handful of companies are also using it as a payment method.

A report by blockchain analytics firms Inca Digital claims that some of the world’s largest digital exchanges have failed to prevent sanctioned Russian financial institutions from using their platforms. The report flags firms like Huobi and Kucoin that both allow transactions with Russian banks via their P2P platform, as well as Binance and Bybit.

FATF has removed Cambodia and Morocco from its money-laundering grey list because both countries have made improvements to their AML/CFT regimes. Cambodia was included on the grey list in 2019 largely because of a lack of AML controls in its casino industry. Separately, FATF says Qatar needs to improve its efforts against money laundering and counterproliferation and terrorism financing.

Switzerland’s finance minister wants Swiss lawyers, notaries, and other gatekeeper professions to be subject to due diligence obligations under the country’s AML law. Swiss lawmakers tightened AML regulations two years ago, but rejected new rules that would have required lawyers, notaries, and other consultants conduct customer due diligence, drawing criticism from anticorruption campaigners. Authorities in Switzerland are working on plans to create a central beneficial owner registry.

Fraud and Abuse

Courtesy of Pixabay

Two Kansas men this week were arrested for circumventing US export laws that included the illegal export of aviation-related technology to Russia after Russia’s invasion of Ukraine. Cyril Gregory Buyanovsky and Douglas Robertson owned and operated KanRus Trading Company, which supplied western electronic aviation parts to Russian companies and provided repair services for equipment used in Russian aircraft. They allegedly conspired to evade export laws by concealing and misstating the true end users, value, and end destinations of their exports and by shipping items through third-party countries.

Swedish telecom giant Ericsson has agreed to plead guilty and pay a $206 million fine for violating its deferred prosecution deal with US authorities. Ericsson in 2019 admitted to accusations of bribery and other wrongdoing in multiple countries and paid a record $1 billion fine under a deferred prosecution agreement with the Justice Department that required it to report any potential wrongdoing and submit to monitoring over a three-year period. Ericsson violated the terms of the deal twice since then, including last year when it admitted to not fully disclosing misconduct in Iraq.

A Romanian citizen suspected of masterminding a multi-million dollar coronavirus relief fraud this week was arrested and charged with stealing more than $5 million in California unemployment insurance benefits intended to help workers impacted by the Covid pandemic. Constantin Sandu, along with 214 Romanian co-conspirators, falsified documents, created fictitious accounts, and filed fraudulent claims with the California Economic Development Department.

The murder trial of Alex Murdaugh in South Carolina has also revealed 99 charges related to illicit finance, including fraud, attempted tax evasion, computer crimes, and money laundering. Murdaugh this week was convicted of murdering his wife and son and was sentenced to two consecutive life terms in prison.

FinCEN this week issued an alert about the surge in check fraud schemes targeting the US mail system, identifying red flags to help financial institutions track and stop mail check fraud. Criminals have been increasingly targeting the US Postal Service and its mail carriers to commit check fraud, stealing personal checks, business checks, tax refund checks, and government benefit checks.

Another Romanian citizen, Ion Viorel Ionitoiu, has been extradited to the United States from Spain on bank fraud and money laundering charges. Ionitoiu created an online vehicle sale scam that stole at least $5 million from victims. Members of the conspiracy pretended to represent car dealerships and advertised vehicles that they did not own and were not authorized to sell on fake websites with domain names that sounded like legitimate car dealerships or through online marketplaces like Craigslist and eBay. Victims wired payment to bank accounts in New York, and when they cleared, the account owners quickly withdrew the funds before the victims realized they had been defrauded.

Former FTX head of engineering, Nishad Singh, this week pleaded guilty to criminal charges, including conspiracy to commit securities fraud, conspiracy to commit money laundering, and conspiracy to violate campaign finance laws. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) this week filed related civil complaints against Singh for wire fraud and conspiracy to commit commodities fraud. Singh is cooperating with the SEC investigation, and he has separately agreed to settle with the CFTC.

Cryptocurrency companies are being targeted by a new remote access trojan called Parallax RAT. The malware is difficult to detect, grants attackers remote access to victim machines, and comes with features to upload and download files, as well as record keystrokes and screen captures.

India’s supreme court has set up an independent panel to investigate possible regulatory failures related to allegations against India’s Adani Group, after a report from a US short-seller accused the company of massive fraud. The panel will also suggest measures to improve the regulatory framework and secure compliance with it.

Glencore will pay almost $30 million in restitution to the founders of a healthcare services company in the Democratic Republic of the Congo (DRC) that was forced to shut down because of Glencore’s global bribery scheme. Glencore bribed a public official in the DRC in exchange for dismissing a lawsuit brought by Crusader Health against a Glencore subsidiary.

Songjiang police in China dismantled a large-scale fraud ring that developed an employment scam to convince thousands of victims to pay for required “courses” to qualify for high-salary jobs. The criminal group used fake business licenses to publish false high-salary recruitment information on a recruitment website, luring in victims and scamming people out of more than 2 million yuan. Members of the gang played different roles, including human resource personnel, tutors for the class, and interviewers, creating a full recruitment process.

Switzerland’s financial regulator has investigated 12 banks and launched enforcement proceedings against two of them in relation to corruption charges against longtime Lebanon central bank governor Riad Salameh. Lebanese authorities last week charged Salameh, his brother Raja, and one of his assistants with money laundering, embezzlement and illicit enrichment. Some of the funds allegedly embezzled by the Salamehs went into accounts at HCBC, UBS, Credit Suisse, Julius Baer, and others.

A joint effort between Israel’s National Bureau for Counter Terror Financing (NBCTF), the country’s defense ministry, and other authorities uncovered a gold smuggling operation between Iran and Venezuela that is funding Hizballah’s terrorist activities. Iranian businessman Badr Ad-Din Naimi Musawi managed a secret IRGC-QF operation, purchasing gold in Venezuela and using his business and political connections as cover to smuggle the gold from Venezuela to Iran and sell it at a profit to finance Hizballah.

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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