The United States has begun to aggressively pursue individuals and entities helping Russian elites evade sanctions. The Treasury and Justice Departments will focus on efforts to legally liquidate the property of Russian oligarchs, expanding penalties on those who facilitate their access to the US financial system, and closing loopholes in the law that allow sanctioned Russians and their family members to use shell companies to transact in US dollars. Task Force KleptoCapture will also increase efforts to liquidate yachts and other property owned by Russian oligarchs and the Kremlin, turning them into cash to benefit Ukraine.
The increased efforts come in the wake of reports that Russia was able to save about a third of the $227 billion it earned last year from its commodity exports that include assets such as real estate and investments in affiliates all over the world. These “shadow reserves” helped sustain the Kremlin’s finances since its attack on Ukraine last year.
FiveBy has been flagging increased enforcement efforts since last year, highlighting the challenges in identifying end-users of US-origin technologies, tracking supply chains, and untangling complex networks of shell and front companies that allow sanctioned Russians to continue circumventing restrictions. We also emphasized the importance of enhancing compliance to mitigate the risk of regulatory fines, criminal charges, and reputational damage.
Regulators continue to signal that their enforcement efforts will become more aggressive as they make evasion networks that undermine US foreign policy and sanctions regime a priority.
- Treasury Assistant Secretary for Terrorist Financing and Financial Crimes, Elizabeth Rosenberg, this week in prepared remarks on illicit finance in Australia flagged the daunting environment in the wake of Russia’s attack on Ukraine, stressing that companies can no longer treat compliance and financial crimes as an afterthought.
- Andrew Adams, who heads the KleptoCapture task force, this week confirmed that the group is prioritizing its efforts to identify those who help Russians evade sanctions and violate export controls, stating that “These illicit procurement networks will continue to take up an ever-increasing amount of our bandwidth.”
With the compliance environment becoming increasingly complex, FiveBy’s expert analysts, certified in global sanctions, anti-money laundering (AML), and other financial crimes, can help US firms and financial institutions mitigate their compliance risks with substantive assessments about potential business partners, clients, and end-users, identifying jurisdictional, sanctions, politically exposed person (PEP), AML, military or nuclear end-use, and other red flags.
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Compliance and Due Diligence
Chinese companies, including one connected to the government, sent Russia 1,000 assault rifles and other equipment that could be used for military purposes, including drone parts and body armor between June and December 2022. China North Industries Group Corporation Limited, which is included by OFAC on the non-SDN, Chinese Military Industrial Complex list, and is one of the country’s largest state-owned defense contractors, sent the rifles in June to Tekhkrim, a Russian company that produces ammunition, firearms, and body armor. China also sent drone parts to Russia.
Turkey has stopped exporting goods to Russia. Turkish customs officials abruptly stopped permitting the transit of sanctioned goods bound for Russia through Turkish ports on March 9, according to Russian logistics operators. Turkey has also stopped refueling and servicing Russian and Belarusian aircraft after receiving a letter from the Bureau of Industry and Security. In addition, planes flying the Turkish flag are prohibited from buying fuel from sanctioned Russian oil companies Gazprom and Lukoil.
Russian companies in recent weeks have flooded companies in Kazakhstan with new requests to help them circumvent western sanctions. Sources linked the increased Russian requests to the Turkish crackdown on the transit of sanctioned goods.
Senators Sheldon Whitehouse, Chuck Grassley, Ron Wyden, Marco Rubio, and Elizabeth Warren this week raised concerns to the Financial Crimes Enforcement Network (FinCEN) about its latest proposed rule implementing the Corporate Transparency Act. The senators say that the proposed rule “strays from congressional intent and erects unnecessary and costly barriers to accessing beneficial ownership information” that risk undermining its utility.
PBS reports that Haas Automation has sold machinery and components to Russian holding company Abamet, which is selling US technologies to Russian military entities. Abamet is not currently included on the SDN list or the Entity List, but it almost certainly will wind up restricted for supporting the Russian military. Haas Automation is denying allegations in the report, claiming it stopped its business with Russia in March 2022, although it admits that the components and machinery could have changed ownership without its knowledge, highlighting the importance of identifying the end-users of products and considering possible reputational damage should they wind up in restricted hands. This is not the first time Haas has been accused of providing machines or parts to problematic military customers. A press report citing research by the Special Advisory Council-Myanmar in January indicated that machines built by foreign companies—including Haas—were allegedly in use in Myanmar’s military factories .
The Biden administration is demanding that Chinese-owned TikTok be sold to a US company or face a ban in the United States. The new demand will almost certainly face a challenge from TikTok in US courts, and the sale would require authorization from China, which will be reticent to sell its first global social media success.
The EU will provide a clearer legal justification to designate family members of sanctioned Russian billionaires—an important shift after an EU court last week annulled sanctions imposed on Russian warlord Yevgeny Prigozhin’s mother. The change aims to ensure strong evidentiary support showing that some family members received unjustified benefits from sanctioned oligarchs, and could help circumvent sanctions.
Binance has banned Russians and those living in Russia from using dollars or euros on the platform’s P2P service, although those affected can still use other currencies. EU citizens are also prohibited from carrying out P2P transactions that use the Russian ruble. The P2P platform allows traders to transact directly with one another without using the exchange as an intermediary.
The Council of the European Union this week prolonged for six months sanctions targeting those responsible for undermining or threatening the territorial integrity, sovereignty, and independence of Ukraine. The restrictive measures are now valid until 15 September.
The United States this week sanctioned Osman Mehmedagic, the former director general of Bosnia and Herzegovina’s Intelligence Security Agency, and two other Bosnian individuals for threatening regional stability and institutional trust, as well as undermining democratic governance in Bosnia. Mehmedagic was designated for misusing a government-owned telecommunications company and collaborating with criminal networks. Dragan Stankovic, the director of the Serb Republic’s Administration for Geodetic and Property Affairs, was sanctioned for trying to pass unconstitutional legislation involving state property. Edin Gacanin is designated for alleged narcotics trafficking and money laundering.
Senator Roger Wicker has proposed sanctioning Russia’s Patriarch Kirill, asserting that he is not a “true theologian” because of his continued beating of the war drum in Ukraine. Vladimir Mikhailovich Gundyayev—Kirill’s real name—has been designated by the UK, but the EU and the United States have not taken the steps to do so, with Hungary objecting to the EU designation.
A leaked document obtained by a group of independent journalists details Russia’s plan to take over Moldova by 2030. The document, titled “Strategic goals of the Russian Federation in the Republic of Moldova” was created in 2021. The EU is discussing a possible new sanctions regime targeting individuals who seek to destabilize Moldova.
The Russian branch of Transparency International has found at least eight over-the-counter brokers in Moscow that exchange tens of thousands dollars in stablecoins, such as Tether, for cash that can then be exchanged in the UK for pounds sterling. These are all cash-based transactions without know-your-customer (KYC) paperwork, identity verification, or registration.
FATF this week provided guidance on countering ransomware. The organization’s report proposes a number of actions that countries can take to more effectively disrupt ransomware-related money laundering, including leveraging existing international cooperation mechanisms and developing the necessary skills and tools to quickly collect key information, tracing the nearly instantaneous financial transactions, and recovering virtual assets before they disappear.
Fraud and Abuse
The international law enforcement community this week shut down ChipMixer, a significant dark web “mixer” that helped criminals launder more than $700 million. ChipMixer comingled illicitly derived cryptocurrency with legal crypto, complicating law enforcement efforts to track the assets. In total, it processed $3 billion, nearly a billion of which has been traced to crimes, including ransomware incidents and darknet market drug sales.
Federal prosecutors are investigating Donald Trump’s social media company for possible money laundering involving Russian individuals and entities. Prosecutors are looking at two loans totaling $8 million wired through the Caribbean to Trump Media from two Kremlin-linked entities. The transactions were sent from Paxum Bank, which is registered in Dominica. The wire transfer identified Paxum Bank as the beneficial owner, although the promissory note identified an entity called ES Family Trust as the lender. An individual named Anton Postolnikov, who appears to be related to Putin ally Aleksandr Smirnov, is also part owner of Paxum. The trustee of ES Family Trust, Angel Pacheco, appears to have also been a director of Paxum Bank.
The FBI this week arrested Guo Wengui, an exiled Chinese billionaire with ties to former Trump official Steve Bannon, on fraud charges. Guo and Bannon have been under investigation in connection with GTV Media Group, which the Securities and Exchange Commission (SEC) previously accused of violating securities laws. The SEC also filed civil charges this week accusing Guo and his financial advisor of “multiple offering frauds” that targeted retail investors through online and social media posts and videos.
The Justice Department had been investigating Signature Bank’s work with crypto clients, probing whether the lender had a sufficient AML program before regulators seized it last weekend. The SEC was also examining the bank’s activities.
Signature Bank shareholders have filed a class action lawsuit against the bank and its former executives, accusing them of making misleading statements related to its financial health before it was seized last weekend. The plaintiffs purchased Signature Bank’s shares between March 2, 2023, and March 12, 2023.
A Silicon Valley Bank (SVB) shareholder has filed a securities fraud class-action lawsuit against the bank for failing to warn about its business model risks. Chandra Vanipenta argues that the shares he bought at SVB were sold at artificially inflated prices based on false statements by CEO Officer Greg Becker and CFO Daniel Beck.
Bitzlato founder Anatoly Legkodymov, accused of processing more than $700 million in illicit funds, including ransomware proceeds, this week was denied bail. US Magistrate Judge Vera M. Scanlon cited Legkodymov’s “access to cryptocurrency” and status as a Russian national as reasons for keeping him detained as a flight risk.
The UK’s NatWest has imposed a monthly limit of roughly $6000 on payments from customer accounts to cryptocurrency exchanges, in an effort to reduce their exposure to crypto fraud. The bank said men over 35 are most likely to make risky investments, with the cost-of-living crisis potentially fueling the problem. The news comes as the FBI in a recent report warned consumers of a spike in cryptocurrency investment scams, claiming fraudsters stole more than $2 billion from victims last year alone.
Qatar spied on a 2017 meeting between a former Swiss attorney general and FIFA president Gianni Infantino, concerned about being stripped of hosting last year’s World Cup. A Qatari intelligence operation apparently recorded the meeting in a luxury Bern hotel between Switzerland’s top prosecutor at the time, Michael Lauber, and Infantino. Qatar denies the allegation. Lauber lost his job after the discussion became public.
Seven individuals this week were indicted for conspiracy to commit mail and wire fraud and other crimes stemming from a scheme to defraud the IRS using stolen identities. Abraham Yusuff, Meghan Inyang, Christopher Eduardo, Christian Mathurin, Dillon Anozie, Babajide Ogunbanjo, and Aydin Mammadov used stolen identities of accountants and taxpayers to file at least 371 false tax returns claiming more than $111 million in refunds between 2018 and 2021.
A former Mexican state governor and presidential candidate this week was sentenced to nine years in prison for accepting more than $3.5 million in bribes and using it to purchase real estate in the United States through nominee buyers. Tomas Yarrington Ruvalcaba accepted bribes from individuals and private companies in Mexico to do business with the state of Tamaulipas while he served as governor. Yarrington is expected to be deported after serving his sentence.
Two individuals have been charged with conducting a hacking spree that included unlawfully using a police officer’s stolen password to access a restricted federal law enforcement database that contains (among other data) detailed, nonpublic records of narcotics and currency seizures, as well as law enforcement intelligence reports. Sagar Steven Singh and Nicholas Ceraolo also accessed the email account of a foreign law enforcement officer and used it to defraud social media companies by making purported emergency requests for information about the companies’ users. Krebs on Security last year flagged fake emergency data requests as a method criminals use to gain access to sensitive personal information.
Russian national Igor Nebyvaev, the executive secretary of the Council of Europe’s AML program (Moneyval), has family ties to Russia’s Foreign Intelligence Service, according to German press. His father is a general in Russian intelligence. Although Russia was ejected from the Council of Europe after its invasion of Ukraine, around 90 Russians still work for the Council of Europe.
The Federal Trade Commission (FTC) has ordered several social media and video streaming companies, including Meta, TikTok, Twitter, and others, to provide information on how they filter misleading ads. The FTC says that consumers lost more than $1.2 billion to fraud posted on social media platforms last year.