Insights: Week Of March 27, 2023

Transacting with China could become even riskier for US firms and financial institutions, as the US government signals a willingness to curtail investments and impose further sanctions and export restrictions on Chinese entities. Dr. David Asher, a proliferation expert who helped lead the State Department’s 2020 investigation into the origins of COVID-19, this week during a House Foreign Affairs Committee subcommittee hearing called for sanctions against the Wuhan Institute of Virology. Experts also discussed potential sanctions against China for its support for Russia’s invasion of Ukraine and its partnership with Mexican cartels to traffic fentanyl.

  • K2 Integrity assesses that public reports and recent statements from senior Biden Administration officials suggest that an Executive Order (EO) restricting US investments in China, including advanced dual-use technologies such as semiconductors, artificial intelligence, and others, will be signed soon. The anticipated EO will probably include, at a minimum, a requirement of notification to the government of investments in certain specified technology sectors in China and a requirement for continued monitoring.
  • Alaska Senator Dan Sullivan has reintroduced the Sanctions Targeting Aggressors of Neighboring Democracies (STAND) with Taiwan Act of 2023, which would impose comprehensive economic sanctions on China if it invades Taiwan. Sanctions would target members of the communist party, as well as Chinese financial institutions and industrial sectors.
  • The House of Representatives this week overwhelmingly passed legislation that would impose sanctions on individuals and entities involved in forced organ trafficking and authorizes the State Department to revoke the passports of individuals involved in the trade. The bill is mainly aimed at China, which kills between 60,000 and 100,000 young adults annually for their organs. The victims include Uyghurs and practitioners of Falun Gong.
  • The United States this week included several Chinese companies on the Entity List for involvement in human rights violations against ethnic minorities in Xinjiang. Four of the companies—1) Luopu Haishi Dingxin Electronic Technology Co, 2) Moyu Haishi Electronic Technology Co, 3) Pishan Haishi Yong’an Electronic Technology Co, and 4) Urumqi Haishi Xin’an Electronic Technology Co—belong to the Chinese surveillance camera manufacturer Hikvision. Yutian Haishi Meitian Electronic Technology Co was also added to the blacklist.

Monitoring developments in regulations that involve China is more critical than ever with US-China relations deteriorating and numerous possible changes on the horizon. Researching what entities could be sanctioned should these various measures pass and proactively altering risk assessments, if necessary, could help avoid violations, penalties, and consequent reputational damage.

FiveBy can help your company proactively address these risks. Click below to find out how.

FiveBy IntelSentry

Compliance and Due Diligence

OFAC today sanctioned Paraguayan entity, Tabacalera Del Este S.A. (aka Tabesa) – a cigarette company owned by US-designated former Paraguayan president Horacio Cartes, who was sanctioned in January, accused of having paid party members as much as $10,000 to back his presidential candidacy. He also allegedly bribed certain legislators with up to $50,000 per month and promised to split $1 million between them if they amended the constitution to allow his reelection.

Treasury this week added two entities and six individuals to the SDN list under counterterrorism and Caesar Act authorities. Al Israa and Hassan Daqqou Trading are both Lebanon-based firms linked to Hassan Daqqou, known as “The Lebanese King of Captagon” – an amphetamine, whose use and trafficking is common in the Middle East. Some militant groups also exchange the drug for weapons and cash.

Treasury this week designated Slovakian national Ashot Mkrtychev for attempting to facilitate arms deals between Russia and the Democratic People’s Republic of Korea (DPRK).

The UK this week sanctioned two individuals and an entity—Asia Sun Aviation Pte Limited—in Myanmar for supplying equipment used by the junta that overthrew the country’s democratically elected government two years ago. The United States last week also targeted the supply of jet fuel to Myanmar’s military, targeting Asia Sun Group, Asia sun Trading Co. Ltd., and Cargo Link Petroleum Logistics Co. Ltd.

Senior Republicans on the House Foreign Affairs Committee this week wrote to Secretary of State Tony Blinken demanding that the Biden administration impose additional sanctions against Iran in response to its support for Russia’s invasion of Ukraine. The letter says that Iran’s sale of weapons, including drones, mortars, rockets, and ammunition to Russia should trigger additional mandatory sanctions under the Countering America’s Adversaries through Sanctions Act (CAATSA).

The United States is urging the EU to sanction Chinese satellite company Spacety China for its support for Russia’s military operations in Ukraine. Spacety was designated by the United States in January for providing satellite images enabled Wagner attacks in Ukraine. The imagery was sent to Russian technology firm Terra Tech before being transferred to the mercenary group.

Wells Fargo this week agreed to pay a total of $97.8 million in fines for inadequate oversight that led to violations of Iran, Syria, and now-defunct Sudan sanctions after its merger with Wachovia Bank. The Federal Reserve and OFAC said the bank provided a legacy trade finance platform to a foreign bank that used it to process more than $500 million in prohibited transactions. The bank will pay $67.8 million to the Fed and $30 million to OFAC for the violations which took place between 2010 and 2015, demonstrating that regulators will pursue penalties for old violations.

The EU is threatening further sanctions against Belarus if president Lukashenko allows Russia to station tactical nuclear weapons in the country. Polish Prime Minister Morawiecki says that the EU should adopt its 11th round of sanctions against Russia in the next two months despite sanctions fatigue from some members.

The Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) has sanctioned Mexico after the government there failed to safeguard the life of the endangered vaquita porpoise. These sanctions could make exporting some regulated animal and plant products difficult for Mexico.

Ukraine’s National Agency for the Prevention of Corruption will probably sanction Austrian citizen Siegfried Wolf, who is holding Russian oligarch Oleg Deripaska’s assets. This individual has been actively operating on the Russian market since 2008 and has been closely affiliated with Deripaska’s companies (GAZ Group, Rossiyskiye Avtomobili Corporation, Glavbud Corporation, and Nolana Holdings Limited).

The Danish Business Authority has closed its sanctions evasion case against Rockwool, concluding the company did not violate sanctions against Russia. The Danish insulation manufacturer was under investigation after a media report alleged the company’s products were used in Russian military equipment.

A new legislative proposal in Canada could make money laundering more difficult in the country and bring Canada in line with international AML standards. If passed, the new law would require corporations to regularly report to the government the names of the individuals who ultimately control them. That information will go into a public registry and will be cross-checked against tax records and sent to government agencies that track money laundering.

British Columbia has introduced measures to combat money laundering that include unexplained wealth orders to identify the origins of money to purchase luxury real estate and vehicles. The information from the orders could then be used to pursue civil forfeiture cases.

Spain is cracking down on ship-to-ship (STS) transfers to prevent Russian cargoes heading to Asia, often on old, substandard vessels. Starting next month, tankers carrying out STS operations must seek authorization from the closest Spanish port captaincy.

The EU is planning a project to identify gaps in the sanctions regime against Russia, which could be a precursor to a new EU body that will coordinate sanctions enforcement. The project will begin operating around June and will run for two years.

Germany is establishing a new AML authority called the Federal Authority for Fighting Financial Crime (BFF), following a critical report by FATF last year that said Berlin needs to “more proactively and systematically investigate and prosecute” money laundering and financing of terrorism. Germany’s existing financial intelligence unit will be integrated into the BFF.

At least three of the companies providing technologies for Russia’s facial recognition programs have used chips from US firms Nvidia or Intel in conjunction with their algorithms. Although there is no evidence that either company has violated sanctions, the importance of tracking end-users to avoid reputational damage cannot be understated.

The EU has removed Pakistan from its list of high-risk third countries after the country implemented measures to address its FATF action plan to mitigate strategic deficiencies in its AML/CFT regime. As a result, EU members will no longer have to apply enhanced due diligence when dealing with individuals and entities in Pakistan.

After FinCEN faced criticism from lawmakers and others last week about the way it was approaching its corporate ownership database, Treasury this week said it would change its plans for rolling out the draft reporting form. The form appeared to give companies the option to say they were unable to identify their owners, and to mark “unknown” with respect to key information about them.

A joint investigation by the Financial Times and the Royal United Services Institute (RUSI) think-tank shows how organized crime-linked business figures in east Asia are facilitating illicit deliveries of hundreds of thousands of barrels of oil to North Korea. Shell companies, triad networks, underground financing channels, and family connections are all involved to help the Kim regime prop up its nuclear weapons program.

Kazakhstan is launching a tool on April 1 to monitor re-exported goods to Russia amid concerns over secondary sanctions. The practice of “parallel imports” is allowed by the Kremlin and consists of countries in Russia’s customs union re-exporting goods, such as iPhones, from western companies boycotting Russia.

The UK is tightening its sanctions regulations to prevent sanctioned oligarchs from abusing the legal system to sue journalists and others exposing their corrupt financial dealings. The change comes after sanctioned Russian warlord and Wagner chief Evgeny Prigozhin received a license from the government that allowed him to sue a British journalists and make direct payments to his attorneys. The Office of Financial Sanctions Administration (OFSI) will no longer grant licenses for legal fees relating to defamation lawsuits, and the Russian and Belarussian Legal Services General License will also be amended so that it no longer authorizes legal fees for these types of cases.

Georgia has more than tripled its exports of automobiles to Russia in the first months of 2023. Automobile exports from Georgia also skyrocketed to nearby Armenia, and Kyrgyzstan. All three countries are members of a Moscow-led customs union and are believed to be re-exporting Georgian vehicles to Russia, helping it evade sanctions.

Fraud and Abuse

Courtesy of Flickr

Four bankers—three Russian and one Swiss—who helped close Putin friend, Sergey Roldugin, move millions of francs through Swiss bank accounts this week were convicted of not performing financial due diligence. Roldugin for years has been widely known as “Putin’s wallet.” The defendants received suspended sentences that, if violated, could lead to significant fines.

More than 300 Roblox users are said to be laundering money through the game. A proposed settlement this week was filed as part of a nearly two-year old class action suit against the gaming platform involving the sale of in-game goods between players for in-game currency that can be traded for US dollars. Players would buy virtual currency within Roblox and resell it at a discount to other users. The profits from the sales were then transferred to real-world bank accounts, effectively obscuring their criminal origins.

The former general counsel for Venezuelan state-owned oil company PDVSA this week pleaded guilty in Miami federal court to money laundering in connection with a conspiracy to siphon at least $550 million from state coffers. As part of a plea deal, Alvaro Ledo Nass admitted to accepting $11.5 million in bribes between 2012 and 2017. Nass in February became the latest former Venezuelan official to be charged or convicted as part of Operation Money Flight—an investigation into the theft of billions of petro dollars from Venezuela. Many of those involved hid their wealth in Florida real estate.

The California-based CEO of Titanium Blockchain has been sentenced to four years in prison after his 2018 initial coin offering (ICO) caused $21 million in investor losses. Michael Stollery was a key figure in a “cryptocurrency fraud scheme” that involved an ICO conducted between late 2017 and early 2018 in which investors purchased a crypto token to participate. Stollery was accused of not having registered the ICO with the SEC and pled guilty last July to one count of securities fraud.

The Commodity Futures Trading Commission (CFTC) this week sued Binance and Chief Executive Officer Changpeng Zhao for allegedly breaking derivatives rules. The CFTC since at least 2021 has been investigating Binance over whether it allowed US residents to buy and sell crypto derivatives without registering with the agency.

Three William Hill gambling firms have been fined a record £19.2 million by the UK Gambling Commission for compliance failures. The industry watchdog said the three businesses, acquired by 888 last year, had insufficient controls in place to protect new customers and allowed some to deposit large amounts without conducting appropriate checks.

French authorities this week raided five banks as part of an investigation into suspected cases of tax fraud and money laundering. One of the banks searched was Societe Generale, as well as BNP Paribas, HSBC, and others.

A Nigerian national this week was sentenced to more than four years in prison for his participation in an international cybercriminal group that engaged in complex online financial fraud scams. Solomon Ekunke Okpe and his co-conspirators devised and executed business email compromise, work-from-home, check-cashing, romance, and credit card scams that targeted individuals, banks, and businesses in the United States and other countries.

Nearly $4.4 billion of the record $58 billion that Mexicans sent home from mainly the United States last year may be linked to illegal activities, including money laundering. Remittances from areas that host a relatively small Mexican immigrant population and others that received more dollar transfers per month than the number of households are some of the red flags that could indicate illicit financial transactions.

The SEC has filed charges against beaxy(dot)com and its executives for not registering as a national securities exchange, broker, and clearing agency. The platform’s founder, Artak Hamazaspyan, and Beaxy Digital, Ltd. are accused of raising $8 million through an unregistered offering of the Beaxy token (BXY). Hamazaspyan allegedly spent at least $900,000 of that money for gambling and other personal expenses.

An executive of the holding company that owns Privatbank IHAG this week pleaded guilty to conspiring to conceal more than $60 million in undeclared assets held by wealthy US clients of the Swiss private bank. Daniel Wälchli between 2009 and 2014 worked with others to help Privatbank IHAG conceal the assets through a scheme known as the “Singapore Solution,” which involved sending the funds from Privatbank IHAG accounts in Switzerland to a bank in Hong Kong before returning to Privatbank IHAG in accounts held by a Singaporean asset manager owned and controlled by the Swiss bank’s holding company.

US prosecutors are adding bribery to the list of charges against former FTX chief executive Sam Bankman-Fried, accusing him of paying a $40 million bribe to one or more Chinese government officials. Prosecutors say Bankman-Fried sent the bribe in cryptocurrency to Chinese officials to regain access to trading accounts linked to Alameda Research that were frozen by law enforcement. The revised indictment was filed in federal court in Manhattan this week.

Peruvian authorities are investigating President Dina Boluarte and her ousted predecessor Pedro Castillo for alleged money laundering and illegal campaign financing during the 2021 presidential election. Boluarte, Castillo, and his former adviser Henry Shimabukuro were being investigated for “the crimes of prohibited financing of political organizations, money laundering and criminal organization.”

An new report from the Italian cybersecurity firm Cleafy reveals the existence of a new Nexus Android banking trojan capable of targeting 450 different banking and financial apps. The Nexus trojan is designed to hide from detection and evade security measures. Once installed, the trojan can steal sensitive data such as login credentials, credit card details, and other financial information, as well as intercept both two-factor authentication codes sent via text and codes from the Google Authenticator app.

The Senate Finance Committee this week said that Credit Suisse violated its 2014 plea deal, following revelations that the Swiss bank facilitated tax evasion for several of its wealthy clients. The finance committee discovered that Credit Suisse conspired to help wealthy US taxpayers hide their money from the IRS in offshore accounts. In the original 2014 deal, the bank’s executives pleaded guilty to conspiring to aid US taxpayers file false income tax returns and conceal their offshore assets and income from the IRS. In exchange, Credit Suisse avoided criminal prosecution and paid a discounted fine of $1.3 billion to the Justice Department.

  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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