Insights: Week Of April 10, 2023

Courtesy of Mika Baumeister on Upsplash

Forced labor in Xinjiang, China is presenting complex problems for US importers, who risk losing profits and incurring reputational damage if they are caught attempting to introduce goods made with forced labor into the United States. The US government has begun to enforce the Uyghur Forced Labor Prevention Act (UFLPA) more rigorously, resulting in an increased number of shipments being detained at the US border and costing importers millions of dollars. FiveBy assesses that US companies that import apparel, footwear, textile, electronics, solar panels, and automotive parts from entities with ties to China, Malaysia, and Vietnam are most at risk of losing profits and having their shipments detained or confiscated.

The UFLPA obligates importers to provide evidence that the goods they are bringing into the United States are not made with forced labor – a difficult task considering the complex nature of supply chains and murky origins of many products, as well as efforts to obscure the origins of many goods to hide questionable business practices. Expert investigators, linguistic and jurisdictional experts, and cultural, trade, compliance, and business specialists can help US companies importing goods from abroad identify the origins of not only the products being shipped, but also their component parts to ensure that US firms are not engaging—even indirectly—with entities that may be using forced labor. Red flags indicating links to forced labor include companies in China that hire workers through government recruiters, provide “vocational training” and “aid to Xinjiang,” source components or other goods from factories located near detention centers, or are connected to the government’s “reeducation” efforts.

A free consultation with FiveBy’s expert analysts can help with in-depth analysis of your supply chain, business partners, and other entities that may link to forced labor in Xinjiang. The comprehensive analysis of your customers, end-users, and other entities and individuals involved in your transactions can help you avoid financial loss, regulatory fines, and even criminal charges, in addition to reputational damage.

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Compliance and Due Diligence

OFAC on Thursday issued 144 designations against individuals, vessels, and entities. As we projected a few weeks ago, the International Investment Bank (IIB)—known as the “spy bank” in Hungary—has been included on the SDN list, as well as its subsidiary IIB Capital, along with IIB executives. In response, Hungary is ceasing cooperation with IIB this week claiming US sanctions had “ruined” it. Treasury says all the individuals and entities are Russian financial facilitators, demonstrating a continued commitment to targeting third parties responsible for helping Russia evade sanctions. Sanctions against entities linked to oligarch Alisher Usmanov were included in coordination with UK sanctions this week. Designated entities include those in China, Turkey, and the UAE. Patriot PMC – a mercenary group that’s a direct competitor to the Wagner Group that cooperates closely with the Russian Defense Ministry and the GRU—was also included on the list.

A bipartisan group of congressmen is drafting a bill that would sanction Hungarian political figures tied to the Orban government, who are mostly affiliated with the Fidesz party. The legislation is expected to gain bipartisan support in the House as soon as next month.

The Commerce Department this week imposed export controls on more than two dozen countries for supporting Russia’s military and defense industries. Companies in Armenia, China, Malta, Russia, Singapore, Spain, Syria, Turkey, the UAE, and Uzbekistan have been included on the Bureau of Industry and Security’s (BIS) Entity List.

Is Quzhou Nova going to be sanctioned? The Chinese company bought more than $7 million in copper alloy ingots from Debaltsevsky Plant of Metallurgical Engineering in the embargoed Donetsk region of Ukraine. Quzhou Nova claims it does not do business related to the trade of copper alloy in ingots and claimed that documentation was difficult to understand when presented with customs data. Chinese companies can legally trade with firms in Russian-controlled regions of Ukraine, but they risk being designated by the West.

The Discord leaks, for which a Massachusetts Air National Guardsman was arrested this week, indicate that China approved the provision of lethal aid to Russia for its war in Ukraine and planned to disguise military equipment as civilian goods. The signals intelligence mentions that the Chinese Central Military Commission approved the “incremental provision” of weapons to Russia. We may see more severe sanctions against China and its military sector, if the report is accurate. China, of course, denies.

The EU has added the Wagner Group to its list of sanctioned entities and individuals for aiding Russia in its war in Ukraine. Wagner is already sanctioned by the EU under the bloc’s global human rights sanctions regime, but this week’s designation also sanctions the paramilitary group for its activities in Ukraine. The EU also blacklisted RIA FAN, which is part of the Patriot Media Group where Wagner chief Prigozhin heads its board of trustees.

The White House is planning to expand efforts to stem fentanyl trafficking. A fact sheet outlining the Biden administration’s plans for a crackdown on fentanyl supply chains this week focused on expanding sanctions and other measures against key targets. In that vein, OFAC this week sanctioned five individuals and two entities in China under the ILLICIT-DRUGS Executive Order (EO) 14059 for supplying precursor chemicals to drug cartels in Mexico for the production of illicit fentanyl intended for US markets. .

Canada this week sanctioned the Belarussian National bank and eight other major banks in the country over Belarus’s support for Russia’s invasion of Ukraine. Security targets linked to the Wagner Group have also been designated. Canada also promised more military aid to Ukraine after the Prime Minister’s website was hacked.

Russia has imported more than $1 billion in technologies despite international sanctions thanks, in part, to a London-based company. Mykines Corporation LLP is listed in Russian records as having sent semiconductors, servers, laptops, computer components, and other technologies to Russia. The restricted goods passed through China and Hong Kong en route to Russia, and trade data indicates that trade flows through Mykines and the Chinese entities involved in the shipments grew markedly after sanctions were imposed, highlighting the importance of understanding the supply chains used by business partners and customers.

China has imposed sanctions on the Taiwanese de-facto Ambassador to the United States after Hsiao Bi-khim visited House Speaker Kevin McCarthy last week. The sanctions bar Hsiao and her family from entering the Chinese mainland, as well as Hong Kong and Macau.

How does the junta in Burma evade sanctions? The public no longer has access to a part of the country’s online corporate registry that shows what the Tatmadaw’s senior leadership and their families own and what front companies they use to evade sanctions. The loss in revenues due to sanctions resulting from the coup incentivizes the establishment of front companies that cannot be researched through the online corporate registry.

The Commerce Department is considering an enforcement action against Russian cybersecurity company Kaspersky Lab. The US government is already prohibited from using Kaspersky software, and the investigations and concerns into Kaspersky have existed for several years.

Dubai-based AML firm VAF Compliance has launched a new Telegram bot that helps crypto firms comply with AML and KYC rules in the wake of increased regulations in Europe and Hong Kong. The bot is compatible with multiple blockchains and offers assistance in both English and Chinese.

Fraud and Abuse

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Adobe has agreed to pay $3 million to resolve allegations that it made payments in violation of the Anti-Kickback Act in return for influence over the sale of Adobe software to the federal government. Between January 2011 and December 2020, Adobe allegedly paid companies a percentage of the purchase price of the software, which the government alleges constituted prohibited kickbacks.

Pakistan’s Federal Investigation Agency (FIA) has arrested former prime minister Imran Khan’s aide, Iftikhar Rasool Ghumman, in a money-laundering investigation. The FIA’s Anti-Money Laundering Cell (AMLC) arrested two members of a network engaged in money laundering through informal transfer systems, Hundi and Hawala, illegally transferring billions of rupees to different countries, using more than 40 fake companies.

Italian authorities this week charged five individuals, including an associate of the fraudulent Spanish bank, Bandenia, with providing illegal financial services. Massimiliano Arena was a co-director of Bandenia PLC, the main holding firm of the fake Bandenia banking group that was dismantled by Spain six years ago. Spanish authorities in 2017 shut down more than two dozen shell companies, masquerading as a bank in Madrid, that were allegedly laundering money for criminal clients. Since then, figures linked to that operation, which used the name “Bandenia,” have opened hundreds of new companies in the UK and other jurisdictions.

Twelve people this week were indicted after a two-year investigation into a transnational criminal organization that allegedly laundered at least $16.5 million for the Sinaloa cartel. The investigation began in 2020 after FBI agents identified a complex money laundering operation allegedly led by Enrique Daan Esparragoza Rosas of Culiacan, Sinaloa, Mexico. Esparragoza’s organization used a network of shell companies incorporated in Wyoming to launder millions of dollars in cash belonging to the Sinaloa Cartel.

The Justice Department this week announced that a former investment banker who worked at JPMorgan and Deutsche Bank will face up to 20 years in prison for allegedly committing crypto fraud. Rashawn Russell allegedly used customer money for personal gains, gambling, and repaying other investors. He fabricated documents, including falsifying wire transfer confirmations for investors who sought to recoup their money.

Three former Outcome Health executives have been found guilty of running a billion-dollar scam. Outcome Health’s two co-founders—former CEO Rishi Shah and former president Shradha Agarwal—and former chief operating officer and chief financial officer Brad Purdy were convicted “for their roles in a fraud scheme that targeted the company’s clients, lenders, and investors and involved approximately $1 billion in fraudulently obtained funds.” Outcome Health’s investors included Goldman Sachs, Chicago-based Pritzker Group Venture Capital, Alphabet, and others.

A former Los Angeles auctioneer has agreed to plead guilty in a cross-country art fraud scheme in which he created fake artwork and falsely attributed the paintings to artist Jean-Michel Basquiat. The paintings ultimately wound up at the Orlando Museum of Art in Florida before they were seized by federal agents last year.

Multiple sources say that Iran has used earthquake relief flights to bring weapons and military equipment into Syria. For seven weeks after the earthquake in northern Syria and Turkey in February, hundreds of flights from Iran began landing in Syria’s Aleppo, Damascus, and Latakia airports bringing supplies, including advanced communications equipment and radar batteries and spare parts required for a planned upgrade of Syria’s Iran-provided air defense system.

Vietnamese police this week arrested two high profile business leaders for corruption. Tran Qui Thanh, founder and CEO of Tan Hiep Phat Beverage Group, and his daughter Tran Uyen Phuong were charged with illegally appropriating property. Tan Hiep Phat, also known as THP locally, is the country’s leading beverage company.

Former Polar Air Cargo COO Lars Winkelbauer has been arrested and charged, along with several others, with defrauding the Polaris of an estimated $52 million. Winkelbauer this week was arrested in Thailand and will be extradited to the United States, while the nine others were arrested by US federal law enforcement officers. The executives allegedly took bribes for ensuring vendors in which they had undisclosed interests received favorable business arrangements with the carrier between 2009 and 2021.

  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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