Insights: Week Of April 17, 2023

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Regulators have been busy this week issuing new designations, alerts, and general licenses, adding to the already-high volume and complexity of work for compliance officers in various sectors. OFAC imposed new sanctions on 62 entities and individuals this week alone. Critical to avoiding penalties, such as fines and criminal enforcement actions, Treasury also flagged the importance of robust due diligence research to recognize Russian evasion of the $60 price cap on its crude oil exports and enhanced compliance efforts in certain risky sectors.

  • The United States has sanctioned three Nicaraguan judges for their role in stifling political opposition on behalf of Nicaraguan President Daniel Ortega. Judges Nadia Camila Tardencilla Rodriguez, Ernesto Leonel Rodriguez Mejia, and Octavio Ernesto Rothschuh Andino were included on the SDN list.
  • OFAC also designated a sanctions evasion network headed by Mehdi Khoshghadam, who last month was indicted by a federal grand jury for illegally exporting electrical cables and connectors from the United States to Iran, using front companies. OFAC alleges that Khoshghadam facilitates Iran’s procurement of electronic components needed for its military programs, including unmanned aerial systems.
  • Treasury this week also issued counterterrorism designations against a network of Hizballah financial facilitators, including art dealerships and gold/diamond businesses that are often used to move money for terrorist groups. The entities are located in South Africa, UAE, Lebanon, Romania, Cote d’Ivoire, Hong Kong, Belgium, and Bulgaria; the sanctions include Mohamad Hijazi, who directs Dubai-based White Star DMCC, a front company that was used as the primary financial front for designated terrorist Nazem Said Ahmad to purchase art imported both legally and illegally into Lebanon.
  • Treasury Undersecretary for Terrorism and Financial Intelligence Brian Nelson in the press release noted that “Luxury good market participants should be attentive to these potential tactics and schemes, which allow terrorist financiers, money launderers, and sanctions evaders to launder illicit proceeds through the purchase and consignment of luxury goods,” again highlighting the importance of in-depth research—especially in risky sectors—that will help US firms remain compliant.

Expert research is also important when examining name variations. Insufficient research into spellings of individual and entity names transliterated from foreign languages can cause innocent people to be shut out of the global financial system, forcing them to provide extra documentation to show they are not subject to international sanctions. Companies also lose profits if they block transactions in error.

FiveBy can help your firm or financial institution perform the due-diligence research that will help you avoid significant fines, possible criminal charges, and reputational damage, as well as ensure accurate identification of your potential customer or business partner. Our expert, certified analysts, proficient in 15 languages, can provide insights that will ensure you remain on the right side of the law.

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Compliance and Due Diligence

Switzerland this week added Russia’s Wagner mercenary group and RIA FAN—Wagner chief Prigozhin’s media group—to its sanctions list following a similar move by the EU, which last week added sanctions against these entities for undermining the sovereignty and territorial integrity of Ukraine.

The UK has sanctioned several individuals involved in the arrest and poisoning of Russian activist and government critic Vladimir Kara-Murza, who this week was sentenced to 25 years in a Russian prison for treason and “discrediting the Russian military.” The UK has faced tremendous pressure in the media by Kara-Murza’s wife for its lack of sanctions against the people who imprisoned and poisoned her husband. Kara-Murza’s defense lawyer has fled Russia amid threats of prosecution.

Cyprus this week announced that it will create a national sanctions implementation unit. This is a response to new sanctions released by the United States and UK last week that included Cypriot entities and individuals who knowingly helped designated Russian oligarchs Roman Abramovich and Alisher Usmanov evade sanctions. Media reports this week spotlighted a Cyprus firm that has helped sanctioned Russian oligarch Konstantin Malofeyev move money and conduct loan deals through several entities he owns. The Guardian and OCCRP both quoted FiveBy Director of Risk Intelligence, Irene Kenyon, about sanctions evasion and about how this firm, MeritServus, did not notice for three years that one of its major clients had been sanctioned.

The Supreme Court this week rejected claims of immunity from prosecution by Turkish state-owned Halkbank that is accused of violating US sanctions against Iran. Halkbank was criminally charged in 2019 with laundering billions of dollars in Iranian oil and natural gas proceeds, using the funds to buy gold, and disguising the transactions as food and medicine purchases in order to gain a humanitarian exemption to the sanctions. Halkbank allegedly used front companies to funnel $20 billion to Iran, including $1 billion through the US financial system.

EU lawmakers this week voted in favor of a new crypto licensing regime, MiCA. The EU is the first major jurisdiction in the world to introduce a comprehensive crypto law that would, among other things, make crypto wallet providers and exchanges seek a license to operate in EU countries and require issuers of stablecoins to maintain sufficient reserves. The European Parliament also voted in favor of a separate law, known as the Transfer of Funds regulation, which requires crypto operators to identify their customers to stem money laundering.

Taiwan company DES International Co. Ltd. (DES), and Brunei company Soltech Industry Co. Ltd. (Soltech) this week pleaded guilty and were sentenced for violating US export laws and sanctions by sending US-origin goods to Iran. A sales agent for both DES and Soltech helped an Iranian research center obtain US goods without a license, including a power amplifier designed for use in electromechanical devices and cybersecurity software. The agent tried to conceal the US origin of the goods by removing serial number stickers with the phrase “Made in USA” from packages, and by downloading the cybersecurity software outside of Iran.

TRM Labs’ Ari Redbord assesses that Russia cannot evade sanctions by using cryptocurrency, since Russia, despite all the economic problems caused by sanctions, is still a G20 economy. However, cybercriminals, paramilitary groups, and other Russian illicit actors can use crypto to evade sanctions, although those efforts are comparatively minimal.

The Abu Dhabi subsidiary of a Swiss commodity trader has bought tens of millions of dollars of Russian gold despite a Swiss ban on these purchases. Although Switzerland last year adopted the EU’s prohibition on Russian gold, including shipments into third countries, a provision in Swiss law allows its companies’ overseas subsidiaries to trade Russian commodities as long as they are “legally independent.” Swiss authorities have not provided a definition of “legally independent.”

The rise of fentanyl has transformed the way Mexican cartels launder money. The majority of drug proceeds in the past were laundered by bulk cash smuggling or using the Black Market Peso Exchange in which drug proceeds were used to purchase goods in the United States, and then shipped across the border and resold in Mexico, providing cartels with the proceeds in local currency. These days, Chinese money laundering organizations play a key role in laundering drug proceeds, using front companies, mirror transactions, underground banking services, and trade based money laundering to clean the proceeds of fentanyl and precursor shipments.

Panama expects to be removed from FATF’s money laundering grey list this year. The country is completing work on a registry of beneficial owners—one of the last outstanding tasks assigned by the financial watchdog—and is entering companies to the registry.

Fraud and Abuse

Nick YoungsonCC BY-SA 3.0 via Wikimedia Commons

Technology company Seagate has agreed to pay a $300 million penalty for shipping more than $1.1 billion in hard disk drives to China’s Huawei in violation of US export control laws. Seagate sold the drives to Huawei between August 2020 and September 2021 despite Huawei having been placed on the Bureau of Industry and Security’s Entity List in 2019 that restricted the sale of US goods to the company because of national security and foreign policy concerns.

The former head of product at OpenSea, Nathaniel Chastain, will stand trial next week for wire fraud and money laundering. Chastain was indicted in October for allegedly making illegal profits from NFT sales in 2021. He allegedly used insider knowledge of which NFTs would appear on the front page of OpenSea to buy them before being featured and then sell them for a profit.

The former national treasurer of Venezuela, and Hugo Chavez’s former nurse, who was convicted in the United States of money laundering, this week was sentenced to 15 years in prison. Claudia Diaz was extradited from Spain to the United States last year. She and her husband were convicted of two counts of money laundering and one count of conspiracy to commit money laundering linked to corruption in Venezuela.

The founder and CEO of shuttered Turkish cryptocurrency exchange Thodex, Faruk Fatih Ozer, has been extradited from Albania to Turkey and faces fraud and money laundering charges. Almost two years ago, the Thodex exchange abruptly halted trading and withdrawals, with police raiding the company’s offices. Ozer allegedly fled Turkey with at least $2 billion worth of cryptocurrency stolen from Thodex, and Interpol subsequently issued a red notice.

Geneva-based private bank Reyl this week was fined in France for money laundering and tax evasion. The bank, which belongs to the Italian banking group Intesa Sanpaolo, must pay a $6.3 million fine. This is not the first time the bank has gotten in trouble. Reyl in 2016 pleaded guilty to money laundering and aiding and abetting tax evasion for helping former French Finance Minister Jérôme Cahuzac hide accounts and evade sanctions.

Four US citizens and three Russians have been charged with working with the FSB on behalf of the Russian government to conduct a multi-year foreign malign influence campaign in the United States. The Russians allegedly recruited US political groups to act as unregistered illegal agents of the Russian government and sow discord and spread pro-Russian propaganda.

Switzerland this week indicted former Gambian Minister of Interior, Ousman Sonko, for crimes against humanity allegedly committed during the rule of former Gambian dictator Yahya Jammeh. Sonko is accused by the Swiss prosecuting authorities of the killing of a perceived political opponent in 2000, of acts of sexual violence committed between 2000 and 2002 as well as in 2005, of having participated in acts of torture (including physical assault and sexual violence) and other human rights violations.

The Justice Department this week indicted and arrested John Can Unsalan (aka Hurren Can Unsalan), the president of Metalhouse LLC, for violating sanctions imposed against Ukrainian oligarch and former Yanukovych official Sergey Kurchenko and two of Kurchenko’s companies. Metalhouse between July 2018 and October 2021 transferred more than $150 million to Kurchenko and his companies, receiving metal products used in steelmaking in return.

The Estonian prosecutor’s office this week charged six former Danske Bank staff members who allegedly engaged in money laundering through the bank’s Estonian branch. The suspects allegedly deliberately concealed the real owners of suspected criminal proceeds transferred to the bank accounts of “Danske Eesti.”

The Justice Department this week charged 44 defendants with various crimes related to the efforts of the Chinese national police to target US residents. The defendants are accused of creating fake social media accounts to harass Chinese residents and working with employees of a US telecommunications company to remove Chinese dissidents from the platform in an effort to silence them.

Two individuals this week were arrested and charged with opening and operating an illegal overseas police station in New York. Lu Jianwang and Chen Jinping—both New York City residents—allegedly operated this police station in lower Manhattan and destroyed evidence when confronted by the FBI. They allegedly set up the first overseas police station in the United States on behalf of the Fuzhou branch of China’s Ministry of Public Security. China claims these “outposts” are not police stations, but “service centers” that help Chinese nationals with administrative tasks, such as renewing their driver’s licenses. CNN reported last year that China operates more than 100 of these police stations across the world to coerce Chinese nationals and threaten dissidents.

South Korean prosecutors confirmed that Terraform Labs CEO Do Kwon sent $7 billion to Kim & Chang—a top South Korean law firm—right before the collapse of the Terra ecosystem. The prosecutors say the move was deliberate, confirming Kwon’s knowledge of the impending collapse.

A California businessman is charged with conspiracy to defraud the IRS, conspiracy to commit money laundering, and money laundering. The indictment accuses Grigor Termendjian of concealing $38 million in taxable fraud proceeds, which he and others laundered through international and domestic bank accounts. The indictment charges that he and his co-conspirators created bogus loan agreements, falsely characterized the transfer of fraud proceeds as share purchases or investments, and used shell accounts to conceal and disguise the nature, location, source, ownership, and control of the money. Some of the transactions allegedly involved withdrawing funds to purchase cashier’s checks.

The wives of two convicted drug traffickers each pleaded guilty to a count of conspiracy to commit money laundering. Vivianna Lopez (aka Mia Flores) and Valerie Gaytan (aka Olivia Flores) admitted in a plea deal that they accessed and spent cash for their husbands – twin brothers Pedro and Margarito Flores, respectively – as part of the Sinaloa drug cartel. Spending included private school for their children and travel expenses. The Flores brothers operated a Chicago-based distribution cell for Sinaloa – which involved the distribution of hundreds of kilograms of cocaine, and kilogram quantities of heroin per month to customers in Chicago, Cincinnati, Columbus, Detroit, Los Angeles, New York, Philadelphia, Vancouver, and Washington, DC.

The revelations from the massive fraud in Mississippi that involved connected individuals receiving contracts from the State Department of Human Services—money that was supposed to help the state’s neediest people—now involve companies run by former WWE wrestler, Ted DiBiase, Jr., who allegedly received “sham contracts” in Mississippi and misspent millions of dollars of welfare money. Money diverted from emergency food assistance and other help for needy families was awarded to two DiBiase’s companies—Priceless Ventures LLC and Familiae Orientem LLC—with which he allegedly bought a boat, a vehicle, and a house. DiBiase pleaded not guilty in court yesterday.

  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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