Insights: Week Of May 1, 2023

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The EU is working on its 11th tranche of sanctions against Russia, and officials are developing plans to sanction third countries if they fail to comply with western sanctions or can’t explain a sudden increase in trade with the country, gradually implementing secondary or extraterritorial sanctions. We assess that Central Asian countries, in particular, are in the crosshairs. Armenia, Turkey, and China also have been flagged as transit points for restricted goods and technologies.

In addition, other possible restrictions will almost certainly make compliance even more challenging.

The EU is considering banning the transit of numerous goods through Russia and targeting vessels that turn off their automatic identification systems, going dark to undermine sanctions against Russia. Russia also continues to use covert ship-to-ship transfers of Russian oil in the middle of the ocean to get its oil to market, undermining the impact of western sanctions.

Spain is pushing the EU to implement a certification system to identify the source of energy imports into Europe. Madrid is proposing a guarantee certificate from the European Commission on all imports, with energy products being a key concern.

As the compliance environment continues to expand and get more complex, experienced analysts can help your firm or financial institution detect sanctions evasion attempts, using linguistic, cultural, jurisdictional, and investigative expertise.

Click below for a free consultation with certified FiveBy subject matter experts who can help enhance your compliance efforts by providing in-depth research and analysis on possible clients and business partners.

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Compliance and Due Diligence

A bipartisan bill—the Solidifying Iran Sanction Act—has been introduced both in the House and Senate to permanently authorize the extension the Iran Sanctions Act (ISA) of 1996, which is set to expire in 2026.

The European Commission has introduced tougher anticorruption measures that would impose tough sanctions against corrupt individuals and entities. The proposed measures include, among others, new rules criminalizing corruption and harmonizing penalties across the EU.

Canada this week sanctioned nine Iranian individuals and one entity over continued human rights violations. The individuals are members of the Morality Police and the IRGC responsible for Mahsa Amini’s arrest and the deaths of civilians participating in protests. Iranian drone producer Paravar Pars was also designated for supporting Russia’s ongoing military aggression against Ukraine.

New Zealand sanctioned 18 entities and nine individuals supporting Russia’s ongoing military aggression against Ukraine. Russian and Iranian individuals and entities developing and procuring weapons, technology, and communication systems and providing services such as transport and insurance to support Russia’s aggression in Ukraine have been designated.

Spain claims that an initial inquiry found no evidence that the country imported sanctioned Russian diesel. Repsol SA, the nation’s largest oil refiner, last week complained that several tankers recently brought in fuel via north Africa and Turkey.

Crypto platform Poloniex this week agreed to pay $7.6 million to OFAC for violations of Cuba, Crimea, Sudan, Iran, and Syria sanctions that allowed users from those jurisdictions to use the service. OFAC noted that the company was tiny and new when the violations took place, but it did not have even a basic sanctions compliance program in place until a full 16 months after it began operating, and its basic sanctions screening still allowed prohibited users to access the platform. The settlement highlights that basic screening, while a mitigating factor, will not be sufficient to avoid millions of dollars in fines and stresses the importance of having a sanctions compliance program at the start of operations.

German police have reportedly raided Bayern Munich’s headquarters in search of financial documents possibly related to a money laundering case against sanctioned Russian oligarch Alisher Usmanov. Usmanov is financially linked with the Everton Premier League club and has other soccer ties. After Russia’s invasion, the club confirmed that they would suspend sponsorship agreements with three businesses linked to Usmanov, but he still has personal ties with current Everton owner Farhad Moshiri and possibly to Bayern’s honorary president Uli Hoeneß.

A draft bill that requires crypto miners to follow know-your-customer rules and other AML regulations has been delayed because Senators Elizabeth Warren and Roger Marshall are seeking additional co-sponsors. The bill is controversial because it mandates know your customer (KYC) procedures for groups such as unhosted wallet providers, Bitcoin miners, validators, and others that currently do not require customer due diligence.

Tennessee Representative Mark Green has reintroduced the China Technology Transfer Control Act, aiming to impose tough restrictions on the export of artificial intelligence and other technology to Beijing. Export restraints on these technologies would be imposed when they would aid China’s military, harm US national security, or allow China to carry out “violations of human rights or religious liberties” against its own people.

A Russian spy network has acquired sensitive technologies from EU companies to help Putin fund his war in Ukraine. The Justice Department has accused the “Serniya network” of working on “highly sensitive and classified procurement activities” on behalf of the FSB, as well as the SVR, Russia’s Defense Ministry, Rostec, and Rosatom. Corporate records, import declarations and interviews reveal that Trading House Treydtuls has acquired $900,000 of materials since the Ukraine war started, including microchips and items for industrial manufacturing, mostly from the EU. Serniya uses several front companies in the UK and Russia to move the goods.

Companies linked to Russian billionaire Mikhail Fridman have supplied uniforms and equipment to the Russian military and insured equipment used by Russia’s National Guard to fight in Ukraine. The X5 Retail Group, which owns one of Russia’s largest supermarket chains, and which counts Fridman among its shareholders, continued to work with the Defense Ministry’s military supply chain Voentorg after the invasion of Ukraine in February 2022. Voentorg’s parent company was sanctioned in June 2022. Fridman’s insurance company AlfaStrakhovanie also is providing insurance to the Russian military in Ukraine.

The United States and Turkey this week jointly sanctioned two individuals accused of being financial facilitators for al-Qa‘ida linked terrorist groups in Syria: Hay’at Tahrir al-Sham (HTS) and Katibat al-Tawhid wal-Jihad (KTJ).

Family members of former Bosnian Serb leader Radovan Karadzic, who was convicted of war crimes for his role in the 1990s Balkan conflict, this week sued OFAC, claiming that the agency has “unreasonably delayed” the decision about whether to remove them from the SDN list. The family was sanctioned in 2003 for helping Karadzic evade arrest. The family denies the allegations.

A court has ordered the SEC to respond to cryptocurrency exchange Coinbase’s complaint over how it applies securities laws to digital assets within 10 days. Coinbase last week argued that the SEC is providing insufficient regulatory guidance for US companies operating in the crypto sector. The SEC this week also deleted what would have been its first formal definition of “digital asset” from its latest hedge fund rule. The agency explained that it continues its deliberation about the term.

The US Commission for International Religious Freedom (USCIRF) is urging the Biden administration to impose targeted sanctions against India’s government agencies responsible for what they call “severe violations” of religious freedoms in the country. The Commission also recommends that Congress raise the issue of religious freedoms during US bilateral meetings with India.

The Indonesian government has created a task force to oversee the investigation into suspected money laundering at the Ministry of Finance involving almost $24 billion in suspicious transactions. The task force includes AML experts, as well as specialists in corruption, the economy, customs, and taxation, who will serve as consultants for the investigators.

Fraud and Abuse

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More than 100 individuals this week were arrested by German and Italian police in an operation targeting the Italian ‘Ndrangheta organized crime group. The arrests were part of a coordinated investigation between Germany, Italy, and other European countries, into various ‘Ndrangheta criminal activities, including money laundering, fraud, criminal tax evasion, and drug and weapons trafficking.

Nine digital currency exchanges that allegedly helped cybercriminals had their domains seized by the FBI and Ukrainian law enforcement. The domains included the websites 24xbtc.com, 100btc.pro, pridechange.com, trust-exchange.org, and bitcoin24.exchange. Each reportedly offered anonymous digital currency exchange services to their users, violating numerous regulations and facilitating criminal use.

The former head of a Florida-based telemarketing company was imprisoned for 78 months for participating in a credit card laundering scheme that cost victims more than $19 million. Steven Short used his company to cold call more than 19,000 consumers with outstanding credit card debt after obtaining credit card processing services for his fraudulent telemarketing operation through California-based CardReady LLC.

India’s AML investigation agency conducted searches at the Bengaluru offices of Byju’s, the country’s most valuable startup, and has seized unspecified documents. The company, valued at $22 billion, currently is in talks with investors to raise funds to mitigate a liquidity crunch. It also was working to appease creditors seeking restructuring of a $1.2 billion term loan after the startup missed deadlines to file financial accounts last year.

UK Prime Minister Rishi Sunak has announced a new plan to tackle fraud, including outlawing technical devices that allow criminals to send thousands of scam texts simultaneously, banning cold calls on all financial products, and launching a new National Fraud Squad. According to Sunak, fraud accounts for more than 40 percent of crime in the UK and costs nearly $9 billion per year.

A Maryland man was imprisoned for nearly four years for exporting firearms and ammunition from the United States to Nigeria without appropriate licenses. Godlove Nche Manchoe worked with others to export weapons, ammunition, and other military-type items to Nigeria using a container with a Toyota truck inside to conceal the illicit goods. Court documents revealed that the conspiracy supported separatists fighting against the Cameroonian government.

Derek Vincent Chu has been indicted for wire fraud and money laundering in connection with a $39 million Ponzi scheme that involved more than 100 victims. Chu solicited funds from investors between 2013 and 2020 for a firm that supposedly purchased and resold professional basketball tickets and luxury suites around California. Chu used the money to repay earlier investors and support his personal expenses and luxurious lifestyle.

The owner of a platform providing card-checking services to cybercriminals in the stolen credit card trade, Denis Gennadievich Kulkov, has been indicted on charges of device fraud, computer intrusion, and money laundering for operating the Try2Check platform. The platform allowed cybercriminals who stole or purchased stolen credit card information in bulk to quickly verify whether the cards were valid and active.

A bipartisan group of legislators in Congress is calling on the SEC to halt the initial public offering of Chinese-founded fast-fashion giant Shein until it verifies it does not use forced labor. A 2022 Bloomberg report found that its garments contained cotton linked to China’s Xinjiang region.

Nate Chastain, a former product manager at OpenSea, was found guilty of fraudulently purchasing non-fungible tokens he knew would sharply increase in value, in the first conviction for insider trading of digital assets. US prosecutors claimed he had bought 45 tokens over the course of approximately five months that he knew would surge in popularity once they were displayed on the site’s homepage, only to sell them soon after for between two and five times the price he paid.

A class action lawsuit alleges that Coinbase violated biometric privacy laws in Illinois by collecting and storing customer fingerprints and facial templates. A Coinbase user is claiming that the exchange’s requirement that a customer uploads pictures of a valid ID and a self-portrait for KYC checks violates the Illinois’ Biometric Information Privacy Act.

The New York State Department of Financial Services (NYDFS) this week fined crypto exchange bitFlyer USA $1.2 million for failing to meet the state’s cybersecurity requirement, despite having a license to operate in New York. The exchange presented the regulator with a remediation plan, which aims to make bitFlyer USA compliant with the state’s cybersecurity laws by the end of the year.

  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 insightsfeedback@fiveby.com if you have any questions or suggestions.

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