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Weekly Insights

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In its 11th tranche of sanctions, the EU will designate more than 90 companies that are helping Russia evade sanctions. European Commission president Ursula von der Leyen says some of the companies are “registered in China,” but was cautious to clarify that they’re not Chinese. The EU’s latest sanctions plan underscores that individuals and entities that enable Russian sanctions evasion are mostly located in jurisdictions other than Russia, and enhanced due diligence, such as research into supply chains, end-users, and ownership and control structures is critical.

• Trade between Kazakhstan and Russia—who are both members of the Eurasian Economic Union—is not subject to customs checks and allows restricted and sanctioned goods to be transported to Russia in violation of sanctions and export controls. In 2021, so few drones were imported into Kazakhstan that they did not even appear in official import-export data. In 2022, however, after Russia began its full-scale invasion of Ukraine, Kazakhstan imported nearly $5 million worth of drones—almost entirely from China—and exported $1.23 million to Russia. Import of microchips has skyrocketed as well, highlighting the critical need to examine closely the final destination of goods and technologies, especially ones that can help Russia’s war effort.

• The UAE has become a key trade hub for Russian gold since western sanctions have limited Russia’s traditional export destinations. Russian customs records show that the UAE imported nearly 80 tons of gold, worth $4.3 billion since Russia’s invasion began—a massive increase from 2021, when the Gulf state imported only 1.3 tons of Russian gold. In addition, Russian gold exported to other countries that have not imposed sanctions on Russia could be recast and then resold back to Europe, once again underscoring the importance of monitoring trade routes and supply chains.

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Compliance and Due Diligence

OFAC this week designated 24 individuals and seven entities for their support and leadership of al-Shabaab. The entities are involved in a charcoal smuggling network, according to the Treasury press release, that supports the terrorist group. The illicit charcoal trade generates millions of dollars in revenue per year for its associated smugglers, traffickers, and al-Shabaab. OFAC also sanctioned Ivan Aleksandrovich Maslov—the head of Wagner Group operations in Mali, who is also a former Russian military intelligence agent, according to research published last year.

The United States this week targeted North Korea with more sanctions linked to the hermit kingdom’s hacking activities. Four entities, one individual, and his digital wallets were sanctioned, as well as entities involved in cyber attacks and those that train malicious cyber actors.

Senate Republicans have introduced a bill targeting supporters of terrorist groups, such as HAMAS and Palestinian Islamic Jihad (PIJ) with sanctions. This is the third time the legislation has been introduced and includes a provision that would allow members of congressional committees to nominate individuals and entities whom they’d like to be designated, requiring the White House to evaluate the suggestions and report back to Congress.

The EU this week imposed new sanctions on Iran after last week’s execution of three men convicted of “killing security forces” during protests last year. The IRGC Cooperative Foundation, which handles the organization’s investments, and the Student Basij Organization, which acts as enforcers on university campuses, have both been designated.

Hungary has received authorization from the EU to amend contracts awarded in 2014 to Russia’s Rosatom for new reactors at its Paks nuclear power plant. The authorization could be part of a compromise between Budapest and the bloc to facilitate the passage of the 11th sanctions package against Russia.

Japan is imposing additional sanctions against Russia, banning the provision of building and engineering services and designating 100 individuals for evading sanctions. Japan also will prohibit the supply of goods to approximately 80 entities linked to the Russian military sector.

In response to China’s decision to prohibit Micron Technology’s memory chips from being used in Chinese critical infrastructure, Wisconsin congressman Mike Gallagher wants Changxin Memory Technologies Inc. included on the Bureau of Industry and Security (BIS) Entity List. Gallagher also wants the Commerce Department to ensure that no US-export licenses are granted to foreign semiconductor memory firms operating in China that could be used to backfill Micron.

Secretary of State Blinken is warning rival militaries in Sudan that they must abide by the latest ceasefire or face possible US sanctions. A new truce was announced last weekend—the seventh attempt so far to stop the violence in the country—but the conflict continues.

A member of the Belarussian opposition movement this week urged the EU to retain sanctions against Belarusian state fertilizer producer, Belaruskali. Pavel Latushka, a former Belarusian minister of culture who is now in exile in Poland, heads an opposition group that has been documenting president Lukashenko’s participation in efforts to kidnap Ukrainian children and deport orphans to camps in Belarus.

Japan is imposing stricter AML regulations on transactions involving cryptocurrencies. The new framework includes the travel rule that requires financial institutions processing crypto assets to transmit customer information, including names and addresses of the sender and recipient, to the next institution to better track movements of possible criminal proceeds. New regulations will take effect next month.

FATF may include Lebanon on its grey list—a list of countries requiring special monitoring because of insufficient AML/CFT efforts. The local currency has lost more than 98 percent of its value, and the increasingly cash-based economy could help obscure illicit financial flows.

China is concerned that Japan’s new export controls could cripple the country’s chipmaking industry. Tokyo will restrict exports of 23 types of crucial chipmaking equipment starting in July, and the new rules would make production of even the most basic chips found in household goods difficult. 

Chinese entities suspected of supplying precursor chemicals to produce fentanyl to overseas drug cartels have earned tens of millions of dollars in cryptocurrencies, suggesting that criminal organizations still use digital assets in China despite Beijing’s ban. Blockchain firm Elliptic has identified more than 90 China-based chemicals companies that were willing to sell fentanyl precursors and take cryptocurrencies as payment. Blockchain research firm Chainalysis says that crypto addresses linked to China-based precursor chemicals dealers have received nearly $38 million in crypto since 2018.

Fraud and Abuse

A former Morgan Stanley broker has been sentenced to more than seven years in prison for stealing almost $7.25 million from former customers. Shawn Good pleaded guilty in September to wire fraud and money laundering charges in a Ponzi scheme he operated between 2012 and 2022.

A father and son this week were sentenced to federal prison in connection with a massive “ten-percenting” scheme involving dozens of convenience stores in Massachusetts, thousands of lottery tickets, and more than $20 million in illicit profits. Ali Jaafar and his son Yousef Jaafar cashed more than 14,000 lottery tickets between 2011 and 2019 as part of the scheme and claimed nearly $21 million in profits. “Ten-percenting” is a lottery scheme in which winning tickets are resold illegally at discount prices, allowing winners to avoid reporting the winnings on their tax returns.

Germany has issued an arrest warrant for Lebanon Central Bank Governor Riad Salameh on corruption charges, including forgery, money laundering, and embezzlement. It is the second foreign arrest warrant to be issued for Salameh within a week. France issued a warrant for his arrest on May 16 after he failed to show up for a Paris court hearing.

The money-laundering trial of former Panamanian president Ricardo Martinelli, who is accused of having bought a majority share in the Editora Panama America publishing house using state funds, began this week. Martinelli in a separate case is also accused of laundering money for the Brazilian construction giant Odebrecht, which was bribing government officials in Latin America to win infrastructure contracts. Martinelli is hoping to run for president again next year.

In an effort to battle deepfake technology, cryptocurrency exchange Binance has implemented enhanced customer verification measures. These measures include advanced facial recognition algorithms, multi-factor authentication, and enhanced document verification.

Binance may have comingled customer funds with company revenues in 2020 and 2021 in violation of US financial regulations that require those funds to be kept separate. An individual with direct knowledge of the company’s finances claims that the sums ran into billions of dollars and the mixing of funds happened almost daily. Binance denies the allegations, and no evidence of customer money being lost or stolen has emerged.

A judge this week ruled that there was no evidence that Binance Holdings Ltd. aided and abetted a “pig butchering” scam, which involved a Texas woman who was allegedly cheated out of $8 million by a man she met on Tinder. Divya Gadasalli argued that Binance provided exchange services to the scammer, that Binance and Binance.US were the same entity, and people used virtual private networks to access the exchange, facilitating the scam.

Change-of-address fraud, in which scammers change a victim’s mailing address on file to get sensitive information from their mail and steal their money, is on the rise. In response, the Post Office is announcing new policies to help mitigate the fraud. The USPS will text online customers with one-time security passcodes and plans to send activation letters to customers’ new addresses.

Traders at five major banks swapped sensitive information on UK bonds in chatrooms in the wake of the 2008 financial crisis, possibly exposing themselves to fines and other penalties. Citi, Deutsche Bank, HSBC, Morgan Stanley, and Royal Bank of Canada are accused of sharing details on pricing and trading strategies, and likely blocking full competition benefits of anyone with whom they traded, including, pension funds, and UK taxpayers.

The Consumer Financial Protection Bureau has fined Citizens Bank $9 million for failing to properly process credit card disputes by automatically denying fraud claims and billing error notices, in violation of federal law. In addition, Citizens neglected to fully refund charges and fees and failed to issue mandatory acknowledgement letters and denial notices in response to billing errors.

A new report from TRM labs says that hackers stole about $400 million from crypto projects in 40 attacks during the first three months in 2023—a 70 percent decline over the same period last year. The average hack also shrunk from $30 million in 2022 to $10.5 million. Hackers also increasingly return the money they steal, settling for getting rewards instead.

US authorities this week completed a three-month campaign to disrupt fraud networks. Multiple law enforcement actions focused on money mules who have been moving funds for fraudsters, many of whom are based overseas. Law enforcement took more than 4,000 actions against individuals facilitating fraud schemes during the past three months.

Former Memphis player Tony Allen has pleaded guilty to conspiracy to commit health care and wire fraud. Allen is among 18 former NBA players who in 2018 were charged with defrauding the league’s health and welfare benefit plan out of about $4 million by submitting fraudulent claims to get reimbursed for medical and dental expenses that were never incurred.

A UK foreign exchange company chief, who used investors’ money to fund his luxury lifestyle, this week was convicted in a London court for the $62 million Ponzi scheme. Anthony Constantinou, who was recently arrested in Bulgaria with fake identification documents and then released, was found guilty in absentia of one count of fraud by false representation, two counts of fraudulent trading, and four counts of transferring criminal property.

A fraud scheme in northern China that used “deepfake” technology to convince a victim to transfer more than $600,000 to a supposed “friend” has sparked concern about the potential use of AI to commit financial crimes. Police say that the perpetrator used AI-powered face-swapping technology to impersonate the victim’s friend during a video call, convincing him to transfer the money.

The FBI is warning about a new scam crypto job advertisement that is linked to labor trafficking. Victims have primarily been targeted in Asia and are offered various opportunities, including technical support, call center customer service, and beauty salon work. Upon arrival in a foreign country, job seekers are “coerced” into committing cryptocurrency investment scams.

Bryan Lee, an executive associated with crypto exchange CoinDeal, has been charged in connection with a cryptocurrency investment scheme that defrauded more than 10,000 victims and resulted in losses of more than $45 million. Lee is accused of collaborating with others to deceive victims to invest in companies controlled by Neil Chandran, collectively known as “ViRSE.” To entice potential investors, the fraudulent operation promised substantial returns.