Insights: Week Of June 5, 2023

Image by Gerd Altmann from Pixabay

The Royal United Services Institute (RUSI) this week published a 40-page report on Russia adapting its financial and trade strategies to mitigate the effects of western sanctions. In addition to the sanctions evasion methodologies Russia has adopted after it invaded Crimea in 2014 and the resulting sanctions, including selling assets to close associates and family members and import substitution, Moscow is taking a page out of Iran’s playbook and is now gravitating toward other heavily sanctioned countries and organizations to learn additional mitigation strategies and establish mutually beneficial trade relationships.

  • Russia is now obtaining restricted key microchips and electronics at pre-invasion levels, as Moscow improves its strategies to circumvent sanctions. European companies are selling to third countries, which in turn resell the goods to Russia.
  • Russia’s second-largest bank, VTB, last month opened an office in Tehran. The two countries have begun connecting their financial systems to facilitate transactions outside the global SWIFT payment system.
  • Russian wineries such as Abrau-Durso continue to obtain supplies from Italy and France through third-party countries. Customs data show that Abrau-Durso continued importing corks from Corticeira Amorim via Turkey after the EU embargo went into effect last year, with customs declarations reflecting the change from Portuguese firm Amorim Cork to the Turkish logistics company Mepline Logistics, based in Istanbul.

Although Russia’s economy—ranked 11th in the world—is bigger than Iran’s, Moscow is studying Iran’s strategies for dulling the effects of western sanctions, especially as Russia works to obtain key parts and technologies needed to sustain its defense sector and war machine and struggles to sell its energy—a key revenue generator. Studying Iran’s sanctions evasion methodologies and assessing how they can be adapted for an economy Russia’s size can help augment our ability to analyze Russia’s possible next strategies to circumvent western restrictions.

Analysts with experience in foreign policy, financial crimes, and sanctions evasion methodologies can help US firms and financial institutions anticipate possible new techniques and approaches illicit actors and malign states could use to access restricted US tools and technologies and exploit the global financial system.

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Compliance and Due Diligence

Ukraine’s envoy to the UN, Sergiy Kyslytsya, at a UN Security Council Meeting accused Russia of destroying Ukraine’s Khakhovka dam this week. Kyslytsia noted that Russia has been in control of the dam for more than a year, and that it was physically impossible to blow it up by shelling, accusing Russia of blowing it up with mines. Ukraine is seeking additional sanctions against Russia over the incident—specifically the Russian missile industry and the nuclear sector.

OFAC this week sanctioned seven individuals and one entity for conducting influence operations to destabilize Moldova. Treasury says the malign influencers are part of a global disinformation operation that targets not just Ukraine, but also the United States, the Balkan countries, the EU, and the UK. The entity is a porcelain and ceramics manufacturer in Kaluga, Russia, linked to Alexey Losev, who has also been designated for conducting reconnaissance in Moldova in an effort to weaken the government.

Treasury this week sanctioned several entities based in China/Hong Kong and one Mexican centro cambiario (exchange house). The latter is linked to the Jalisco New Generation Cartel (CJNG) and launders drug proceeds, moving money between Mexico and the United States. Exchange houses in Mexico are often used by cartels to move illicit proceeds, and many are owned or controlled by the cartels, especially those close to the US border. The entities in China and Hong Kong are part of a network that’s linked to Iran’s ballistic missile program that conducts financial transactions and facilitates the procurement of sensitive parts and technologies.

OFAC last week sanctioned two individuals and two entities for helping Iran’s censorship efforts. Technology company Arvan Cloud—a key partner of the Iranian regime that helps block information in the country and works with Iranian intelligence services—and two of its senior employees have been sanctioned. ArvanCloud Global Technologies—Arvan Cloud’s Dubai-based affiliate—has also been designated.

The EU this week sanctioned nine Russian individuals under its Global Human Rights Sanctions Regime for sentencing outspoken Kremlin critic Vladimir Kara-Murza to 25 years in prison on politically motivated charges and false allegations. The individuals include the Deputy Minister of Justice of the Russian Federation responsible for enforcing the “foreign agents” legislation, Russian judges and other members of the judiciary, and a senior Russian prison official responsible for the poor treatment of Kara-Murza, endangering his health.

The European General Court this week dismissed the lawsuit of sanctioned Belarussian oligarch Alexander Shakutin who sued to have sanctions imposed against him in 2020 removed. Shakutin is in construction, agriculture, and machine-building and is among the nearly 200 individuals sanctioned by the EU for the repression of protests following the sham elections in 2020.

The crypto industry continues to fight OFAC’s sanctions on Tornado Cash, with the Blockchain Association and the DeFi Education Fund becoming the latest industry advocates to file an amicus brief in support of Coin Center’s lawsuit against Treasury over the designations. The groups claim the software is not owned by anyone, and that OFAC “conjured” up a “person” so it could impose sanctions against the crypto mixer.

The State Department on Friday sanctioned former Haitian Prime Minister Laurent Lamothe for “significant corruption,” alleging that he misappropriated at least $60 million from the Haitian government’s PetroCaribe infrastructure investment and social welfare fund for private gain. The State Department says Lamothe’s direct involvement in the management fund as a public official also contributed to the current instability in Haiti.

Former Royal Canadian Mounted Police deputy commissioner, Peter German, last week highlighted the money laundering risks associated with the lack of transparency in British Columbia about who owns or controls commercial fishing licenses, quota, and vessels in Canada. He also stressed that the lack of transparency about ultimate beneficial owners of fishing licenses and quotas makes them vulnerable to exploitation by state actors, transnational criminal organizations, and money launderers.

The SEC this week sued crypto exchange Binance and its CEO Changpeng Zhao (CZ), alleging multiple securities violations. The SEC also says that Binance used two US banks—Silvergate Bank and Signature Bank, both of which failed this year—to move billions of dollars around the world. In its lawsuit, the SEC says that Binance officials, including CZ, moved hundreds of millions, and in some cases billions, of dollars through the regional banks to accounts associated with companies in places like Kazakhstan, Lithuania, and the Seychelles—risky jurisdictions often used by illicit actors to launder money. AML experts say that the large, rapid transfers (as well as the risky jurisdictions) should have raised red flags.

European consumer advocate organizations have filed a complaint with EU consumer protection agencies calling for social media platforms to toughen crypto advertising rules and require networks, such as YouTube, TikTok, and Twitter to ban influencers from promoting crypto. The EU’s new Markets in Crypto Assets (MiCA) regulation requires that crypto providers obtain a license to advertise in EU countries, and the parallel Digital Services Act imposes extra constraints on large online platforms. But the Bureau Européen des Unions de Consommateurs believes more stringent measures are needed.

Fraud and Abuse

Image by Gerd Altmann from Pixabay

A Florida resident and dual citizen of the United States and Turkey this week pleaded guilty to running an extensive, multi-year operation to traffic in counterfeit Cisco networking equipment. Onur Aksoy ran at least 19 companies and approximately 15 Amazon and 10 eBay storefronts that imported from suppliers in China and Hong Kong tens of thousands of low-quality, modified computer networking devices with counterfeit Cisco labels, stickers, boxes, documentation, and packaging. Aksoy generated more than $100 million via this fraud.

Mohamed Ali Hussein and Lul Bashir Ali have pleaded guilty to exploiting a federally-funded child nutrition program during the COVID-19 pandemic, admitting to knowingly and willfully conspiring to participate in a fraudulent $250 million scheme to obtain and misappropriate funds intended as reimbursements for the cost of serving meals to underprivileged children. Hussein and Ali enrolled their companies, Lido Restaurant and Somali American Faribault Education, in the Federal Child Nutrition Program and then submitted fraudulently inflated invoices for reimbursement in which they claimed to be serving thousands of children per day.

A federal judge in Argentina yesterday dismissed all charges against Vice President Cristina Fernández de Kirchner in a money-laundering case known as the K Money Trail, marking the second time she has been cleared of corruption charges before reaching trial. Businessman Lázaro Báez and others were sentenced to 10 years in prison for laundering $55 million on behalf of Fernández’s family via false invoices for public works in the same case.

A former Austrian bank chief wanted in the United States for his alleged role in the Brazilian Odebrecht corruption scandal lost his bid to halt his extradition from the UK. Peter Weinzierl, the former CEO of Meinl Bank AG, unsuccessfully argued in a London court that he was “lured” to the UK by a CIA agent and arrested on “fabricated charges.” The Odebrecht SA corruption scheme involved hundreds of millions of dollars in bribes funneled to officials to win business across Latin America. Federal prosecutors say Weinzierl and another official helped move about $170 million from accounts in New York through Meinl Bank to offshore shell accounts.

An NGO that distributes cash aid in Africa, GiveDirectly, has suspended all its active operations in the Democratic Republic of the Congo, where at least $900,000 was allegedly stolen by staff or former workers. The individuals involved in the fraud stole SIM cards that impoverished households were meant to use to receive mobile money transfers from the nonprofit organization.

Former minority owner of the Minnesota Vikings, Reginald Fowler, this week was sentenced to more than six years in prison and ordered to forfeit $740 million and pay $53 million worth of restitution for a cryptocurrency scam that defrauded the bankrupt Alliance of American Football league. Fowler in 2018 established Global Trading Solutions and began working with Crypto Capital and other companies, lying to banks that were reluctant to process crypto transactions in order to open accounts that were used to process cryptocurrency transactions without the banks’ knowledge.

More than three dozen individuals on Friday were sentenced for their involvement in a large-scale fraud and money laundering operation that targeted individuals, corporations, and financial institutions throughout the United States. The defendants used business email compromise schemes, romance fraud scams, retirement account scams, and other frauds, to steal more than $30 million from numerous victims.

Seventeen listeners of the evangelical Christian radio host Dave Ramsey are suing him for $150 million, alleging that he played a role in promoting a timeshare-exit company that did not get them out of their contracts. The Timeshare Exit Team allegedly paid Ramsey as much as $30 million from 2015 to 2021 to endorse the company, which collected $200 million from clients.

Six people this week were arrested and charged with wire fraud and money laundering in a scheme to steal millions of dollars in federal COVID aid intended for the unemployed, rental assistance, and small businesses. The hundreds of fraudulent applications for government aid resulted in more than $3.3 million. Paradise Williams led the fraud scheme, creating fake documents and coaching her accomplices how to pose as landlords and tenants needing rental assistance.

A Maryland postal clerk has pleaded guilty to conspiracy to commit bank and wire fraud stemming from her involvement in a scheme to create counterfeit checks, using intercepted information obtained while she was employed by the Post Office. Breanna Cartledge would access USPS money orders and individuals’ mail, acquiring personal information and images of money orders and checks to create fraudulent checks and steal from victims’ accounts.

New data published by the London Police indicates that “courier fraud” has resulted in the loss of nearly $16 million in the past year. In courier fraud scams, perpetrators pose as authority figures, including police officers and bank officials, to gain the trust of their often-elderly and vulnerable victims via email or telephone calls. After trust is established, the criminals will claim that there has been fraudulent activity in the victims’ bank accounts, employing high-pressure tactics to create a sense of urgency and force victims to comply with their demands, such as withdrawing substantial amounts of money and placing it in envelopes or bags for the fraudsters, posing as dispatch couriers, to pick up.

  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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