Insights: Week of June 12, 2023

Image by Mohamed Hassan from Pixabay

Sanctions against individuals, entities, and countries are on the rise, indicating that governments’ use of these tools of economic statecraft will continue for the foreseeable future. More than one in four countries is subject to sanctions by the UN or western governments, and 29 percent of global GDP is generated in sanctioned countries—up from 4 percent in the 1960s. The world of sanctions and economic restrictions is becoming more complex, and regulators expect more robust and comprehensive efforts to ensure malign actors are blocked from the US dollar, US markets, and US-origin technologies.

  • New guidance issued by the departments of Commerce, Justice, Treasury, and State warns US industry that it must enhance its due diligence efforts to ensure no US-origin components wind up in Iran’s hands. The guidance lists some useful red flags, but also reminds US companies about the penalties they can face—both financial and criminal—if they are caught violating sanctions and export restrictions.
  • DHS on Friday added two entities, and eight subsidiaries to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List for being involved in forced labor in Xinjiang. China-based printer maker Ninestar (owner of US-based Lexmark International) and Xingjang Zhongtai Chemical are now blocked from the US supply chain.
  • The Biden administration this week added 43 entities to the Bureau of Industry and Security Entity List, including Frontier Services Group Ltd, a security and aviation company that trains Chinese military pilots. The Test Flying Academy of South Africa, a flight school under scrutiny by authorities in the UK for recruiting British ex-military pilots to train Chinese military fliers, has also been listed. The full list is located here.

The myriad of entity lists, regulations, and restrictions, as well as the ever-growing SDN list, can make compliance efforts more challenging. FiveBy’s expert, certified analysts are here to help you unravel the tangled mass of rules, directives, and guidances.

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Compliance and Due Diligence

The United States this week extended sanctions against Belarus for another year over the Lukashenko regime’s continued repression and violence against the citizens and support for Russia’s war in Ukraine. Belarus was first labeled a national security threat for widespread human rights abuses and pervasive corruption in the 2006 elections.

OFAC this week issued a general license to allow transactions related to the prevention, diagnosis, and treatment of COVID-19 in Iran. The license allows some transactions with the sanctioned Central Bank of Iran and the National Iran Oil Company. Treasury also published a consolidated fact sheet for transactions related to COVID-19, stressing that humanitarian goods, such as medicines and medical devices, may be provided to Iran. General licenses for Venezuela and Syria have also been issued.

OFAC this week sanctioned two individuals involved in helping North Korea procure equipment for its ballistic missile program. Choe Chol Min is a Beijing-based Second Academy of Natural Sciences (SANS) representative who has worked to procure items and materials used in the production of DPRK ballistic missiles. His wife, Choe Un Jong, is a Beijing-based North Korean national who is officially assigned to the DPRK Embassy in China, and who has, on at least one occasion, helped coordinate an order for dual-use bearings used in DPRK ballistic missile production.

Senators Tim Kaine and Marco Rubio have introduced a bill that builds upon the Nicaragua Human Rights and Anticorruption (NICA) Act of 2018 and the Reinforcing Nicaragua’s Adherence to Conditions for Electoral Reform (RENACER) Act of 2021, authorizing sanctions and other international pressures against the Ortega-Murillo dictatorship. No companion measure has been introduced in the House yet.

A bipartisan group in Congress has reintroduced legislation to designate Russia as a state sponsor of terrorism. The bill outlines Russia’s repeated support for non-state terrorist groups prior to and during the Ukraine conflict. The bill would further isolate Russia and inflict more economic consequences on the Putin regime.

Senators Jim Risch and Sheldon Whitehouse this week  introduced legislation authorizing president Biden to seize and transfer Russian sovereign assets to Ukraine for the country’s reconstruction. The bill argues that Russia bears responsibility for the destruction in Ukraine and gives the White House the ability to confiscate frozen Russian sovereign assets in the United States, including those of the Russian Central Bank.

Senators Alex Padilla and Marco Rubio have introduced legislation calling for US sanctions against Azerbaijani officials responsible for the Artsakh blockade and ongoing human rights violations, as well as urging the Biden Administration to stop all military aid to Azerbaijan.

The EU this week cut five Chinese firms from its sanctions list after Beijing promised to stop the flow of military goods to Russia. Three companies remain on the draft list—Russian entities operating in China. Beijing has promised to work to ensure the companies that were removed stop reselling high-tech goods made in Europe to Russia. Those companies can quickly be re-added to the list if violations are found.

Russia’s second largest bank, VTB, will sell its stake in one of Russia’s biggest grain traders, Demetra-Holding, and is in negotiations with both Russian and foreign buyers. The sale will happen this year and could go to a Chinese company or other foreign or Russian entities.

A UN sanctions committee this week released a report claiming that Russia late last year began sending refined petroleum products to North Korea and continues to do so this year. The resumption of oil shipments to the DPRK is raising concerns that both nations may be evading sanctions, helping North Korea’s stagnating economy and funneling arms to Russia used to attack Ukraine.

Proceeds gained from the recent $35 million Atomic Wallet hack are being laundered through sanctioned Russia-based crypto exchange Garantex. The North Korean hacking group Lazarus is believed to have been behind the attack. OFAC sanctioned Garantex and the Hydra dark web marketplace last year.

Ukrainian president Zelensky this week signed a decree to impose sanctions against 178 Russian nationals for five years. Seventeen of the sanctioned people hold dual Ukrainian/Russian citizenship. One of the sanctioned individuals is Valery Zorkin, chairman of Russia’s Constitutional Court, which approved the illegal annexation of Donetsk, Luhansk, Zaporizhzhia, and Kherson.

The Ukrainian security service (SBU) has exposed the Kyiv Central Design Bureau of Reinforcement Engineering’s scheme to evade sanctions against Russia by shipping pipeline fittings to build power units at five nuclear power plants in several countries to Rosatom. The SBU says the company’s products were re-registered to Rosatom-controlled actual recipients just after crossing the Ukrainian border and traveled “along a new route.”

The EU has expanded the scope of its sanctions regime to target a wider range of Russian businesspeople and their family members. The EU has also expanded the criteria to include individuals involved in economic sectors that are a substantial source of revenue for Russia.

The EU has agreed on measures to criminalize facilitation of sanctions evasion. The measure could target banks and financial institutions that transact with sanctioned individuals or entities.

UBS will impose tight restrictions on Credit Swisse bankers, after taking over the beleaguered lender this month. The new restrictions will include a ban on new clients from high-risk countries, such as Libya, Russia, Sudan, and Venezuela and on complex financial products. Ukrainian politicians and state-owned enterprises will also be blocked as an AML measure.

A petition in Ukraine calling for sanctions to be lifted against gambling operator Parimatch gathered more than 25,000 signatures, giving President Zelensky 10 days to respond to the request after he receives it. Parimatch was banned from operating in Ukraine by presidential executive order in March, which alleged that gambling operations were providing funds to Russia.

The UK has introduced new sanctions against Belarus, targeting exports and internet propaganda over Minsk’s continued support for Russian aggression in Ukraine. The legislation passed this week includes an import ban on gold, cement, wood, and rubber from the country.

Non-fungible token (NFT) or cryptocurrency giveaways through airdrops to promote investing in digital assets will be banned as of October after new UK Financial Conduct Authority (FCA) rules come into effect. Under the new regulations, crypto also will be categorized as a “restricted mass market investment” and will require advertisements to have clear risk warnings.

Canada has frozen government activities with the China-led Asian Infrastructure Investment Bank (AIIB), which it joined in 2018, while it investigates whether the bank is dominated by the Chinese Communist Party. The opposition Conservatives in Canada have long asserted that AIIB was a tool for Beijing to export authoritarianism throughout the Pacific.

Products likely produced with slave labor in Xinjiang are being sold to US consumers through the online shopping platform Temu. Shipments from the region sold directly to consumers can circumvent the US ban on Xinjiang products because they fall below an $800 value threshold that triggers Customs reporting requirements.

A bipartisan Senate bill would, for the first time, subject exports of US data to the same type of licensing requirements that govern the sale of military and advanced technologies. The bill does not name TikTok, but it directs the Commerce Department to maintain lists of countries that are considered trustworthy and untrustworthy for the purposes of receiving US data.

Fraud and Abuse

Image by Gerd Altmann from Pixabay

Cybercriminals now need as little as three seconds of someone’s voice to successfully clone it for use in scam calls thanks to generative AI tools. In a recent McAfee survey, 77 percent of victims in AI-enabled scam calls said they lost money, with more than a third losing more than $1,000.

Special agents with the FBI San Diego Field Office are investigating hundreds of reports of elder fraud involving social engineering and artificial intelligence. This is a version of the “grandparent scam,” in which elderly victims are contacted by scammers posing as family members who need bail money and who are using artificial intelligence to convince the older adult victim they are talking to a family member.

A Kenyan court has frozen 45 bank accounts and 10 mobile money wallets belonging to Nigerian financial technology firm, Flutterwave, after a group of more than 2000 Nigerian nationals claimed the firm was used to defraud them of more than $12 million. The Nigerian nationals have sued Flutterwave, naming six local lenders that hold the company’s funds as interested parties.

Customs officers in Hong Kong this week arrested 23 people in a money laundering operation involving about $90 million in cash brought on flights into Hong Kong from Turkey. Hong Kong locals were allegedly paid several thousand dollars each time they collected a suitcase containing at least $1 million in Istanbul and handed it to a syndicate in Hong Kong. Customs officials in Hong Kong have asked Turkey to help them trace the origins of the cash.

Abdulkadir Awale this week pleaded guilty to his role in the $250 million fraud scheme that exploited a federal child nutrition program during the Covid epidemic. Awale enrolled his businesses, Karmel Coffee, LLC, Sambusa King, Inc., and Nawal Restaurant, Inc., in the Federal Child Nutrition Program as vendors and falsely claimed to provide food for more than 3.6 million meals to various sites in Minnesota.

Alvaro Ledo Nass, a lawyer who was general counsel for Venezuela state-owned oil company PDVSA and served as secretary of PDVSA’s board of directors, this week was sentenced to three years in prison and ordered to repay more than $11 million in bribes he took for his supporting role in a government money-laundering scheme. Nass got a reduced sentence for providing assistance in the $1.2 billion money laundering case.

The problem of check theft and fraud has gotten so bad, that postal authorities and bank officials are warning Americans to stop mailing checks altogether, or at least use secure mail drops inside post office facilities. Banks issued roughly 680,000 reports of check fraud to FinCEN last year—nearly double from the year before. Stolen checks can mean big business. A New Jersey man on Friday was arrested in a $9.7 money laundering operation that obtained nearly 2,000 stolen checks later transferred cash into accounts he controlled. Isaiah Edwards-Stewart deposited the checks into various accounts and then transferred them into his accounts at multiple banks.

The Justice Department on Friday charged two Russians—Alexey Bilyuchenko and Aleksandr Verner—with conspiring to launder approximately 647,000 bitcoins from their hack of Mt. Gox, contributing to the exchange’s ultimate insolvency. To launder the coins, Bilyuchenko, Verner, and their co-conspirators allegedly entered into a fraudulent contract to provide purported advertising services to a Bitcoin brokerage service based in New York, which made regular, large wire transfers into various offshore bank accounts, including in the names of shell corporations, controlled by Bilyuchenko, Verner, and their co-conspirators.

Ukraine’s legal effort to recover billions of dollars stolen from PrivatBank by oligarchs Ihor Kholomoisky and Gennady Boholyubov began this week in the UK. Nearly $2 billion was stolen by the duo, who owned the bank before it was nationalized in 2016. Kolomoisky is under investigation in the United States for fraud and money laundering.

Manuel Ruiz-Aguilera of Mexico and his co-conspirators this week were convicted of selling government-issued identity documents—including Puerto Rico-issued birth certificates and corresponding US social security cards—to illegal immigrants residing within the United States, so they could assume the identities of US citizens in order to reside in the United States. Ruiz-Aguilera was arrested in Mexico in February 2022 pursuant to a US extradition order and extradited to Puerto Rico last March.

Guatemalan newspaper founder José Rubén Zamora this week was sentenced to six years in prison for money laundering. The charges stemmed from Zamora asking a friend to deposit a $38,000 donation to keep the newspaper going rather than depositing it himself. Zamora has said he did so because the donor did not want to be identified supporting an outlet targeted by President Giammattei. The newspaper was known for its independent reporting and of investigating high-level government officials for corruption.

The Justice Department will only try FTX founder Sam Bankman-Fried on the eight charges it brought in December, including wire fraud, securities fraud, and money laundering. Bankman-Fried faces a total of 13 charges, but five were brought as superseding indictments several months ago, and his attorneys successfully argued that the government of the Bahamas had to agree to the original charges, which include bank fraud, operating an unlicensed money transmitter, and bribery since he was arrested there and extradited to the United States last year.

Fraud on Meta platforms is projected to cost victims in the UK £250 million this year, and an increasing number of banks is calling on the company to make urgent changes to its platforms. TSB Bank in the UK has written a letter to Meta outlining steps it wants the company to take to combat fraud, including introducing a secure payment on Facebook’s Marketplace, preventing unregulated firms in the UK from advertising financial products and investments—including cryptocurrencies—on Facebook and Instagram, removing fraudulent content within 24 hours, and other measures.

  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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