US authorities are imposing record penalties on US firms and financial institutions that violate sanctions and anti money laundering (AML) laws and pursuing violators, both at home and abroad. The current regulatory environment highlights the critical need for enhanced due diligence, in-depth research, and a robust compliance and AML program to avoid millions of dollars in penalties and protect companies’ reputations.

• In the Financial Crimes Enforcement Network’s (FinCEN’s) first enforcement against a trust company, the agency has imposed a $1.5 million civil money penalty on South Dakota-chartered The Kingdom Trust Company (Kingdom Trust) for willful violations of the Bank Secrecy Act (BSA) and its implementing regulations.

• British American Tobacco (BAT) and its subsidiaries this week agreed to pay more than $508 million for violations of North Korea sanctions. The conduct was egregious and was not voluntarily disclosed to OFAC, and judging from the settlement, BAT managers in their Asia Pacific offices knew that dollar-denominated payments passed through the US financial system and that sanctions compliance and AML controls could impede the transactions. The Justice Department, which also will get its share for a combined total penalty of $629 million, says that between 2009 and 2019, BAT purchased leaf tobacco for North Korean state-owned cigarette manufacturers, using front companies and false documentation to process at least 310 transactions with US banks. Their efforts generated nearly $700 million for the North Korean companies, one of which was owned by the military.

• Westchester attorney, Robert Wise, this week pleaded guilty in federal court to participating in a scheme to pay roughly $3.8 million to maintain six properties in the United States owned by sanctioned Russian oligarch Viktor Vekselberg. Wise admitted that he exploited his position of trust as a lawyer, laundering money to facilitate sanctions violations by Vekselberg’s longtime associate, Vladmir Voronchenko. An indictment charging Voronchenko was unsealed in February.

• The Justice Department’s Task Force KleptoCapture is focusing on overseas investment advisers, hedge funds, law firms, and private equity managers in its efforts to stem Russian sanctions evasion. The task force is also examining how cryptocurrencies can be used to mask transactions for restricted goods or funnel money to sanctioned Russian oligarchs, companies, or militias.

• FinCEN has renewed its geographic targeting orders (GTOs), requiring US title insurance companies to identify the natural persons behind shell companies used in non-financed purchases of residential real estate in several US jurisdictions. The agency also expanded the GTOs to include several locations in Colorado and Connecticut that present greater risks for illicit financial activity.

Analysis by linguistic, regional, AML, and sanctions experts are critical to help US firms and financial institutions avoid compliance pitfalls and staggering fines. US firms and financial institutions need to show regulators that they are making a good faith effort at screening out bad actors and identifying illicit financial transactions.

FiveBy’s analysts that hold certifications in sanctions compliance, AML, cryptocurrency risk, and other financial crimes can help identify risks associated with global illicit actors and provide insights that will help inform your business decisions. Click below for a free consultation.

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Compliance and Due Diligence

The US government continues to target fentanyl. Treasury is facing increasing pressure, including from legislation introduced this week in the Senate, to increase sanctions against individuals and entities that have facilitated the explosion of fentanyl use and distribution in the United States. The bill requires declaring fentanyl a national emergency and would require OFAC to sanction drug cartels. We assess that new sanctions would target mainly Chinese pharmaceutical companies and financial institutions and other entities and individuals linked to Mexican cartels.

OFAC this week sanctioned 10 individuals and 20 entities linked to the Cartel de Jalisco Nueva Generacion (CJNG)—a violent Mexican drug trafficking organization that smuggles illicit fentanyl and other drugs into the United States. CJNG uses the entities to commit timeshare fraud, which often targets elderly Americans and supports the cartel’s drug trafficking activities. CJNG was sanctioned in 2015.

Treasury this week, in coordination with the State Department, sanctioned Iran’s Islamic Revolutionary Guard Corps Intelligence Organization (IRGC-IO) pursuant to EO 14078 – Bolstering Efforts To Bring Hostages and Wrongfully Detained United States Nationals Home. The organization is involved in the violent repression of protests in Iran and holds and interrogates detainees in the Evin Prison. State also sanctioned Russia’s Federal Security Service for its involvement in the wrongful detention of US nationals.

The United States this week sanctioned three individuals in China, accusing them of laundering cryptocurrencies stolen by the North Korean Lazarus group. FinCEN says that North Korea uses a network of financial facilitators, mostly in China, who operate as agents for the DPRK’s financial institutions.

Czechia this week sanctioned the head of the Russian Orthodox Church, Patriarch Kirill (aka former KGB agent Vladimir Gundyayev). Kirill was included in the country’s Magnitsky-style sanctions list for supporting Russia’s war in Ukraine and is the first individual to be included. Hungary stopped efforts to include Kirill on a similar EU list last year.

The State Department this week sanctioned Wasantha Karannagoda, the Governor of North Western Province in Sri Lanka, due to his involvement in a gross violation of human rights during his tenure as a Naval Commander. The allegations, documented by NGOs and independent investigations, reveal serious human rights abuses in his handling of the final battle with the Liberation Tigers of Tamil Eelam (LTTE) in 2009.

The EU this week sanctioned an ISIS-affiliated terrorist group in Mozambique and two of its leaders. Abu Yasir Hassan and Bonomade Machude Omar, as well as their ISIS-Mozambique organization, have already been sanctioned by the United States.

The council of EU foreign ministers this week imposed sanctions on 25 individuals and eight entities in Syria that produce and traffic Captagon. Several entities were designated for supporting state oppression, including the al-Areen Foundation, which is accused of being closely affiliated with Syrian militias and supporting the goals of the government. Private security companies operating in Syria, such as Al-Jabal Security and Protection, Castle for Security, and Protection and Aman for Protection and Security were also designated for their roles in oppressing the Syrian people and acting as shell companies for pro-government militias.

The EU this week issued a new sanctions framework to target Moldovan oligarchs working (mostly on behalf of Russia) to overthrow the country’s pro-western government. EU travel bans and asset freezes would target those who “undermine or threaten the sovereignty and independence of Moldova, and democracy, the rule of law, stability or security in Moldova.” No one has landed on the list yet, but it’s there to disincentivize those who would try to destabilize the country.

The UK this week sanctioned four Iranians under its human rights regime. The four are IRGC regional commanders who are now subject to a travel ban and assets freeze and who the UK says are responsible for repression of the Iranian people.

One day after Treasury Assistant Secretary for Terrorism Financing and Financial Crimes, Elizabeth Rosenberg, warned Kazakh companies and banks that they could face sanctions if found to be helping Russia evade sanctions, the country’s leading finance institution announced that it will restrict its transactions with Russian and Belarussian nationals. Almaty-based Halyk Finance yesterday said instructions from the Kazakhstan Stock Exchange led to its decision. Kazakhstan remains a major transshipment point for restricted goods to Russia.

Deputy National Security Adviser Jon Finer this week told reporters that the United States will gradually lift sanctions against Venezuela if the country takes steps to restore free and fair elections. The White House envisions a “step-by-step approach,” in which steps toward restoring Venezuelan democracy are met by US steps to ease sanctions.

In response to a letter sent by several US Senators about the threat of China’s cloud computing companies, Commerce Secretary Gina Raimondo this week said that Chinese cloud computing companies like Huawei Cloud and Alibaba Cloud could pose a threat to US security and vowed to review the request to add them to the Entity List. Companies that also could be targeted include Baidu Cloud and Tencent Cloud.

Treasury this week released its new de-risking strategy. De-risking occurs when financial institutions terminate or restrict business relationships with broad categories of customers, rather than engaging in enhanced due diligence for individuals. Treasury discourages the practice because it can keep innocent people out of the global financial system, hinder remittances, and force transactions underground, causing an increase in illicit financial activity.

Bahamas wants to tighten its crypto laws in the wake of the collapse of FTX. New legislation, which includes measures on stablecoins, proof-of-work mining, and crypto staking, could become “among the most advanced pieces of digital asset-legislation in the world,” according to the executive director of the Bahamas Securities Commission.

Binance has resumed allowing crypto purchases using Russian bank cards after restricting its services in Russia because of international sanctions last year and prohibiting Russian users who held more than 10,000 euros’ worth of cryptocurrencies from making new deposits or trading. Now, Binance has lifted the restriction.

India’s Gatik Ship Management—an oil tanker company heavily involved in moving Russian oil—has lost insurance for its fleet after violating the G7 Russian oil cap. Gatik, which apparently intended to transport barrels bought at prices above the $60 threshold, “conveniently” appeared after the West began to ratchet up sanctions against Russia last year. The company apparently moved out of its office sometime this year and has no website, phone number, or contact information listed. American Club provided protection and indemnity cover, protecting against risks like collisions and spills.

Treasury has launched a landing page of select reports and assessments for private and public sector entities seeking more information on domestic violent extremists (DVEs) and foreign racially and ethnically motivated violent extremists (REMVEs). A roundtable discussion at Treasury on Friday focused on how DVEs and REMVEs have raised and moved funds using virtual assets and the challenges involved in tracking them.

Last week, we discussed Cyprus and the island’s oversized role in sanctions evasion and other financial crimes. Cyprus is concerned about being targeted by sanctions after continued revelations that their law firms and corporate service providers are offering services to sanctioned Russian oligarchs. The chairman of the Cyprus Bar Association this week said that last year, 35 law firms disclosed that they were offering services to sanctioned oligarchs. An unnamed source also says that the Institute of Certified Public Accountants of Cyprus, which supervises accountants, is aware of 60 accounting companies offering “non-essential services” to 80 sanctioned individuals, highlighting the risk gatekeepers pose to the global financial system by allowing illicit actors access to it.

One of Putin’s top officials in illegally occupied eastern Ukraine owns a UK company despite being sanctioned. Volodymyr Saldo, the Kremlin’s puppet in Kherson, is listed as the owner of Grainholding, registered in November—five months after being designated. The company documents say Grainholding has £1m in capital. Saldo owns half the firm’s shares and another Ukrainian and another Ukrainian individual owns the rest.

Fraud and Abuse

Musician Pras Michel has been found guilty of orchestrating an unregistered, back-channel campaign to influence the then-presidential administration and the Justice Department to drop the investigation into Jho Low and others for embezzlement and other offenses in connection with Malaysia’s 1MDB fraud, and to send a Chinese national back to China, as well as conspiring to make and conceal foreign and conduit campaign contributions during the 2012 US presidential election. Michel could spend up to 20 years in prison.

Designated terrorist Mohammad Bazzi, who is accused of providing millions of dollars to Hizballah, this week was handed over to US authorities and pled not guilty to sanctions evasion and money laundering.

A US judge this week ordered a South African executive to pay more than $3.4 billion in restitution and fines for a fraud scheme involving Bitcoin—the highest-ever civil monetary penalty in any Commodity Futures Trading Commission case. Cornelius Johannes Steynberg, the founder and chief executive officer of Mirror Trading International Proprietary, committed fraud tied to retail foreign-currency transactions and other crimes.

A former parts and services buyer for Apple this week was sentenced to three years in prison and ordered to pay more than $19 million in restitution to Apple and the IRS. Dhirendra Prasad last year was charged with fraud for getting kickbacks and causing Apple to pay for undelivered goods and services. Working in Apple’s Global Service Supply Chain division, he defrauded the company out of $17 million during his 10-year tenure.

Authorities from Germany, Estonia, and Latvia this week conducted a joint action against an organized criminal group that allegedly defrauded thousands of German companies. Three suspects were arrested, and cash, illegal drugs, and additional evidence. More than 300 bank accounts linked to the group were also frozen. The group allegedly stole $2.76 million through its criminal activities.

Dutch oil services firm Frank’s International will pay $8 million to the SEC settle bribery allegations for allegedly paying commissions to a sales agent who diverted some of the funds to an official at Angola’s state-owned oil-and-gas company, Sonangol. The funds were meant to influence the award of oil-and-natural-gas services contracts. Under the settlement agreement, Frank’s International neither admitted to nor denied the SEC’s findings.

Bulgarian authorities are investigating allegations that a financial institution in the country has been used to launder Russian money. Lawmaker Delyan Dobrev says that a reliable source revealed that the unnamed bank transferred large sums of money, believed to be connected to Russian oligarchs, to Hungary. The Bulgarian National Bank did not receive any suspicious activity reports of these transactions.

Two former associates of former Trump administration official Steve Bannon this week were sentenced to more than 7 years combined, after admitting to conspiring to defraud donors in a campaign to build the former president’s wall along the US-Mexican border. Brian Kolfage, a disabled Air Force veteran, was sentenced to more than four years in prison, and Andrew Badolato was sentenced to three years. Bannon was also charged, but was pardoned by Trump before he left office. Kolfage was accused of taking more than $350,000 and spending it on boat payments, jewelry, and cosmetic surgery.

Two US citizens and a South African national have been charged with conspiring to manipulate the market for HYDRO, a virtual asset on the Ethereum blockchain platform created by the Hydrogen Technology Corporation. Michael Kane of Miami; Shane Hampton of Philadelphia; and George Wolvaardt of Johannesburg, South Africa allegedly reaped $2 million in profits through their sales of HYDRO at artificially inflated prices.

South Korean prosecutors this week indicted the cofounder of Terraform Labs on multiple charges, including fraud, over the company’s demise last year, which wiped out about $40 billion in investor profits. Daniel Shin—the business partner of disgraced South Korean entrepreneur Do Kwon who was arrested in Montenegro last month and is wanted by Washington and Seoul—was indicted along with seven alleged accomplices who worked at Terraform Labs.

Lawyers for Do Kwon, founder of collapsed crypto issuer Terraform Labs, have requested that a US court dismiss charges brought against him by the Securities and Exchange Commission (SEC) partly for lack of jurisdiction. Their claim is that the SEC cannot regulate digital assets involved in the case, because the Terra (UST) stablecoin was a currency and not a security. A South Korean court has dismissed charges of security violations against Terraform Labs CEO and cofounder Hyun-seong Shin, ruling that the coin was a non-security.