Insights: Week Of June 20, 2022

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The United States this week began to enforce the Uyghur Forced Labor Prevention Act (UFLPA) that bans products from China linked to forced labor. The UFLPA puts the burden on manufacturers and importers to prove a negative—that their products are not linked to coerced labor—and include adequate documentation and transparent details about the products, or risk them being seized by US authorities at the border.

  • Guidance released by US Customs and Border Protection (CBP) last week asserted that the UFLPA requires the CBP to presume that all imports manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region (Xinjiang) of China or by entities identified by the US government on the UFLPA Entity List, are presumed to be made with forced labor and are prohibited from entry into the United States. CBP informed importers that they must provide “clear and convincing evidence” that products made wholly or in part in Xinjiang were not produced using forced labor.
  • Chinese companies that produce raw materials for electric vehicle batteries are likely using forced labor, according to media reporting. Mining conglomerate Xinjiang Nonferrous Metal Industry employs hundreds of Uyghurs as part of a so-called “work transfer program.” China has acknowledged running such a program that moves Uyghurs and other ethnic minorities from the south of Xinjiang to the north to work in industrial jobs.

Identifying all parts of a supply chain—especially in China—can be challenging because of the secrecy surrounding the treatment of the Uyghurs in Xinjiang and the lack of independent auditors. A Treasury advisory last year also flagged the fact that auditors in China have been harassed, threatened, and intimidated, making their reporting unreliable, and that government-provided translators may not always deliver accurate interpretations of testimony about labor practices, making accurate due diligence difficult. Exporters can also ship their products through third countries to evade UFLPA requirements.

Supply chain gaps highlight the need for objective, in-depth reviews of current due-diligence processes and better insights into third-party partners. Companies that fail to appropriately evaluate and investigate their entire supply chain ecosystem are at risk for reputational backlash and significant fines. A risk-based approach to due diligence starts with a comprehensive assessment of the company’s vulnerabilities that require an understanding of the nature of its product or service and its uses, its customers, and the jurisdictions in which they operate.

FiveBy’s expert analysts can help your firm identify vulnerabilities and research your supply chain ecosystem to help avoid regulatory penalties. For a risk assessment consultation with one of FiveBy’s expert analysts, please click below.


Compliance and Due Diligence

The UK has introduced a new set of trade and financial sanctions against Russia, which include export bans on a range of goods and technologies, such as jet fuel and the export to or use in Russia of British pounds or euros. The list of banned products includes goods and technologies that facilitate internal repression, products and technologies that can be used in chemical and biological weapons, maritime goods and technologies, additional oil refining products and technologies, and critical industry products and technologies.

The EU is considering imposing sanctions on Russian gold as part of the next package of restrictive measures against Moscow, but Hungary says it does not support additional EU sanctions and prefers diplomacy instead. If Hungary blocks further EU sanctions against Russia, any additional designations the United States implements will be unilateral and probably less effective. Meanwhile, the EU has extended the package of existing sanctions imposed after Russia’s illegal annexation of Crimea by another year until 23 June, 2023.

A ban on transit through Lithuania to the Russian territory of Kaliningrad of goods that are subject to EU sanctions took effect on June 18. The EU sanctions list includes coal, metals, construction materials, and advanced technology, and covers roughly 50 percent of the items that Kaliningrad imports from Russia. Lithuanian Prime Minister Ingrida Simonyte says that Russian claims of a rail blockade are false, and only one percent of Russian freight was affected. Russia has vowed to retaliate.

Researchers at sanctioned Russian bank VEB this week at the Saint Petersburg International Economic Forum suggested that Russia should issue a gold-backed stablecoin for international payments to circumvent western sanctions. The bank’s Institute of Research and Expertise said that Moscow can use gold to mitigate the loss of Russia’s export revenue by selling Russia’s reserves to buyers in countries that don’t support the sanctions and use the metal as backing for a “golden ruble” stablecoin.

The UK’s Financial Conduct Authority (FCA) has fined Ghana International Bank (GIB) $7.1 million for failing to implement sufficient AML controls. The FCA said the bank provided correspondent banking services to other lenders without performing additional required AML checks.

Fraud and Abuse

The Enablers Act cleared a major hurdle this week when the House Armed Services Committee voted to include it in the National Defense Authorization Act. The bill amends the Bank Secrecy Act to require for the first time that trust companies, lawyers, art dealers, and other “gatekeeper” professions conduct due diligence on clients seeking to move money and assets into the US financial system. Those covered by the law would also be required to report suspicious activity to the Treasury Department.

Chinese, Middle Eastern, and Western banks have provided banking services to Iran’s sanctioned energy and industrial sectors, as nuclear talks grind to a halt. Tehran uses a network of proxy companies, foreign exchange houses, and intermediaries, to hold bank accounts that collectively transact tens of billions of dollars a year in trade that is otherwise banned by US sanctions. HSBC and Standard Chartered—two of the world’s largest banks by assets—have been providing services to companies that facilitated banned trade on behalf of Iranian exporters.

Canadian regulatory body, Ontario Securities Commission (OSC), has announced financial sanctions against two crypto exchanges: Bybit and KuCoin. In its statement, the regulatory body mentioned that both exchanges were guilty of running an unregistered crypto entity while providing services to residents of the country and violating some of the securities laws.

Liberia has officially launched its National Strategy and Action Plan on Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT), which seeks to protect the country’s financial system and boost its economy. The plan is the result of an evaluation assessment by the Intergovernmental Agency on Money laundering and Terrorist Financing, that showed the country’s AML/CFT laws and regulations were weak and needed to be strengthened to conform with current threat finance challenges.

A new assessment of how Russia used its cyber capabilities in the first months of the war in Ukraine reveals that more than two-thirds of the cyberattacks meant to bolster its invasion had failed, but that its disinformation campaigns were more successful than many expected. A study published by Microsoft this week showed that only 29 percent of Russia’s cyberattacks breached the targeted networks—the United States, Ukraine, Poland, and the Baltic nations—but that its disinformation operations, which blamed Washington and Kyiv for starting the conflict in Ukraine, may have been more successful, with a significant increase in traffic to known Russian propaganda sites.

Leaked emails show that Sibur—in which US-designated oligarch and Putin pal Gennady Timchenko has a significant stake—spent large sums of money on a villa that’s linked to the Russian president. The mansion on the Gulf of Finland, known as Villa Sellgren, had apparently become a vacation destination for Putin, according to independent media reports. Sibur agreed in 2012 to pay more than $1 million per year to rent the villa from its owner, Oleg Rudnov, an old friend of Putin, through a property management company called Nogata. A new management company took over in 2013, with an individual named Pavel Zaitsev handling leasing arrangements for the villa. Zaitsev just happens to work for sanctioned Bank Rossiya and is linked to LLCInvest, a group of companies built around the bank that hold many assets linked to Putin.

German investigators have uncovered evidence that the regime of Syria’s Bashar al Assad is funding his rule with drug money and that Damascus generates a significant portion of its revenues through international sales of the amphetamine Captagon. The upcoming trial in Germany of three Syrians and one Algerian individual should shine a spotlight on a booming drug trade under the control of the Syrian dictatorship.


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