The State, Treasury, Labor, and Commerce Departments this week released an advisory on the risks of transacting in Sudan. The risks to US entities and individuals stem from recent actions by Sudan’s Sovereign Council and security forces that could negatively impact US operations in the country and the region. Although Sudan’s military has long controlled numerous enterprises, it controls all state-owned entities (SOEs) in the country since seizing power last October.
- Sudan’s military leaders dissolved the transitional government in the country after the coup and imposed a state of emergency in the country, engaging in reported civil rights abuses. At least 111 people remain in detention in Khartoum, Port Sudan, and elsewhere, according to the UN. Another protestor last week was killed by security forces, bringing the number of those reportedly killed to 96.
- The departments recommend that in addition to ensuring that they do not violate US sanctions by transacting with persons and entities on the SDN list, US individuals and companies operating in the country and region perform enhanced due diligence, monitor human rights violations and other developments, and consider reputational risks when transacting with the Sudanese military.
- SOEs and military-controlled companies play an outsized role in the Sudanese economy and are currently involved in a range of commercial activities—everything from energy to infrastructure to agriculture. The agencies assess that at least 650 of Sudan’s publicly listed companies are SOEs—may of which have a history of corruption, and of which at least 200 are directly owned by the military.
Sudan is ranked as one of the most corrupt countries in the world by , presenting an increased regulatory risk to US persons and entities transacting with companies there, because of the Biden administration’s focus on corruption and kleptocracy as core national security interests. In addition, the detentions and killings of protesters, mistreatment of minors, and denial of legal representation to detainees are only the tip of the iceberg in reports about human rights abuses after last year’s coup. The reputational risks of engaging with entities owned by the Sudanese military are significant, as ESG investors and clients pay close attention to business practices that hold themselves to a high standard of taking critical action to address human rights risks and supply chains that could involve forced labor or other abuses. Because the exact number of SOE’s is not known, extra research by risk experts into the history and business practices, supply chains, and leadership of Sudanese firms is critical.
Compliance and Due Diligence
Treasury this week sanctioned an oil smuggling network that generated hundreds of millions of dollars for IRGC-QF and Hizballah. The designated individuals and entities help Iran generate oil revenues, which Tehran uses to support its militant and terrorist proxies in the region. Some of the entities that were designated are based in Russia, others in China and Hong Kong, and yet others in Turkey. In addition, OFAC has sanctioned Lebanon-based Concepto Screen SAL off-Shore that facilitates oil deals that likely benefit Hizballah and IRGC.
The United States this week also imposed sanctions on a HAMAS finance official and a network of financial facilitators and companies that have generated revenue for the US-designated Palestinian militant group. The HAMAS Investment Office holds assets estimated to be worth more than $500 million, including companies operating in Sudan, Turkey, Algeria, and other countries in the region.
The United States this week allowed a waiver to expire that allowed US investors to accept bond payments from sanctioned Russian financial institutions, inching Russia toward default. Moscow had expected the waiver to expire and started transferring the money last week to get ahead of the new restrictions.
Lack of insurance could cripple Russia’s economy even more than direct sanctions, impacting Russia’s ability to ship oil if insurance companies refuse coverage for Russian oil tankers. Non-Russian vessels also could be at risk of being dropped by western insurers if they carry Russian crude, undermining Moscow’s recent success in rerouting oil supplies from Europe and the United States to Asia. Insurance companies could start denying coverage in June and July, when policies that were withdrawn this month in anticipation of tougher EU restrictions fully expire.
The European Commission this week unveiled plans to criminalize sanctions evasion and facilitate confiscation of frozen assets linked to serious illegal activities and suspected criminals. Many EU states lack sufficiently robust legal frameworks to seize criminal assets, allowing illicit actors to hide their resources and benefit from illegal activities. The legislative proposal would address these weaknesses by creating a common legal framework for confiscating criminal assets, including sanctions evaders.
Armenia is helping Russia skirt sanctions. According to the Armenian Central Bank, about 16,000 non-residents—mostly Russian citizens—had opened accounts in Armenian banks as of early May. In anticipation of an influx of foreign entrepreneurs and money, the Economy Ministry formed a special working group for the relocation of foreign businesses to Armenia. According to the Ukraine’s Main Intelligence Directorate, 113 Russian IT companies have already moved to Armenia, and about 1,000 private enterprises and 250 limited liability companies have been established by Russian citizens in this country.
Huawei’s long established trading relationship with Leica to integrate the German camera maker’s technology into its phones has ended because of US restrictions on the company. Leica is now working with Chinese electronics firm Xiaomi to integrate its technology into a new flagship handset due for release in July. Canada has also banned Huawei—the last member of the Five Eyes intelligence-sharing network to do so. Wireless carriers in Canada will not be allowed to install Huawei equipment in their high-speed 5G networks.
Russia has imposed sanctions on nearly 1,000 Americans, including current and former Treasury officials, academics, and politicians. Bizarrely, Lynndie England—known for prisoner abuses at Abu Ghraib—has also been included on Russia’s list, as well as the late Senator John McCain and actor Morgan Freeman.
Fraud and Abuse
Cofounder and former chief executive of cryptocurrency derivatives exchange BitMEX, Arthur Hayes, has been sentenced to six months of house arrest for violating US law by failing to establish a compliant AML program, highlighting the US government’s intent to pursue criminal prosecution for blatant compliance failures. Hayes already has paid a $10 million penalty in connection with a settlement with the Commodity Futures Trading Commission.
Transparency International France is targeting the French real estate assets of businessmen and top-ranking officials close to Russian President Vladimir Putin in a lawsuit, alleging that the assets were bought with criminal money. The suit against unnamed individuals alleges money laundering and failure to justify financial resources, based on open-source data that the NGO says enabled it to map out the properties of individuals close to the Russian regime.
Ukrainian authorities have informed Cyprus that they have seized $420 million worth of assets that belong to Russian billionaire Mikhail Fridman and other business people. Fridman does not hold a Cypriot passport, but it appears, like many other Russian oligarchs, he hides his assets on the island. Cyprus also said it would strip citizenship from eight Russians and their family members who appear on the EU’s sanctions list.
The Xinjiang Police Files offer significant new insights into the internment of the region’s Uyghurs and other Turkic minorities, providing further counternarratives to China’s denials about the existence of internment camps, mass detentions, and forced reeducation. Their publication by the BBC coincides with the recent arrival in China of the UN Human Rights Commissioner, Michelle Bachelet, for a controversial visit to Xinjiang, with critics concerned that her itinerary will be under the tight control of Beijing, hiding the real treatment of those imprisoned in Xinjiang.
Poachers and loggers in Mexico are working for Mexican drug cartels, who pay them in illegal drugs, such as methamphetamine and fentanyl, to traffic exotic animals and plants to China. Mexican cartels are now delivering rare species of animals and plants to Chinese traders, who in return provide the chemical precursors needed to make illegal drugs. The government has taken a laissez faire approach to the drug cartels, and Mexico’s environmental regulators are significantly underfunded, allowing the cartels to increasingly control the country’s fishing and logging industries .
An art fraudster has been sentenced to 84 months in prison and two years of supervised release after pleading guilty to one count of wire fraud last year. Inigo Philbrick, according to the Justice Department, “knowingly misrepresented the ownership of certain artworks, for example, by selling a total of more than 100 percent ownership in an artwork to multiple individuals and entities without their knowledge,” and by taking out loans against pieces of art without informing co-owners. Philbrick furnished fraudulent contracts and records to investors to artificially inflate the artworks’ value, including a contract that listed a stolen identity as the seller.
The National Assembly of Panama last month voted overwhelmingly in favor of a bill to regulate digital currencies, but Panama’s President Laurentino Cortizo has halted the legislation, claiming that he does not have enough information about the bill to sign it into law. Cortizo’s primary concern is ensuring that the law complies with global AML standards, keeping his promise to change Panama’s reputation as a money laundering haven. Cortizo has been implementing recommendations made by FATF, which currently considers Panama a “jurisdiction with strategic deficiencies.”
The sons of former Panamanian president Ricardo Martinelli have been sentenced to 36 months in prison and a $250,000 fine each for their roles in a massive bribery and money laundering scheme involving the infamous Odebrecht global construction conglomerate. Ricardo (Jr.) and Luis Martinelli Linares directed millions of dollars in bribes through US banks to their own Swiss accounts in order to help Odebrecht gain corrupt influence at the highest levels of the Panamanian government.
Wells Fargo Advisors has agreed to pay a $7 million fine to settle charges that it failed to comply with an AML statute by failing to file suspicious activity reports in a timely manner. The charges stem from the Wells Fargo subsidiary failing to properly test and implement a new version of its internal AML transaction monitoring and alert system adopted in January 2019. The system failed to reconcile different country codes used to monitor foreign wire transfers resulting in a delay in filing at least 25 suspicious activity reports.
Switzerland-based commodities firm Glencore this week pleaded guilty and agreed to pay more than $1.1 billion to resolve allegations of violations of the Foreign Corrupt Practices Act (FCPA) and commodity price manipulation. Glencore and its subsidiaries were engaged in a decade-long scheme to make and conceal corrupt payments and bribes through intermediaries for the benefit of foreign officials across multiple countries. Separately, Glencore also admitted to engaging in a multi-year scheme to manipulate fuel oil prices at two of the busiest commercial shipping ports in the United States
A new website that published leaked emails from several leading Brexit proponents is tied to Russian hackers. The website—titled “Very English Coop d’Etat,” which is linked to what Google knew as “Cold River,” a Russia-based hacking group—has published private emails from former head of MI-6, Richard Dearlove, leading Brexit campaigner Gisela Stuart, pro-Brexit historian Robert Toombs, and others, contending that they are part of a group that secretly controls the UK. Two victims of the leak this week confirmed that they had been targeted by hackers and blamed the Russian government.
Despite China’s refusal to condemn Russia’s invasion of Ukraine and claims of close friendship with Moscow, Beijing appears to view Russia as a legitimate target for the theft of sensitive military technological information. Chinese hacking efforts have been targeting Russian institutes that research airborne satellite communications, radar, and electronic warfare. The institutes belong to Russia’s military conglomerate, Rostec.