Insights: Week Of October 24, 2022

The war in Ukraine is putting new pressure on US firms and financial institutions to monitor payment fraud that can be used as a vehicle to mask sanctions evasion, as illicit actors develop more complex methodologies of evading detection. Networks of front and shell companies, sham divestments, synthetic identities, and foreign gatekeepers are helping malign actors hide assets, and US firms and financial institutions must start addressing financial crime holistically, rather than treating fraud, money laundering, and sanctions evasion as separate issues.

The links between sanctions compliance, anti-money laundering (AML), counter-financing of terrorism (CFT), and anti-fraud efforts cannot be understated. Financial crimes include corruption, kleptocracy, fraud, corrupt payments, bribery, identity theft, and sanctions violations, and their proceeds need to be obscured using money laundering techniques, which are becoming more sophisticated thanks to available technologies.

Anti-fraud, AML, and sanctions compliance teams use similar methods to preform their duties, just as illicit actors from fraudsters to kleptocrats and sanctions evaders use similar methodologies to transact. All teams strive to protect their organizations against monetary loss and regulatory penalties, but AML and sanctions compliance programs also focus on protecting the US financial system from illicit actors.

FiveBy’s certified compliance specialists understand the convergence between financial crimes and can help your company or financial institution monitor, research, and analyze potential fraudsters and other malign actors to prevent them from gaining access to your products and services, and more widely, to the US financial system. Click below for a free demo and consultation.


Compliance and Due Diligence

FinCEN this week renewed and expanded real estate geographic targeting orders (GTOs) that require US title insurance companies to identify the natural persons behind shell companies used in cash purchases of residential real estate. The agency expanded the geographic coverage of the GTOs to include counties surrounding Houston and Laredo, Texas.

The Commerce Department has warned Seagate Technologies that it may charge the computer hard-drive maker with violating restrictions on exports of high-tech products to China. The company denies the allegations, and the accusation is over sales between August 2020 and September 2021 to “a customer and its affiliates,” which almost certainly refers to Huawei.

The Biden administration this week imposed sanctions on Russian and Moldovan individuals and entities for facilitating Russia’s efforts to manipulate the Moldovan political system. OFAC designated 15 entities and 23 individuals in total. Russian entities and individuals involved in corruption, intelligence operations, including cyber and election interference, in Moldova have been designated. Treasury also sanctioned additional Iranian officials over their crackdown against protests over the death of Mahsa Amini.

The United States this week imposed sanctions on an Ortega regime insider in Nicaragua, as well as the country’s General Directorate of Mines (DGM), saying that since the Biden administration sanctioned state mining company Eniminas in June, DGM has managed most mining conducted in the country. The State Department also imposed visa restrictions on more than 500 Nicaraguan individuals and their family members.

OFAC today sanctioned the 15 Khordad Foundation – an Iranian organization that offered a $2.8 million bounty on the head of Salman Rushdie. There have been accusations about Iran’s responsibility for the recent attempt on Salman Rushdie’s life, and a month ago, the media reported that the United States was considering additional Iran sanctions over the attack.

The European Commission is planning to designate the UAE as a high-risk country for money laundering. Transparency International and other NGOs have been urging the EU to act on evidence that the Emirates lack adequate AML protections, but with sanctioned Russians transferring assets to the UAE to evade sanctions, the issue has become even more urgent.

Danske Bank has set aside $2 billion for fines to resolve a huge money laundering scandal with the US Justice Department, the SEC, and the Danish special crimes unit. Danske disclosed a massive money laundering scandal in 2018 when it said that much of the €200bn of cash that flowed through its Estonian branch between 2007 and 2015 from countries including Russia was “suspicious.” The bank is still subject to several civil lawsuits.

An Australian MP is calling for immediate sanctions against the junta in Myanmar after a deadly airstrike at the Hpakant music festival, which was held to commemorate the 62nd anniversary of the Kachin Independence Organization’s founding, killed dozens of civilians. Zoe Daniel noted that the Tatmadaw’s access to an international supply of aviation fuel has facilitated the airstrikes which have killed or displaced civilians in Myanmar.

The General Court of the European Union (CJEU) this week annulled EU sanctions against former Sevastopol governor, Dmitry Ovsiannikov, finding that once he left office, he could no longer be accused of violating the territorial integrity of Ukraine. Ovsiannikov was governor of Sevastopol during the illegal Russian annexation of Crimea and served as deputy minister of Industry and Trade of the Russian government until 2020. He was first included in the European sanctions regime in 2017.

The EU this week lifted sanctions on three officials from Burundi, including the prime minister, but continues to engage with the authorities there about improving the country’s human rights record. In 2015, the EU imposed travel curbs and asset freezes on several Burundian officials after accusing them of engaging in activities undermining democracy in the country.

A bill dubbed the Mahsa Amini Act would impose sanctions on Iran’s Supreme Leader Ali Khamenei and President Ebrahim Raisi for human rights abuses and support for terrorism. The two are already sanctioned by OFAC under Iran authorities.

Venezuela this week asked the EU to lift sanctions and offered to help mitigate the EU energy crisis, accusing the bloc of stealing Venezuelan resources and accusing sanctions of causing a humanitarian crisis there.

Alan Estevez, Commerce Department Undersecretary for Industry and Security, this week confirmed that the Commerce Department may be imposing additional export controls on Chinese biotech, AI, and quantum computing.

A few weeks ago, we published an advisory about whether a possible merger between Russian metals giants Nornickel and Rusal would create a Russian entity that would be “too big to sanction.” The merger, however, is almost certainly on ice indefinitely, as Rusal this week filed a lawsuit in London alleging that Nornickel CEO Vladimir Potanin is in breach of a deal brokered by Moscow 10 years ago to protect Rusal’s dividend payouts. In addition, both US aluminum giant Alcoa and European Norsk Hydro ASA, which operates the biggest primary aluminum plant in Europe, are calling for sanctions against Russian metals. The developments highlight the importance of monitoring changes that could impact business decisions.

Fraud and Abuse

Russia-backed organized crime groups are expanding their smuggling operations to boost revenues for the Kremlin’s continued war in Ukraine. A joint operation between several EU countries last month dismantled a Belarus-based criminal ring which smuggled tens of millions of dollars’ worth of illegal drugs and cigarettes into the EU. Multiple EU and NATO officials believe the operation was state-sanctioned by Russia and Belarus.

Former Panamanian president Ricardo Martinelli faces a corruption probe into his alleged role in the “New Business” money laundering scheme, related to the purchase of a Panamanian media outlet. Martinelli is suspected of improperly diverting public funds in the purchase of the media conglomerate Grupo Editorial Epasa while he was president.

Hong Kong Customs has arrested two men involved in one of the city’s largest ever money-laundering cases. The suspects allegedly sold metals and transferred money to companies in mainland China or offshore shell accounts.

A corporation in Myanmar that is implicated in corruption served as a middleman between Israeli arms exporters and the military junta ruling the country. UK-sanctioned Star Sapphire Trading’s senior executives maintain business and family ties with senior Tatmadaw leaders.

Billions of dollars in criminal proceeds are being laundered through slot machines in Australia’s New South Wales, and an official inquiry is recommending tighter controls on the gaming industry. At least $61 billion flowed through tens of thousands of slot machines, giving illicit actors opportunities to launder dirty funds.

A new study shows that the UN has paid out at least $137 million to Syrian companies linked to war profiteers, human rights abusers, and sanctioned figures connected with the Assad regime. Among the companies that received UN procurement money in Syria was an entity owned by a sanctioned militia leader and another owned by the family members of a businessman who allegedly profited from trading the rubble of buildings shelled by government forces.

South Korea’s Financial Services Commission is launching an investigation into the amount of stablecoins being used on crypto exchanges. Financial authorities in Korea consider stablecoins to be an extreme money-laundering risk.

Two men suspected of being Chinese intelligence officers have been charged with attempting to obstruct a US criminal investigation and prosecution of Chinese tech giant Huawei. Guochun He and Zheng Wang allegedly tried to elicit information from a US government employee about the Justice Department’s investigation, including witnesses, trial evidence, and potential new charges.

An infamous, corrupt Nigerien Weapons Broker, Aboubakar Hima, may be skimming money from a new weapons deal with Senegal. Early this year, a Senegalese state agency signed a deal to purchase $77 million worth weapons from a little-known local firm, Lavie Commercial Brokers, that had only been set up a couple months earlier by Hima, who is suspected of siphoning millions from inflated arms deals in Nigeria and his home country of Niger. The contract was never put out to bid, and once the deal was signed, it was kept quiet. 

The Domestic Kitten campaign since 2016 has been spying on Iranians who could pose a threat to the stability of the regime using deceitful mobile applications loaded with malware. A new Domestic Kitten spyware strain masquerading as a translation app has been targeting Iranian citizens. 

Crédit Suisse has agreed to pay $234 million to avoid prosecution in France on money laundering and tax fraud charges. The bank said it had reached the settlement “to resolve an investigation into historical cross-border private-banking services.” The settlement does not imply recognition of criminal liability.

Myanmar is back on FATF’s black list, and the country’s central bank is promising improvements and warning against currency manipulation. FATF cited deficiencies in Myanmar’s enforcement against money laundering and other financial crimes. This isn’t the first time the country has been blacklisted by FATF. It was removed from the list in 2016 during its transition to a civilian government.

One of Germany’s largest municipal energy suppliers, Enercity, this week was targeted by a cyberattack, impacting customer service and some of the online services and systems. This was just the latest in cyber incidents that targeted the energy sector in Germany in recent months. Cyber incidents that preceded Russia’s invasion of Ukraine sparked concerns that these attacks were coordinated by Russian intelligence.

A federal grand jury in California has charged Dr. Sohail Mamdani with mail fraud and money laundering in connection with a $53 million disability insurance fraud scheme. Mamdani between February 2020 and March 2022 allegedly submitted more than 6,000 initial claims to the state Employment Development Department for disability insurance payments despite having never seen or treated the majority of the claimants.

A federal judge has ruled that Crown Resources committed thousands of violations of the Clean Water Act in its operation of the Buckhorn Mountain gold mine in Okanogan County, Washington. Despite public assertions that “Crown adhered to the highest environmental standards during operation and closure of the Buckhorn Mine,” Crown now stipulates to more than 3,000 violations of the Clean Water Act. Penalties will be decided at a later date.

Hacker and dark market operator, Daniel Kaye, this week was arraigned on charges of access device fraud and money laundering conspiracy stemming from his alleged operation of The Real Deal, a Dark Web market that sold, among other things, hacking tools and stolen login credentials. Kaye allegedly engaged in a slew of crimes, including selling login credentials for US government computers, trafficking in stolen social security numbers, and possessing 15 or more stolen login credentials for Twitter and LinkedIn. Kaye also allegedly laundered cryptocurrency he obtained from The Real Deal through

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