Insights: Week Of July 25, 2022

Thomson Reuters this week published its 13th annual Cost of Compliance report that highlights the results of last year’s survey about the challenges US firms and financial institutions expected to face, as they work to enhance compliance programs in response to the increasingly volatile regulatory environment in 2022 and beyond. Rising costs, shortages of skilled resources, cyber resilience, and budget constraints are just some of the challenges compliance practitioners expected to face this year, and they were not wrong.

Russia’s invasion of Ukraine resulted in a flood of sanctions against Russian government officials, personnel, and major companies and banks. In addition to constant monitoring to ensure they are in compliance with constantly changing sanctions regulations, firms and financial institutions also face reputational risks and environmental, social, and governance (ESG) expectations, which are becoming more important as investors and customers focus on corporate culture and conduct.

Compliance costs almost certainly will continue to rise, with increased demand placed on compliance professionals. How does a company that wishes to remain in compliance with US sanctions and keep itself safe from malign actors balance the need for increased monitoring and analysis with efforts to control costs? On-Demand analytic research could help. Please see below.


Compliance and Due Diligence

Kraken, one of the world’s largest cryptocurrency exchanges, is being investigated by OFAC for allowing users in Iran and elsewhere to buy and sell digital tokens in violation of US sanctions. Treasury has been investigating Kraken since 2019 and is expected to impose a fine. Kraken’s chief executive, Jesse Powell, suggested in a 2019 internal communication that he would consider breaking the law if company interests outweighed potential penalties. This will almost certainly ensure that Krakens monetary penalty is significant, given the evidence of Kraken’s willingness to violate US law.

Treasury today designated two individuals and four entities pursuant to EO 14024. One of the two—Aleksandr Ionov, a pro-Kremlin activist—is the founder of the Anti-Globalization Movement Of Russia, which the Atlantic a few years ago described as an NGO partly funded, but “not directly controlled” by the Kremlin—has been promoting extremist separatist movements in the United States more than six years. Ionov is an FSB co-optee, who is largely responsible for “undesirable” and “foreign agent” designations in Russia that have shut down and hindered the work of independent media and research organizations. Ionov has also been charged by the Justice Department with conspiring to have US citizens act as illegal agents of the Russian government. If convicted, he faces a maximum penalty of five years in prison.

North Korea is likely to face additional sanctions, including against its cyber capabilities and hackers, if it conducts another nuclear test. The DPRK is already subject to various UN sanctions because of its nuclear and missile programs, and the UN Security Council would likely adopt a “far stronger, more closely woven” resolution if it goes ahead with its planned test.

Senators Marco Rubio and Rick Scott of Florida, along with Kevin Cramer of North Dakota have introduced legislation to sanction China’s purchases of oil and other energy supplies from Russia in an effort to further limit Moscow’s Ukraine war funds. The bill would impose penalties on any entity insuring or registering tankers shipping oil or liquefied natural gas to China from Russia.

The Philippines is cancelling a deal to buy Russian military transport helicopters, fearing possible US sanctions under the Countering America’s Adversaries Through Sanctions (CAATSA) Act. The $227 million deal to purchase 16 Russian Mi-17 helicopters was signed in November.

Nornickel is preparing alternative export routes, including possible transshipment of ore to North African ports, should Europe ban Russian nickel. The company is owned and run by UK-sanctioned Putin oligarch Vladimir Potanin.

The American Gaming Association has updated its AML guide for 2022. Updates to the third edition of the Best Practices for Anti-Money Laundering Compliance Guide include changes brought about by the Anti-Money Laundering Act of 2020, FinCEN’s federal exceptive relief for some types of ID verification, and the recently approved jurisdictions for the use of cryptocurrency and digital payments.

The UK this week added 42 new designations to its Russia sanctions regime, including travel bans and asset freezes for several Russian regional governors. Syrian private security companies, Sanad Protection And Security Services and Al-Sayyad Company For Guarding And Protection Services Ltd, that were sanctioned by the EU last week for recruiting mercenaries to fight in Libya and Ukraine, have also been added to the list. The UK has also sanctioned Graham Phillips, a British pro-Kremlin blogger living in Ukraine, who has amassed hundreds of thousands of YouTube followers by spreading Russian propaganda.

The UN Special Rapporteur on human rights in Myanmar, Tom Andrews, has called on countries to take steps against Myanmar’s junta through economic sanctions and an arms embargo after four democracy activists were executed. Australia is already considering sanctions against members of Myanmar’s military in response to the executions.

North Korea has resumed shipping coal to China in violation of UN sanctions, which since 2017 have forbidden countries from purchasing coal originating in North Korea. Coal exported to China is transported from Nampo port to the West Sea and is then often transferred from the North Korean trading company’s ships to  Chinese ships on the open sea. The ship-to-ship transfers are a common way of avoiding detection and violating international sanctions.

At least five Chinese-owned elderly, very large crude carriers (VLCCs), that were all bought by the same anonymous beneficial owner, that are run under separate company names, and that are registered at the same address, in the past three months, comprise the core of a newly established ship-to-ship transfer hub for Russian crude oil in the middle of the Atlantic Ocean. Ship-to-ship transfers have been identified as a common sanctions evasion technique.

Bremen, Germany, will be shutting down all its betting venues after owners failed to convince officials that the establishments were not fronts for money laundering. Bremen officials announced this week that rejection notices have been issued to 32 establishments that had applied for betting licenses under the new Fourth Interstate Gambling Treaty. The shops have a week to appeal the decision.

Fraud and Abuse

Lawyers who have agreed to represent Russia’s sanctioned VTB Bank in US litigation that claims the bank facilitated payments connected with the 2014 downing of a Malaysia Airlines flight over eastern Ukraine cannot seem to find a bank to handle their legal payments, forcing them to request more time to enter the case. Despite the fact that Brafman has confirmed with OFAC that the payments for its VTB representation would be legal, banks are almost certainly derisking and avoiding engagement.

The UK has jailed a money laundering facilitator for nine years and seven months after his couriers were caught smuggling suitcases packed with bags of cash to Dubai. Abdullah Mohammed Ali Bin Beyat Alfalasi, who pleaded guilty to the charges this month, arranged for a network of couriers to fly $127 million of street cash to Dubai over the course of nearly two years. The couriers were given business class flights to exploit a larger luggage allowance and check-in closer to the departure time. Cash was crammed into suitcases that were then packed with coffee granules or sprayed with air freshener to confuse sniffer dogs.

Acisclo Valladares Urruela, the former economics minister in Guatemala, has pleaded guilty in Miami federal court to conspiring to commit money laundering and using US financial institutions to pay hundreds of thousands of dollars in bribes to Guatemalan politicians.  Valladares admitted that he transferred $350,000 in bribes to the unidentified Guatemalan politicians through two companies with bank accounts in Miami and that he received $140,000 for moving the dirty money into those accounts.

Ukrainian oligarch Ihor Kolomoisky has been stripped of his Ukrainian citizenship, which would allow Ukraine to ask for his extradition after he allegedly stole billions of dollars from one of the country’s largest banks, forcing the government to nationalize it, and laundered the funds through US real estate. Kolomoisky is the target of a federal grand jury money-laundering investigation.

According to four former employees of TikTok parent company, ByteDance, the company has used its now-defunct English-language news app, TopBuzz, to push pro-China messages to Americans. ByteDance denies the claims, but there have long been fears that the Chinese government could use TikTok to distribute content sympathetic to the Chinese Communist Party. The four former employees, each of whom worked on TopBuzz, say that ByteDance instructed members of its staff to include pro-China messaging in the app, sometimes by “pinning” it to the top of the app.

A UN Security Council report reveals that ISIS affiliates are getting financial backing from supporters in South Africa. The document, published last week, said that Ugandans and Kenyans generate wealth in countries such as South Africa and other countries, launder the proceeds, and transfer them to a rebel group in the Democratic Republic of Congo, the Allied Democratic Forces, that has sworn allegiance to ISIS. 

The China Banking and Insurance Regulatory Commission has announced a disciplinary probe into Li Huanting, a senior inspector who was once responsible for overseeing the banks at the center of one of China’s biggest financial scandals that involved the disappearance of roughly $6 billion in deposits from four financial institutions in Henan province. The scandal has prompted demonstrations in Zhengzhou, the provincial capital, from customers demanding their money back.

South Africa has submitted an extradition request to the UAE for the Gupta brothers, who are wanted for allegedly masterminding the theft of billions of dollars from state entities. Rajesh and Atul Gupta were arrested in the UAE in June. They’re wanted on charges of money laundering and fraud and were detained after Interpol placed them on its most-wanted list in February.

A Delaware couple has been convicted on federal charges of laundering more than $1 million through 13 real estate properties. Omar Morales Colon and his wife Shakira Martinez owned the properties in Delaware and Pennsylvania under the name Zemi Property Management. They put narcotics proceeds into different bank accounts that ultimately funded the real estate purchases, and Colon also used the money to improve the properties, including paying cash to have a bunker put underneath his home.

Lucrative jackpots paid to gamers in Kenya have been flagged by the Interior Cabinet as a possible means for laundering illicit proceeds. Currently, Kenyan law does not require sportsbooks to report suspicious transactions to the state’s Financial Reporting Centre (FRC), a body that tracks potentially illicit transactions.

South Africa’s banking regulator says the sector is at high-risk for money laundering and terrorist financing, citing the extensive use of cash and exposure to overseas lenders. The Prudential Authority of the South African Reserve Bank in a report published in 2020 had assessed the risk to the banking sector as medium-to-high. This week’s report said the nation’s five largest banks, which control 89 percent total assets, were most at risk. The regulator also says that the country needs to improve its AML/CFT efforts, as South Africa works to stay off FATF’s grey list.

OCCRP reports that US-designated Russian oligarch, Andrei Kostin, uses a Canadian citizen, Eric Whyte, to conceal his high-end real estate and other assets. Whyte appears in documents from the Pandora Papers as the beneficial owner of companies set up in the British Virgin Islands that owned luxury properties in Russia and Europe, some of which appear to have been used to hide Kostin’s assets. The companies are connected to other entities, which are mostly registered in Cyprus, that own roughly $130 million in assets.

FiveBy provides to our clients a weekly news roundup of relevant insights to help avoid issues associated with both regulatory and reputational risk. We hope you find this useful, if you would like to see other things included, let us know at

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