Insights: Week Of September 26, 2022

Courtesy of WikiMedia Commons

The Financial Crimes Enforcement Network (FinCEN) this week released the first of three final rules to implement the Corporate Transparency Act (CTA)—a bipartisan law that requires US businesses and other legal entities to report their beneficial owners to the agency. Reporting companies created or registered before January 1, 2024, will have until January 1, 2025 to file their initial reports, while reporting companies created or registered after that date, will have 30 days after creation or registration to file their initial reports.

FinCEN will engage in additional rulemakings to (1) establish rules for who may access BOI, for what purposes, and what safeguards will be required to ensure that the information is secured and protected; and (2) revise FinCEN’s customer due diligence rule following the promulgation of the BOI reporting final rule.

Advocates say that corporate transparency is a critical step to protect the US financial system from abuse by criminals and kleptocrats seeking to launder illicit funds. Malign actors frequently use corporate structures such as anonymous shell and front companies to conceal their identities and launder proceeds of crime through the United States. But will merely creating a beneficial ownership information database stop financial crime?

Being forced to disclose the identities of beneficial owners may act as a limited deterrent to illicit actors who want to remain anonymous, making concealing their identities more challenging. In addition, two other rulemakings will cover issues such as who will have access to the beneficial owner directory to be established by FinCEN and safeguards to protect this information.

The new requirement will impact nearly all small companies in the United States, and skilled attorneys can help these firms navigate the compliance process. AML and compliance teams should begin preparing. Compliance professionals also need to be prepared for the upcoming changes by adjusting their information-collection and reporting processes in advance of upcoming changes.



Compliance and Due Diligence

OFAC today sanctioned 296 individuals and entities and published a new Russia-related FAQ about the “sham referenda,” confirming that yes, non-US persons will face sanctions risk for supporting Russia following the referenda, continued occupation, and illegal annexation of Kherson, Zaporizhzhia, Donetsk, and Luhansk.

It looks like the EU’s next tranche of sanctions will leave Russian diamonds untouched. The new sanctions will ban imports of several steel products and outlaw the export of certain semiconductors to Russia. The European Commission also wants to sanction Alrosa, Russia’s largest diamond mining firm, as well as almost 30 individuals and eight companies.

The EU may implement measures that would prohibit EU ships from transporting Russian oil sold above an agreed threshold. The EU’s current oil sanctions include an embargo on Russian seaborne oil, a ban on providing services, such as insurance, brokering, and financing, needed to transport the oil, and exemptions for pipeline deliveries. That package will take effect in December for seaborne crude and in early 2023 for refined petroleum products.

The UK this week was the first to sanction Russian individuals and entities—92 in all—for the sham referendums in Ukraine. OFSI’s designations include JSC Goznak (Gosudarstvenniy Znak), which develops bank notes, coins, stamps, ID cards, and other security documents, as well as produces state and ID documents in the occupied territories, and IMA Consulting—a PR firm that provides consulting and marketing services. Canada also rejects Russia’s referendums and promises sanctions, but has given no timeline to implement them.

Russia’s communications regulator, Roskomnadzor, this week demanded to know why Apple removed applications operated by the Russian state-controlled firm VK from its app store. Apple said it follows laws of jurisdictions where the company operates, and that the apps were being distributed by developers that were majority-owned or controlled by UK-sanctioned parties. VK CEO Vladimir Kiriyenko was sanctioned by the UK, along with his father Sergei Kiriyenko, who serves as President Vladimir Putin’s deputy chief of staff.

All Turkish banks have now stopped processing Russian Mir cards following the lead of the country’s two largest financial institutions that did so last week. Following the news, the Kremlin criticized Washington for pressuring Turkish banks to stop processing Mir bank card payments, hindering trade between the countries amid Moscow’s military offensive in Ukraine.

Subsidiaries of Crédit Agricole that operated from Switzerland and Monaco have agreed to settle with the United States for violating sanctions against a number of countries. OFAC this week announced a settlement in which CA Indosuez Switzerland (CAIS) agreed to pay $720,258 to settle its potential civil liability for apparent violations of sanctions against Cuba, Iran, Sudan, Syria, and sanctions related to Ukraine. In a separate settlement, CFM Indosuez Wealth (CFM) agreed to pay a $401,039 penalty for apparent violations of sanctions against Cuba, Iran, and Syria.

Senate Foreign Relations Committee Chair Bob Menendez and senior member Marco Rubio this week introduced bipartisan legislation calling for an immediate end to US security assistance to Azerbaijan after its unprovoked attack on Armenia. The bill also demands the release of Armenian POWs, and calls for possible sanctions against Azerbaijan for war crimes.

OFAC this week sanctioned 10 entities and one vessel involved in the Iran petrochemicals trade. Treasury called it “an international network of companies involved in the sale of hundreds of millions of dollars’ worth of Iranian petrochemicals and petroleum products to end users in South and East Asia.” The sanctioned entities are located in Iran, UAE, India, and Hong Kong.

The Japanese government has announced new crypto regulations. The government will monitor virtual currency transactions to prevent money laundering and would mandate the sharing of know-your-customer information. The new regulations will come into effect in the spring.

The United States this week designated a prosecutor in Bosnia and Herzegovina for corruption that threatens the country’s democratic institutions. State prosecutor Diana Kajmakovic is linked to criminal organizations, helped hide evidence to help drug traffickers and other criminals, and worked to prevent prosecution of her associates for personal gain.

The Commerce Department this week added another Iranian aircraft to the list of aircraft flying to Russia in violation of export controls. The cargo plane, which belongs to Saha Airlines and which is owned by the Iranian air force, flew to Russia without authorization from Commerce.

The United States will not rescind sanctions imposed on Zimbabwean entities and individuals. US Ambassador to South Africa Reuben E Brigety said Washington did not believe claims that sanctions have caused Zimbabwe’s declining economy, since the designations were targeted at specific people and entities.

Finland has seized the assets of Russian billionaire and Yandex founder, Arkady Volozh. The oligarch resigned as Yandex’s chief executive officer in June after being added to the EU’s list in the sixth round of sanctions against Russia for its invasion of Ukraine.

Congressmen Gregory Meeks and Michael McCaul this week called for sanctions against Haitian gangs and those who help finance them, as the Caribbean nation remains paralyzed by a gang blockade that that has caused increasingly serious fuel shortages. The congressmen did not name specific gang members or financiers, and the frequency of their use of the global financial system is not clear The United States is also pushing for UN sanctions.

Dutch authorities have revoked the export license of the company operating the TurkStream gas pipeline from Russia to Turkey that allows Moscow to bypass Ukraine as a transit route to Europe. South Stream Transport—a subsidiary of Gazprom and the Netherlands-based operator of the offshore portion of the pipeline—claims EU sanctions are preventing maintenance and repair work on TurkStream.

Wondering what sanctions are left to impose on Russia as it continues its aggression? Secondary sanctions against anyone transacting with designated Russian individuals and entities are an option. Additional Commerce Department restrictions, blacklisting companies for violating export controls on Russia, can also be implemented. More oligarchs, kleptocrats, and human rights violators, as well as sanctions against Russian energy can also be imposed.

Delaware is blocking startup ventures with past ties to Russia from maintaining their corporate standing in the state. The Delaware Division of Corporations this year has told dozens of technology ventures with Russian links incorporated in Delaware that they cannot do further business there. Russian-linked tech ventures still exist as Delaware corporations, but they are barred from making corporate filings or paying taxes to remain in good standing. They are essentially in limbo.

The Financial Industry Regulatory Authority (FINRA) this week for the first time provided guidance to its member broker-dealers on the potential penalties they could face for violating AML rules. Under the new guidelines, FINRA could impose fines ranging from $10,000 to $310,000 for small firms and at least $50,000 for larger companies.

Fraud and Abuse

Sanctioned Russian oligarch Petr Aven is under investigation for allegedly routing nearly £3.7 million from an Austrian trust into the UK hours before Europe imposed sanctions on him following Russia’s invasion of Ukraine in late February. Aven has apparently been using his wife’s bank account, and accounts of other estate management firms, to support his lavish lifestyle after his designation by the UK.

The United States has charged sanctioned Russian oligarch Oleg Deripaska with violating sanctions by paying hundreds of thousands of dollars to ship his pregnant girlfriend to the United States to bear his offspring for automatic US citizenship. Russian citizen, Natalia Bardakova, and naturalized US citizen, Olga Shriki, helped Deripaska arrange for Yekaterina Voronina to travel to the United States by private jet on a tourism visa in 2020 for the birth of their first child and again for their second child in 2022. The first child was born in the United States and automatically received US citizenship. But this year, Voronina was refused entry after concealing Deripaska was funding her trip. The defendants also conspired to conceal Deripaska’s paternity by misspelling the first child’s last name.

German police this week raided the luxury yacht belonging to sanctioned Russian businessman, Alisher Usmanov, who is suspected of laundering hundreds of millions via offshore companies. The search of the yacht followed last week’s raid of Usmanov’s luxurious properties located on the shore of Lake Tegernsee in southern Bavaria.

Hackers believed to work for Russia have started using a new code execution technique that relies on mouse movement in Microsoft PowerPoint presentations to trigger a malicious PowerShell script. APT28 (aka “Fancy Bear”)—a GRU threat group—used the new technique to deliver the Graphite malware as recently as September 9.

India’s Enforcement Directorate this week raided the offices of Coda Payments India as part of a money laundering investigation into the fintech firm. The ED started an investigation into Coda and another platform, Free Fire, following complaints that the platforms made unauthorized deductions from the accounts of online game users. The ED also froze all Coda’s accounts, which total around $8.4 million.

The UK National Crime Agency (NCA) and Romanian police raided an organized crime group in Bucharest which targeted thousands of fraud victims in the UK. The gang contacted people who had lost money, and who they knew would be vulnerable and desperate to get their money back, via an investment trading scam only to defraud them a second time. The two agencies searched two apartments in Bucharest they believed were being used as boiler rooms for the scam.

Police and tax officers in Brazil have launched a major operation, raiding six domestic crypto exchanges. Authorities believe that the platforms are implicated in a massive international crime and money laundering ring, and that roughly $380 million worth of dirty money has been laundered through domestic crypto trading platforms.

China has dismantled a money laundering organization that is accused of using cryptocurrency to launder as much as $5.6 billion. The online operation resulted in the arrest of 93 suspects, the destruction of more than 10 money-laundering and storage sites, the seizure of more than 100 mobile phones and computers, the seizure and freezing of 300 million yuan in funds, and the recovery of 7.8 million yuan in economic losses suffered by victims.

The Securities and Exchange Commission (SEC) this week fined the Chinese affiliate of Deloitte $20 million for letting some clients, including foreign companies listed on US exchanges, conduct their own audits. The SEC’s enforcement action underscores the need for the Public Company Accounting Oversight Board (PCAOB) to be able to inspect Chinese audit firms, which would help identify weaknesses in firms’ quality control processes.

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