Complex Evasion Techniques
With the West continuing to impose sanctions on Russian individuals and entities in response to Moscow’s invasion of Ukraine, illicit actors are developing increasingly sophisticated and complex sanctions evasion methodologies. As the US government focuses its attention on service providers and facilitators who enable Russian oligarchs and other illicit actors to access the global financial system, recognizing these methodologies and blocking and reporting possibly prohibited transactions has become more important, given the authorities’ increased focus on enforcement.
- Venezuela uses false documents and little known shell companies to continue exporting oil despite US sanctions and to conceal its origin. Identifying false certificates of origin is becoming more difficult for compliance teams.
- Prosecutors this week petitioned to confiscate $5.4 million from a US bank account belonging to US-designated Russian businessman Konstantin Malofeyev in a case that illustrates some of the tactics illicit actors use to access the US financial system. Malofeyev—sanctioned in 2014 for moving money and military equipment to separatists in Ukraine—in March 2014 used a Seychelles shell company to invest $10 million in a Texas bank, Strategic Growth Bancorp. In 2015, he sold the shell company for $1 to an unnamed Greek business partner but backdated the agreement to July 2014, before sanctions were imposed. Strategic continued to recognize Malofeyev as the owner of the shares and flagged the attempted transfer to regulators.
Malofeyev in March also was charged with evading sanctions and using co-conspirators to secretly acquire media organizations across Europe.
Criminals, terrorists, and sanctioned individuals continue to access the global financial system because banks and intermediary corporate service provider firms fail to discriminate between low- and extremely high-risk customers, according to a recent study.
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Compliance and Due Diligence
The United States is banning the sale of communications equipment made by Chinese companies Huawei and ZTE and restricting the use of some China-made video surveillance systems, citing an “unacceptable risk” to national security. The Federal Communications Commission last week voted unanimously to adopt the new rules . The order also impacts products made by companies such as Hikvision and Dahua, makers of widely used video surveillance cameras.
The Biden administration has granted a six-month license to Chevron, allowing the oil company to resume “limited natural resource extraction operations” in Venezuela. The license was authorized after Venezuelan President Nicolas Maduro—who has been criticized for human rights abuses—agreed with opposition party members to a humanitarian spending plan focused on education, public health, food security and electricity programs. Maduro also promised to possibly continue talks to hold free and fair elections in 2024.
Maduro this week demanded that all sanctions against Venezuela’s oil industry be lifted before discussions with the opposition about holding free elections are held. Maduro also wants Venezuela’s state oil firm PDVSA to once again control oil refiner Citgo. Maduro is also demanding the release of “diplomat” Alex Saab, who Maduro claims was his “special envoy to Tehran” for humanitarian issues. Saab was extradited to the United States following his 2020 money laundering arrest in Cape Verde while en route to Iran. The Justice Department says Saab was Maduro’s bagman who helped Venezuela and Iran evade sanctions.
Cryptocurrency exchange, Kraken, has settled with OFAC for violations of Iran sanctions and has agreed to pay a $362,159 settlement. The exchange processed more than $1.6 million in transactions and didn’t appear to use geolocation tools to track where the users were located.
Top North Korean officials this week were sanctioned by the United States, South Korea, and Japan for participating in illegal activities to finance Pyongyang’s nuclear weapons and missiles program. South Korea designated at least eight individuals and seven companies from the north for their alleged role in contributing to the DPRK’s weapons program.
The Biden administration this week took aim at Hizballah with sanctions against two Lebanon-based individuals and two companies for providing financial services to the foreign terrorist organization (FTO), and one who facilitates weapons procurement for the organization. Adel Mohamad Mansour is the executive director of US-designated financial firm Al-Qard al-Hassan (AQAH) that was sanctioned in 2007 that gave Hizballah access to the global financial system. The two entities, Al-Khobara for Accounting, Auditing, and Studies and Auditors for Accounting and Auditing, are connected to AQAH.
The Biden administration is considering designating the US, UK, and EU-sanctioned Wagner Group as an FTO. This is probably in response to pressure to designate Russia a state sponsor of terrorism, which the European Parliament did last week. Designating Wagner as an FTO would allow the United States to pursue criminal prosecution against the group and its members.
Switzerland as of 25 November has frozen Russian financial assets worth $7.94 billion. The European Commission this week proposed a plan to confiscate frozen Russian assets, but Switzerland has no current legal authority to take such a step.
France’s National Assembly this week unanimously adopted a resolution calling for sanctions against Azerbaijan, following a similar action by the French Senate in support of Armenia. The National Assembly called for an end to the military occupation by Azerbaijan of Armenia’s sovereign territory and for the immediate and unconditional withdrawal of Azerbaijani forces.
A bill to halt the government’s purchase of Chinese-made drones is being stalled in the House of Representatives. Senators had hoped to include the bipartisan American Security Drone Act that would prohibit federal agencies from buying drones manufactured or assembled by Chinese-controlled or linked firms in the annual National Defense Authorization Act (NDAA); the House Intelligence Committee has refused to let the bill advance without an exemption for US intelligence agencies.
An Alabama resident has been charged with illegally exporting US-origin goods to Iran. Ray Hunt (aka Abdolrahman Hantoosh, aka Rahman Hantoosh, aka Rahman Natoosh) used his company to export parts used in the oil and gas industry to Iran, allegedly shipping the goods through Turkey and the UAE in an effort to evade US sanctions. He operated Vega Tools LLC, which resold industrial parts, including control valves and oil tubing, for the industrial and energy sectors.
Fraud and Abuse
A bipartisan group of US senators is considering whether to include the Enablers Act, which would significantly expand AML rules to private-equity firms and other businesses, to the NDAA. The Enablers Act would require businesses that handle potentially illicit cash—including lawyers, art dealers, accountants, and private-equity firms—to perform due diligence on their customers and file suspicious activity reports.
Women who have accused Jeffrey Epstein of sexual abuse are now suing Deutsche Bank and JPMC for facilitating Epstein’s sex-trafficking operations and ignoring red flags that indicated illegal activity. The Deutsche Bank suit cites many of the findings from an investigation by New York state’s financial regulator into that bank’s relationship with Epstein. The JPMorgan suit cites the relationship between Epstein and a former top JPMC executive that was investigated by UK regulators.
FATF this week released its report on money laundering from fentanyl and synthetic opioid sales, examining how proceeds are laundered from synthetic opioid trafficking. Organized crime groups use a range of methods including bulk cash smuggling, cash couriers, trade-based money laundering, and virtual assets, as well as shell companies and professional money launderers to move these illicit proceeds.
The Justice Department has charged 21 people with using cryptocurrency to launder the proceeds of fraud. Operation Crypto Runner is an Organized Crime Drug Enforcement Task Force (OCDETF) investigation into transnational cryptocurrency money laundering networks that facilitate the movement of fraud proceeds from victims in the United States to foreign criminal organizations.
Three women have been arrested in an operation targeting the ‘Ndrangheta organized crime group. The women were board members of fictitious companies whose accounts ‘Ndrangheta used to transfer criminal proceeds. The criminal group operated in Poland and Italy, and the value of the fraudulent transactions is estimated at more than 50 million euros.
Australia this week passed a law that will establish a national integrity watchdog with broad powers to investigate politicians to combat rising corruption. Although Australia is seen as one of the world’s cleanest political systems, a string of controversies, including expenses abuse, political interference by China, and influence peddling by the gambling industry have corroded public trust.
Federal prosecutors this week charged eight people in Georgia with filing more than 5,000 fraudulent applications for pandemic unemployment benefits, stealing more than $30 million in one of the largest pandemic fraud cases to date. Edith Nate Hicks admitted to stealing personal information of patients at the liver transplant center where she worked and selling them to her niece, who used the information to file fraudulent unemployment claims.
Co-founder of the stablecoin Terra, Shin Hyun-seung, could be facing new fraud charges in relation to his promotion of the Terra-Luna stablecoin. Shin apparently knew that Terra’s stablecoin could not be used as a payment mechanism under South Korea’s Electronic Financial Transactions Act, but he continued making that claim to investors.
South African President Cyril Ramaphosa this week was pressured to resign after a parliamentary panel’s probe found that he may have breached anticorruption laws following allegations by the country’s former head of intelligence that Ramaphosa tried to conceal the theft of a huge sum of cash stuffed into couches at his farm in 2020. The parliamentary panel raised questions about the source of the money and why it wasn’t disclosed to financial authorities. Ramaphosa claims the cash was proceeds from the sale of animals at his farm.
The Ukrainian Security Service this week found weapons and Russian cash after searching properties in and around Kyiv linked to pro-Russian former politician, Yevhen Murayev, who it said was “hiding from justice abroad.” Authorities say Murayev and his associates are being investigated for treason. Murayev is one of the individuals that the UK assessed in January Moscow would install as a puppet leader in Ukraine.
Honduras will soon complete negotiations with the UN that aim to create an international mission to fight corruption in the country. The government has been negotiating with UN officials since May on creating the mission, with experts saying widespread graft in Honduras has aggravated poverty and violence and increased migration to other countries.
The Taliban made millions from the World Cup by providing construction equipment to build stadiums in Qatar. Senior Taliban officials, who lived in Doha over the past decade during peace talks with the United States and the UN, used lucrative salaries tied to the peace talks to buy and then subcontract heavy machinery for tournament infrastructure.