Insights: Week Of August 29, 2022

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The Federal Reserve has ended its enforcement action against HSBC after which the bank was forced to change its processes because of significant AML violations. After admitting that it failed to maintain an effective AML compliance program and perform basic due diligence on certain account holders, the bank agreed to pay a then-record $1.92 billion in fines and comply with a business improvement order.

In 2012, FinCEN found that the bank did not effectively “conduct enterprise-wide, risk-based assessments of potential money laundering risks, given its products, clients, and geographic reach, and failed to adequately identify potential money laundering vulnerabilities.” The lapses resulted in HSBC laundering hundreds of millions of dollars for Mexican drug cartels and becoming the bank of choice for drug-trafficking organizations.

US financial institutions should apply lessons learned from HSBC’s failures to their own risk assessments to ensure their compliance programs are sufficient to address the US government’s renewed focus on AML and sanctions compliance, especially in light of rapidly changing Russia sanctions and renewed efforts on the part of Russian criminals and sanctioned individuals to obscure the sources of their assets and access the global financial system.

  • Adequate compliance staff is a must in today’s volatile illicit finance environment.
  • A thorough examination of a financial institution’s offerings will help banks identify and monitor risky products, such as correspondent accounts, prepaid cards, bearer share accounts, and others.
  • Rating risky customers based on jurisdiction, PEP status, and other details in customer profiles will help mitigate vulnerabilities.

As the United States and allies put unprecedented economic pressure on Russia in the wake of its invasion of Ukraine, financial institutions must recognize red flags associated with Russian sanctions evasion. Sanctioned Russian individuals have falsified their tax IDs, provided fraudulent addresses, and altered their names to variations that automated screening may not recognize. In addition, heavy use of shell companies, relinquishing control of an entity to family members or close associates, and use of financial institutions and services in risky jurisdictions with known AML/CFT deficiencies to access the US financial system can also represent red flags that could help US banks and financial institutions detect illegal financial activity.

FiveBy’s expert, certified analysts, who possess the linguistic and regional expertise, can help assess your risk exposure and protect your financial institution from regulatory and reputational risk.

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Compliance and Due Diligence

The G-7 finance ministers today agreed to impose a price cap on Russian oil to limit Russia’s ability to fund its aggression against Ukraine. The cap would take effect alongside the EU’s next tranche of sanctions, which includes a ban on seaborne imports of Russian oil starting in early December. At the same time, Russia is threatening to cut off supplies to any countries that implement those measures.

The EU will suspend a visa travel agreement with Moscow that will curb the number of Russian nationals entering the bloc. The bloc stopped short of a full tourist visa ban demanded by some central and eastern European countries.

China’s UnionPay payment system has stopped accepting cards issued by sanctioned Russian banks. China has largely complied with western sanctions, reportedly cutting back on automobile, smartphone, and other exports to Russia, but continues to purchase energy.

The US investigation of Binance’s compliance with financial laws and regulations continues. In a 2020 written request, the Justice Department’s money laundering division asked Binance to provide documentation about its AML checks and communications involving its CEO Changpeng Zhao. Separately, Binance apparently froze a wallet related to Vladislav Lobaev, a Russian gun manufacturer who raised funds for the country’s troops in Ukraine.

Lawyers in the United States are opposing AML legislation that would require them to report suspicious transactions by clients, claiming the law would compromise attorney-client privilege.  The requirement, attached to the National Defense Authorization Act, would also apply to accountants, payment service providers, and trust companies. The proposal aims to shut down loopholes in the Bank Secrecy Act that allows sanctioned Russian oligarchs and other illicit actors to exploit US entities to launder money.

Japan’s Kanto Local Finance Bureau this week issued a business improvement order against Revolut Technologies Japan, Inc.—the local subsidiary of the London-headquartered fintech. The order came after the Financial Services Agency (FSA) conducted an on-site inspection of the company, finding “serious problems” in the firm’s “control environments for governance, management of outsourced contractors, and money laundering and terrorist financing risk management.”

The United States has obtained a warrant to seize a Boeing 737-7EM aircraft owned by Russia’s Lukoil. The plane flew into and out of Russia in violation of the Commerce Department’s sanctions that expanded prohibitions on the export, reexport, or in-country transfer of US-manufactured aircraft to or within Russia without a valid license or exception.

The US government has imposed a new license requirement “for any future export to China (including Hong Kong) and Russia” in order to “address the risk that the covered products may be used in, or diverted to, a ‘military end use.'” The restriction affects Nvidia’s A100 and H100 chips, which are designed to speed up machine learning tasks, and some products from AMD. Both companies must stop sales of AI chips to China immediately.

A Turkish member of terrorist organization Hay’at Tahrir al-Sham (HTS) (aka al-Qa‘ida in Syria or Nusrah Front), opened a bank account with Turkey’s state-owned Halkbank despite an existing warrant for his arrest, which was supposed have frozen his assets and bank accounts. Emre Çamurcu opened the account in early 2020, although Turkish authorities knew he was working for HTS under an assumed name. Halkbank is the same bank that allegedly violated US sanctions against Iran by converting Iran oil revenues into gold and then into cash, as well as documented fake food shipments to justify the transfers of oil proceeds.

The son of Belarussian dictator Lukashenko this week visited Israel despite US and EU sanctions imposed on both him and his father, freezing their assets and banning their travel. Viktor Lukashenko left Minsk on Monday in a government aircraft, stopped briefly in Tbilisi, Georgia, and went on to Tel Aviv. Diplomatic sources in Jerusalem said they were unaware of Viktor’s visit but will investigate the claims.

The UN Security Council has renewed the travel ban and asset freeze imposed on individuals and entities obstructing the implementation of the Agreement on Peace and Reconciliation in Mali, until August 31, 2023. Unanimously adopting resolution 2649, the Council also extended until September 30, 2023, the mandate of the Panel of Experts monitoring sanctions implementation.

The Australian Transaction Reports and Analysis Centre (AUSTRAC) has appointed an external auditor to monitor Gold Corporation, the company that operates The Perth Mint, after identifying compliance concerns in AML/CFT rules governing the company’s operations. AUSTRAC  says the auditor will have 180 days to report on Gold Corporation’s customer due diligence program, its “suspicious matter” reporting obligations, and other issues.

Iran this week approved regulations that will allow the country to use cryptocurrency payments for imports and potentially evade sanctions more efficiently. Although Iran’s central bank banned the trading of cryptocurrencies in 2019, the government allowed them to be used to pay for imports. Iran’s first official import order using crypto was for automobiles worth $10 million.

Ecuador’s state oil company told commodity trader Trafigura Group to avoid importing Russian fuels into the country because of sanctions concerns. Petroecuador accepted a load of Russian diesel cargo on Sunday but warned Trafigura to comply with the contract moving forward

The Swiss Federal Audit Office says the country is lagging in its efforts to prevent money laundering. Audits have revealed weaknesses that can pose financial and reputational risks for Switzerland, especially the slow pace of courts to address financial crimes and underwhelming reporting about suspicious activity to the country’s Money Laundering Reporting Office.

Payments app Wise has been fined $360,000 by the UAE financial regulator over failures in its AML controls. The failures included carrying out enhanced due diligence on customers identified as high risk only after they had established a business relationship with the company, and a failure to consider customer nationality as part of the company’s risk assessments.

Fraud and Abuse

New York’s Metropolitan Museum of Art, is facing increasing scrutiny from police and federal agents investigating international art smuggling. The Manhattan district attorney’s office has obtained nine warrants to seize ancient works from the Met since 2017—six warrants in the past year alone, covering more than 30 ancient relics.

Burma’s deposed leader Aung San Suu Kyi this week was found guilty of electoral fraud and sentenced to three years in prison with hard labor. She has been detained since the coup early last year and has already been sentenced to more than 17 years. Separately, the Burmese military last week arrested the former UK ambassador to the country and her husband for alleged immigration violations. Vicky Bowman and her husband, Htein Lin—a Burmese artist and former political prisoner—are being investigated for living at a different address than the one listed on Bowman’s foreigner registration certificate. We recommend closely watching possible additions of companies in Myanmar’s energy sector to the SDN list.

The wife of ex-Malaysian prime minister Najib Razak has been sentenced to ten years in prison on each of three bribery charges to be served concurrently. Rosmah Mansor was found guilty of three counts of soliciting and receiving bribes to help a company win a $279 million project. Najib himself was sentenced to 12 years for corruption in the 1MDB scandal. Rosmah still faces 17 other charges of money-laundering and tax evasion to which she has pleaded not guilty.

US regulators will audit e-commerce majors Alibaba Group Holding Ltd, Yum China Holdings that owns KFC, Taco Bell, and Pizza Hut restaurants in China, and Inc., among other US-listed Chinese companies, starting this month. The audit deal between Beijing and Washington potentially ends a dispute that threatened to eject more than 200 Chinese companies from US stock exchanges.

A team of FBI cyber experts is in Montenegro investigating a massive, coordinated cyber attack on the Balkan nation’s government and its services. Montenegro’s Agency for National Security blamed the attack, which began late last week, on Russia, though without providing evidence. A cybercriminal extortion organization, which the cybersecurity firm Profero has found to include Russian speakers, claimed responsibility for at least part of the attack, infecting a parliamentary office with ransomware known as Cuba.

Federal agents this week searched several properties in New York belonging to US-designated oligarch Viktor Vekselberg. A search is also underway at a property on Miami’s Fisher Island that authorities say was linked to Vekselberg, who is also the subject of a DOJ investigation into allegations of bank fraud.

Miami-Dade Commissioner Joe Martinez this week was arrested for allegedly accepting $15,000 in exchange for drafting a law to help Little Havana property owners facing code violations. Martinez is also accused of using his official position to help secure a bank loan for the company where he worked, Centurion Security.

A senior member of the Turkish president Erdoğan’s ruling party has resigned after being accused of corruption on social media by a fugitive crime boss. The convicted criminal, Sedat Peker, has used social media to accuse senior members of Erdoğan’s team, including Korkmaz Karaca, of everything from drug smuggling to murder. Peker is believed to be hiding out in the UAE. He openly admits to being a crime boss, so he likely has some unique insights into Turkish government corruption.

Turkey’s financial crime investigation board says that about $82 million was transferred to TikTok users in the country since January 2021, with some accounts used for money laundering and financing terrorism. Suspicious accounts included ones with a small number of followers that livestreamed nothing but a black screen or a still photo and still gathered significant donations. The board suspects the funds were “donated” through stolen credit cards and used to launder the money, as well as transfer funds to terrorist groups.

Phishers are effectively using text messages to steal remote access credentials and one-time passcodes from employees at some of the world’s largest technology companies and customer support firms. Companies are struggling to contain the major security threat of scammers interacting directly with employees through their mobile devices.

The founder and CEO of Turkish cryptocurrency exchange, Thodex, Faruk Fatih Özer, has been arrested in Albania, and Turkey has initiated extradition procedures. The Istanbul-based Thodex went dark after running a promotional campaign that sold Dogecoins at one-fourth the price at which they were trading on other exchanges. The exchange shut down suddenly this year while holding at least $2 billion in investor funds, and the owner disappeared.

A New Jersey man posing as NFL quarterback Tom Brady, who ordered 3 Super Bowl rings as a “gift” for Brady’s family, has been sentenced to 3 years in prison. Scott Spina pleaded guilty to five felony counts of mail fraud, wire fraud, and identity theft.

A Peruvian judge this week ordered President Pedro Castillo’s sister-in-law, Yenifer Paredes, to be imprisoned for up to 2.5 years while she is investigated for her participation in an alleged money laundering scheme involving the president and the first lady. Prosecutors have accused Castillo and several of his relatives and associates of being part of a criminal group that created front companies to launder money. The first lady and three relatives of the president, including Paredes, are accused of being leaders in the alleged scheme.

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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