What are we watching in the compliance space this week? OFAC this week sanctioned Tornado Cash—the infamous crypto mixer that has been used to launder billions of dollars in virtual currencies since its creation in 2019. Tornado Cash is particularly infamous for laundering hundreds of millions of dollars stolen by North Korean hacking group, Lazarus. Authorities in the Netherlands arrested a suspected developer of Tornado Cash, highlighting a possible escalation in global authorities’ crackdown against crypto mixers.
Will the Biden Administration block Russian media outlets for being used as tools of war? There are calls to sanction media outlets that are being used as psychological and information operations weapons by the Kremlin.
Ukraine is calling on President Biden to sanction all Russian private banks, claiming that they are all engaged in financing Russia’s “terror machine.” The Ukrainian ambassador to the United States is also asking the State Department to designate Russia a state sponsor of terrorism.
More than 450 foreign-made components—including those made in the United States, Europe, and Asia—have been found in Russian weapons recovered in Ukraine, highlighting the reliance of Russia’s defense sector on western components and indicating that additional restrictions on exports of US-made technologies could further erode Russia’s military capabilities.
Five of Turkey’s banks have adopted Russia’s Mir payment system, which provides Russian tourists with a means to pay for their purchases in Turkey, but could also help Russian individuals evade sanctions. The country has also agreed to pay for some Russian natural gas in rubles, leading some western officials to call for punitive measures against Turkey, which continues to transact with Russian companies and entities. EU officials are increasingly concerned about the deepening ties between Ankara and Moscow, and some suggest that EU countries could call on their companies and banks to pull out of Turkey in response.
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Compliance and Due Diligence
The EU ban on Russian coal imports took effect this week that will affect about 25 percent of Russian coal exports and create a more than $8 billion per year loss for the country. The EU was Russia’s biggest coal customer.
The Commerce Department’s Bureau of Industry and Security (BIS) is alleging in an administrative charging letter that China’s Far East Cable signed contracts with Zhongxing Telecommunications Equipment Corporation (ZTE) and Iranian telecommunications companies to deliver US-origin equipment to Iran to hide the transactions from US authorities. The document alleges that from September 2014 to January 2016, Far East Cable served as a cutout for ZTE which was under investigation by the US government for connections with Iranian telecommunications companies.
Russia has suspended oil shipments to Europe via Ukraine’s Druzhba (ironically translated as “friendship”) pipeline. Oil transport operator Transneft claims that its Ukrainian counterpart Ukrtransnafta has been unable to receive transit fees because of western sanctions.
China this week delayed a proposal by the United States and India in the UN Security Council to sanction top Jaish-e-Mohammad (JeM) commander, Abdul Rauf Azhar. China claims it needs more time to “study the case,” but given Beijing’s hostile attitude toward sanctions, it certainly appears that China is being unnecessarily recalcitrant. Azhar was sanctioned by OFAC in 2010 for organizing suicide attacks in India and encouraging Pakistanis to engage in militant activities.
Cyprus is rescinding the citizenships of four Russian billionaires—sanctioned oligarchs who acquired Schengen visas through Cyprus’s now-defunct Golden Passport scheme. Media reports suggest that Oleg Deripaska; Igor Kesayev (the owner of Komsomolskaya Pravda and other Russian media); Russian energy oligarch Grigory Berezkin; and Gulbakhor Ismailova—one of the sisters of Russian oligarch Alisher Usmanov—have been impacted by the decision.
The UAE has implemented a new rule that requires real estate agents to alert authorities of any property sales are paid for in cryptocurrencies, since some real estate developers in the Emirates are beginning to accept payments in Bitcoin and Ether. Brokers, agents, and law firms must file reports to the Financial Intelligence Unit even if a fraction of a real estate purchase is made with virtual assets.
None of the Russians targeted by EU sanctions have declared their assets to German authorities as required under Germany’s sanctions law. Some 4.28 billion euros in assets belonging to sanctioned oligarchs have been frozen in Germany since Russia’s invasion of Ukraine, including 2.3 billion euros in deposits at German banks. Under Germany’s sanctions law, targets of EU sanctions have a duty to declare their assets immediately, under penalty of a fine or up to a year in prison, but none have done so, resulting in calls for tighter enforcement.
Iran has begun using cryptocurrencies to settle cross-border trade deals as a means of avoiding the use of the US dollar and the global financial system. The head of the Iran Trade Promotion Organization (ITPO) says the first official import order using cryptocurrencies had been placed “this week,” and that the use of crypto will become widespread in foreign trade with some countries.
The Biden administration has renewed a sanctions waiver that was to expire this month allowing international cooperation on some of Iran’s civilian nuclear projects. The waiver permits foreign companies to engage in nonproliferation work at Iranian nuclear sites without risking US sanctions.
US authorities have obtained a warrant to seize the private aircraft of designated Russian oligarch Andrei Skoch for violating sanctions. BIS traced the $90 million Airbus A319-100 plane through a series of shell companies. Skoch—a member of the Russian Duma—has been designated since 2018. Authorities allege that he violated US sanctions by using US dollars to pay the plane’s registration fees to Aruban authorities and pay insurance premiums on the Airbus through US financial institutions.
Fraud and Abuse
A BitMEX executive has pleaded guilty to violating US AML laws. Gregory Dwyer was the head of business development at the crypto derivatives exchange, and he and his colleagues—Arthur Hayes, Benjamin Delo, and Samuel Reed—failed to establish, implement, and maintain an AML program. Hackers, including from sanctioned countries such as Iran, used Bitmex to launder money. BitMEX a year ago paid $100 million to settle charges of violating Commodity Futures Trading Commission and FinCEN regulations.
Crypto exchange Bitfinex is facing a possible criminal investigation in the United States, judging from the Justice Department’s rejection of a Freedom of Information Act (FOIA) request for information pertaining to Tether Holdings, its parent company iFinex, and its subsidiaries, including Bitfinex. The DOJ cited an exemption that prevents the disclosure of “records or information compiled for law enforcement purposes, but only to the extent that production of such law enforcement records or information … could reasonably be expected to interfere with enforcement proceedings.”
Prosecutors allege that a special deputy US Marshal from Maryland was part of a network that defrauded seniors out of almost $2 million through “romance scams” over several years. Isidore Iwuagwu has been charged with conspiring to commit money laundering using romance scams in which fraudsters swindled victims out of large sums of money via social media platforms and dating websites. At least $585,180 out of the nearly $2 million in reported losses was connected to accounts belonging to Iwuagwu.
A UAE court this week overturned a prison sentence for US citizen and human rights attorney, Asim Ghafoor, who was detained last month in the Dubai airport on charges related to an in absentia conviction for money laundering. The UAE launched an investigation into Ghafoor’s activities in 2020 after receiving an official request for assistance from the US Embassy in Abu Dhabi on behalf of the Justice Department, the FBI, and IRS-CI and had been sharing information about the case since then.
North Korea is increasingly using proceeds from crypto thefts to fund its nuclear weapons program. A UN report this year found that between 2020 and 2021, North Korea-backed hackers stole more than $50 million in digital assets to fund the country’s missile program. The UN report also revealed that the attacks targeted at least three cryptocurrency exchanges in North America, Europe and Asia.
Colombia’s financial crimes unit has detected roughly $20 billion in potential money laundering during the past 3 ½ years—equivalent to more than 6 percent of the country’s annual GDP. The funds were detected through more than 20,000 suspicious activity reports flagged each year by the Financial Information and Analysis Unit (UIAF), which found some 570 channels through which money is laundered, including the usual fake or inflated invoices, currency trading, exports, and cryptocurrencies.
After Russia’s invasion of Ukraine, EU membership applications were accelerated for Ukraine, Moldova, and Georgia. But while the other two countries received candidate status, approval of Georgia’s application was delayed because the bloc is demanding more accountability from the country. One deeply-rooted problem is Georgian officials’ failure to fully declare their assets that extends to the highest levels of the country’s judiciary system.
The RenBridge crypto service has been used to launder at least $540 million in criminal proceeds, including $153 million in ransomware payments, and research firm Elliptic says that RenBridge facilitated payments for Russia-linked ransomware actors. Bridges are an attractive target for criminals, allowing users to bypass centralized exchanges to swap tokens. We expect that regulators will increasingly focus on bridges such as RenBridge in their continued battle against ransomware and other cyber crimes.
French prosecutors have opened an investigation into Czech billionaire and former Prime Minister, Andrej Babiš, related to his purchase of villas in the south of France. Babiš was mentioned in the Pandora Papers, after which French authorities launched their probe into possible money laundering activities. They are focusing on how Babiš acquired his €14 million property in Mougins, which was purchased using a Monaco-based company owned by an offshore entity in the United States.
A hacker claims to have obtained the personal information of 48.5 million Chinese users of a COVID health code mobile app run by the city of Shanghai. The hacker with the username “XJP” this week posted an offer to sell the data for $4,000 on a hacker forum and provided a sample of the data, including the phone numbers, names and Chinese identification numbers, and health code status of 47 people. This is the second major breach of personal information in China in just over a month.