Insights: Week of April 4, 2022

Courtesy of Wikimedia Commons

The UN General Assembly this week voted overwhelmingly to eject Russia from the UN Human Rights Council. Ninety-three countries voted to expel Russia from the body, with 24 “no” votes and 58 abstentions. Russia earlier sent letters to vulnerable countries in Africa, Latin America, and elsewhere threatening retaliation if they voted for the expulsion. After the vote, Russia declared that it was resigning from the Human Rights Council anyway, to which James Roscoe, the UK ambassador to the UN, observed, “That sounds like someone that’s just been fired tendering their resignation.” The repercussions continue to mount, as Russia continues to target civilians in Ukraine.

  • Finnish Customs this week seized artwork worth roughly $46 million that was en route to Russia, as countries and companies rush to not just abide by US, EU, and UK sanctions, but also mitigate reputational risk. Russia’s Culture Ministry says the paintings, sculptures, and antiquities had been loaned to Italy from St. Petersburg’s Hermitage Museum, and Tsarskoye Selo state museum, and Moscow’s State Tretyakov Gallery. Finland will return the artworks to Russia after EU exceptions for cultural artefacts in its sanctions regulations become effective on April 9. 
  • US chipmaker Intel this week announced that it has suspended all business operations in Russia, joining other tech companies that have already pulled out. Intel had already suspended all shipments to customers in Russia and Belarus last month, but now it is shutting down all business there, joining companies such as AMD and Taiwan Semiconductor Manufacturing Co (TSMC).
  • A bipartisan group of US Senators has introduced the KLEPTO Act to provide law enforcement with the information required to track down klepocrats’ luxury assets in the United States. S.4075 requires FinCEN, among other things, to mandate disclosure of beneficial ownership information for all real estate transactions through legal entities; requires the Federal Aviation Administration to collect beneficial ownership information for all aircraft registered in the United States; requires FinCEN to extend AML safeguards to the real estate sector and to businesses that sell boats, aircraft, and luxury automobiles; and clarifies that any foreign entity that buys or holds real estate in the United States should be considered a “reporting company” under the Corporate Transparency Act.

Numerous firms and financial institutions are derisking away from the Russian market, fearing the rapidly changing sanctions environment and complex measures taken against Russia will expose them to regulatory and reputational risk. We recommend examining supply chains, vendors, and business partners, monitoring possible regulatory changes, and consulting with former government officials who may work in similar fields for a collaborative approach in addressing changes.

Compliance and Due Diligence

The US Senate yesterday unanimously passed Russia and Belarus trade and embargo bills, which were subsequently passed by the House of Representatives. The legislation would remove Russia’s favorable trade status, and energy products from Russia would be banned. Russia and Belarus would join Cuba and North Korea as the only countries denied permanent normal trade relations by the United States. The House bills were amended to address some GOP concerns about changing the current standard for imposing sanctions under the Global Magnitsky Human Rights Accountability Act (GLOMAG) from gross human rights violations to serious human rights abuses, permanently reauthorizing GLOMAG.

The EU has formally adopted its fifth sanctions tranche against Russia, including bans on the import of coal, wood, chemicals, and certain foods and liquors. The measures also prevent many Russian vessels and trucks from accessing the EU, and ban all transactions with four Russian banks, including VTB. The United States and the EU also sanctioned Putin’s daughters as well as the daughter of Foreign Minister Lavrov. The United States has also designated more Russian oligarchs, family members, vessels, and entities. The new measures put a full block on Russia’s largest banks—Sberbank and Alfa bank—ban new investments in Russia, and impose full blocking sanctions against major Russian state-owned enterprises. The White House also released a fact sheet detailing the efforts on the part of the United States, G7, and EU to impose economic costs on Russia for its atrocities in Ukraine. 

OFAC this week sanctioned Russian state-owned enterprise (SOE) Alrosa—the world’s largest diamond mining company—along with all the entities it owns. Last year, Alrosa generated more than $4.2 billion in revenue and is responsible for 90 percent of Russia’s diamond mining capacity. The State Department has sanctioned the United Shipbuilding Corporation, along with 28 of its subsidiaries and eight board members. In addition, Treasury has blocked dollar debt payments from Russian government accounts at US banks, increasing pressure on Moscow to find alternative funding sources to pay bond investors and avoid a default.

The Commerce Department’s Bureau of Industry and Security (BIS), has taken steps to degrade Russian and Belarusian defense, aerospace, maritime, and other strategic sectors. BIS has issued a final rule adding 120 companies to its Entity List, with 95 added as military end-users for acquiring and trying to acquire items subject to the Export Administration Regulations (EAR) in support of Belarus’s and Russia’s militaries. Twenty-five Russian entities also are being added for acquiring or attempting to acquire items subject to the EAR in support of Russia’s military modernization efforts.

Iran has made an agreement to release a “considerable amount” of its assets frozen in overseas accounts by US sanctions. State-run Islamic Republic News Agency (IRNA) claims the amount released would be “several times” the $520 million recently paid to Tehran by the UK after it settled a longstanding debt over a 1970s defense deal, but the IRNA report did not provide details about the nature of the deal or what countries were involved in the agreement.

The United States has sanctioned Russia-based darknet market Hydra, and German authorities seized $25 million in Bitcoin after Hydra Market was shut down. Treasury says Hydra, which launched in 2015, is involved in ransomware, hacking, identity theft, counterfeit currency, and illicit drugs, and has identified more than 100 digital currency addresses associated with Hydra’s operations that have been used to conduct illicit transactions. OFAC this week also sanctioned virtual currency exchange Garantex, which allows customers to exchange virtual currencies for fiat. The majority of Garantex’s operations are carried out in Moscow and St. Petersburg, and an analysis of Garantex transactions shows that more than $100 million is associated with illicit actors and darknet markets, including the Russian Ransomware as a Service gang, Conti, and Hydra.

US farmers want to sell more wheat and other farm products to Cuba, but Cold War-era restrictions hinder new deals. A delegation of US farm sector representatives, who traveled to Havana recently, said that embargo restrictions, despite some exceptions for agricultural products, still complicate efforts to ship food to the island. Although the United States more than 20 years ago created a loophole to its trade embargo to allow food sales to Cuba, the island must still pay cash up front for products it purchases from US growers.

A bill to expand sanctions on Myanmar’s junta has passed with bipartisan support in the House of Representatives. The Burma Act of 2021 directs the President to blacklist those involved in the country’s defense sector, as well as military-appointed government officials and those responsible or complicit in actions that undermine democracy, threaten peace and security, or limit basic human rights. Discretionary sanctions may also be imposed by Biden within 60 days of the bill’s enactment against Myanma Oil and Gas Enterprise—a major revenue source for Myanmar’s military.

Fraud and Abuse

The FBI and State Department are offering a $5 million reward for fugitive Russian oligarch and kleptocrat Semyon Mogilevich, wanted for participating in a scheme that defrauded thousands of investors out of more than $150 million. Mogilevich was indicted in a federal court in Pennsylvania in 2002 and 2003. The charges against him include racketeering, securities fraud, wire fraud, mail fraud, and money laundering. He has Russian, Ukrainian, and Israeli passports, and is believed to be living in Moscow.

The Justice Department has charged US-designated Russian oligarch Konstantin Malofeyev with violating sanctions imposed on Russia after its invasion of Ukraine. Malofeyev hired US citizen, Jack Hanick, to work for him operating television networks in Russia and Greece and help him acquire a television network in Bulgaria. Malofeyev also allegedly conspired with Hanick and others to illegally transfer a $10 million investment in a US bank to a business associate in Greece, in violation of sanctions against him. Malofeyev was originally sanctioned after Russia’s illegal annexation of Crimea in 2014 for supporting the separatists and Russia’s invasion.

The United States has taken down Sandworm! The Russian cyber team—also known as Unit 74455 of the Main Directorate of the General Staff of the Russian Armed Forces (the GRU)—was likely behind the cyber attacks on Ukrainian power infrastructure in 2015 and other destructive cyber attacks. Sandworm controlled a two-tiered global botnet of thousands of infected network hardware devices, and although the operation did not gain access to the Sandworm malware itself on the thousands of underlying victim devices worldwide, referred to as “bots,” it disabled the command and control (C2) mechanism, severing those bots from the Sandworm C2 devices’ control.

Latvia and Lithuania last week dismantled two call centers in Riga and a third in Vilnius and arrested 108 suspects in a joint operation against scammers. The call centers belonged to an organized crime group, whose members are accused of defrauding victims across the globe by employing an army of up to 200 fake “traders” to call unsuspecting victims and falsely promise lucrative investment opportunities. Authorities seized cash, bank accounts, and luxury vehicles belonging to the criminals, and nearly 100,000 euro in cryptocurrencies.

EU and UK-designated Russian oligarch Alexey Mordashov is transferring his assets out of his name to avoid seizure. Mordashov transferred his 29.9 percent stake in German travel group Tui from his Cyprus-registered company Unifirm to a British Virgin Islands entity controlled by his third wife, Marina Mordashova. He also passed to her a controlling stake in his London-based mining company, Norgold, two weeks before the UK targeted him with sanctions

Spain has seized a yacht owned by Russian oligarch Viktor Vekselberg on a US warrant—the first action carried out by the US government’s interagency KleptoCapture task force, created last month as part of an increased focus on sanctions enforcement. Vekselberg had been sanctioned by the United States since 2018 and the Justice Department alleged this week that the yacht was also in violation of US bank fraud and money laundering statutes. The FBI has accused Vekselberg of using bank fraud and money laundering to obscure ownership of the yacht. The FBI warrant said that the alleged scheme is tied to a web of little known companies that have financial interest in Vekselberg’s yacht. 

Federal prosecutors in the Southern District of Florida have conducted one of the largest cryptocurrency forfeiture actions ever filed by the United States, seizing roughly $34 million worth of cryptocurrency tied to illegal Dark Web activity. Law enforcement agents identified a South Florida resident using an online alias to make more than 100,000 sales of illicit items and hacked online account information for popular services such as HBO, Netflix, and Uber, among others, on several of the world’s largest Dark Web marketplaces. The individual accessed the Dark Web using Tor (onion router), and then used tumblers and illegal Dark Web money transmitter services to launder one cryptocurrency for another—a technique called “chain hopping”—in violation of federal money laundering statutes.

Technology developed by Walmart has helped the retail giant identify and freeze nearly $4 million in gift cards that had been bought by thousands of primarily elderly fraud victims. Walmart has developed its own proprietary technology designed to identify red flags if consumer gift card fraud is suspected and freeze funds when possible before they can be used.

A total of 18 Russian-flagged vessels, including 11 cargo ships, last month switched their flags to other countries—more than three times the monthly average for Russian vessels—almost certainly to conceal their ties to Moscow and avoid being caught evading sanctions. The flag switches come as Russian vessels from oil tankers to multimillion-dollar yachts owned by oligarchs have “gone dark,” turning off identification and location transmitting systems to avoid tracking. The practice helps avoid detection and can pose risks to maritime safety.

A Knoxville man last week was arrested as part of an international FBI investigation involving a bribery scheme of Egyptian government officials in violation of the Foreign Corrupt Practices Act. The indictment alleges that Hunter Hobson between 2016 and 2020 was acting as the CEO of the coal company INMET when he became involved in the bribery and money laundering scheme. The seven-count indictment alleges that Hobson paid bribes to Egyptian officials for $143 million in coal contracts with state-owned and controlled Egyptian coal company, Al Nasr Company. Hobson was also accused of conspiring to secretly receive part of the commissions paid to a sales intermediary as kickbacks.

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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