Russia claimed this week that it was pulling at least some of its forces and military materiel away from the Ukrainian border, but the United States assesses, and open sources corroborate, that the alleged “withdrawal” was a lie. Russia continues its troop buildup and is launching hybrid attacks, including a cyberattack against Ukraine’s Defense Ministry and at least two Ukrainian banks and some ATMs. Ergo, plans to impose severe financial penalties on Russia continue. Sanctions on Russian banks, cutting them off from the US dollar are almost certainly the most powerful measure in the West’s arsenal in the event of an attack. Russian firms and financial institutions, aware of the financial pain sanctions on its financial sector could cause, are running stress tests to insulate themselves from possible sanctions as much as possible.
- A new GOP sanctions bill introduced this week aims to impose sanctions on 15 Russian oligarchs and members of Putin’s inner circle, as well as high-level officials, including Putin himself, Prime Minister Mishustin, Defense Minister Shoygu, and other senior Defense Ministry officials. The bill also mandates sanctions on Russian sovereign debt, extractive industries, such as oil and minerals, the Nord Stream 2 pipeline, and Belarussian entities, including the Development Bank of Belarus, Alfa Bank Belarus, and BSB Bank. Sanctions would be triggered if the president determines that Russia has escalated its aggression toward Ukraine, including through “offensive cyber operations,” to topple the government in Kyiv or undermine Ukraine’s sovereignty. If this legislation passes, and if President Biden fails to act, the sanctions would be automatically imposed.
- Senator James Lankford (R-OK) has introduced the Belarus Aggression Accountability Act to deter Belarus from allowing Russia to use its territory to invade Ukraine. Lankford’s bill would sanction Belarus or any country that aids Russia’s threats against the sovereignty and territorial integrity of Ukraine. Belarussian president Lukashenko has already pledged that his country’s military would support Russia’s actions against Ukraine.
- In the event of a Russian attack on Ukraine, any credible US sanctions deterrent must also include secondary sanctions on China, since Beijing is supporting Moscow’s malign activities, and the UK and EU do not have the legal authorities to impose secondary sanctions. However, the UK also has significant ability to cause Russia economic pain, even without secondary sanctions. Since the 1990s, Russian companies—both state-owned and independent—whose shares are traded in Moscow have also raised funds through secondary listings in London. Although not every Russian-linked company would be a target for sanctions, these companies can be defined as having economic or strategic significance to Moscow.
Despite all the preparations and talk of being united on severe penalties in the event of a Russian invasion of Ukraine, some members of the EU are working to insulate themselves from possible effects of sanctions, pressing the bloc to shield their individual economies from the fallout. Germany and Italy have sought to shield their banking sectors, with Rome proposing to target individuals rather than broadly targeting economic sectors. Italy also wants potential exemptions for its energy sector. Netherlands and Poland are also concerned about sanctions on Russia’s energy sector, as well as raw materials and banks. The EU has also blinked at the possibility of ejecting Russia from SWIFT because members were concerned the outstanding debts Russia owes to EU banks could not be repaid, causing harm to profits. VTB and Sberbank are still under consideration for sanctions, and both are already subject to sectoral sanctions imposed by OFAC after the Crimea annexation, but are not currently fully blocked. Meanwhile, Austria continues to oppose including the Nord Stream 2 gas pipeline in a package of sanctions against Moscow that the EU is preparing in the event of an invasion.
Compliance and Due Diligence
The Commerce Department this week added seven entities to the Bureau of Industry and Security “Entity List” that have been determined by the U.S. Government to be acting contrary to the foreign policy or national security interests of the United States. In China, Jiangsu Tianyuan Metal Powder Co. Ltd. has been added to the list. In Pakistan, Chemtech International (Private) Limited, Engineering Materials and Equipment Co., Inspectech, Value Additions (Pvt) Ltd., and X-Client Engineering were listed. And in the UAE, Odyssey General Trading FZC is now on the Entity List.
Coinbase, Robinhood, and other crypto firms this week announced a plan to comply with the FATF “travel rule,” which requires financial institutions to collect information about the sender in a financial transaction that is worth more than $3000. The coalition of crypto entities came up with TRUST—Travel Rule Universal Solution Technology—that should ensure compliance while also protecting customer privacy, which requires the member companies to use end-to-end encryption when sending data to each other, and to protect customer information from third-party attacks.
The founder of China’s largest electric vehicle battery manufacturer that supplies batteries to Tesla, Contemporary Amperex Technology Limited (CATL), played down the risks of potential US sanctions on its business, claiming that although the company currently relies on US semiconductors to build power management systems for its battery units, these chips could be replaced with domestic alternatives if needed. CATL is trying to stem talk of it seeking advice about the possibility of being sanctioned by the United States as “malicious rumors” and has filed a police complaint claiming the rumors were intended to mislead the market and damage the the company’s reputation.
Switzerland-based mining and commodities trading giant Glencore has recently sold its stake in Russian oil company Russneft after its founder, Mikhail Gutseriyev, was sanctioned by the EU for his close ties to Belarus’s Lukashenko. Russneft supplies Belarus with crude oil, while Gutseriyev has been supporting the development of a digital economy in the country and investing billions of dollars in a potash complex.
Canada will be expanding the scope of its AML monitoring and terrorist financing laws to cover crowdfunding platforms and the payment service providers they use. The regulatory changes were prompted by the trucker blockades that highlighted that crowdfunding platforms and some of the payment services they used are not covered by current AML/CFT laws.
Ukraine’s security and defense council last week imposed sanctions on the television channel linked to Yevhen Murayev, one of the politicians named by the UK as the possible leader of a Kremlin puppet government in the event of a Russian invasion. Murayev, a Ukrainian former opposition lawmaker, who lost his seat in the 2019 parliamentary elections and who has promoted views that closely align with Russian narratives on Ukraine, has called the British assessment “stupid,” while Russia labelled it disinformation. His Nash TV channel is “officially” owned by his father Volodymyr. Nash is said to be the last pro-Russian channel left in Ukraine.
Fraud and Abuse
A former Conservative minister, who had focused on stemming money laundering in the UK, revealed this week that Theresa May’s administration pressured him to stop efforts to introduce a public register of overseas property owners. He claims civil servants from several different departments told him to drop legislative amendments he had tried to introduce in 2017 and 2018 to expose foreign ownership of illicit funds in London because “Whitehall was handling the issue.” He says he he was assured in May 2018 by the Foreign Office that legislation on a property register would be passed in 2019 and would be functioning no later than early 2021.
The Center for a New American Security (CNAS) partnered with TRM labs to assess the strengths and vulnerabilities of North Korean hackers using blockchain analysis. The report assesses that North Korea has demonstrated an ability to exploit financial technologies—in particular cryptocurrencies and blockchain—to procure funds for its illicit nuclear and ballistic weapons development programs. Their report analyzes key strengths and weaknesses of North Korea’s Lazarus Group and provides a list of recommendations to mitigate those threats.
The EU is calling on a ban on “golden passports” that allow foreign individuals to make investments in an EU country and get passports that allow them to travel freely, including many times to the United States. MEPs say that “citizenship by investment” (CBI) schemes are “objectionable from an ethical, legal and economic point of view, and pose several serious security risks” and should be phased out. “Golden visas,” that give foreigners residence rights in exchange for financial contributions, should be more stringently regulated and include comprehensive background checks and vetting procedures in third countries.
Former Honduras president Juan Orlando Hernández was detained this week after the United States sent an extradition request for him to face charges for drug trafficking. The former president is accused of allowing organized crime and corruption to penetrate the highest echelons of power. The extradition request, presented to Honduras’s Supreme Court, claims Hernández participated in a “violent drug-trafficking conspiracy” that since 2004 has transported 500 tons of cocaine from Venezuela and Colombia to the United States via Honduras. The document claims that he received millions of dollars in bribes for facilitating the shipments and shielding traffickers from prosecution.
Current research confirms the worst US security concerns about TikTok. The app can circumvent Apple and Google app stores’ security protections and gives its Beijing-based parent company, ByteDance, full access to user data. ByteDance, which has had ties to the Chinese government, declined to confirm or deny the validity of the claims. The app itself is not available in China, and India banned it in 2020 over national security concerns.
The EU’s top privacy watchdog, European Data Protection Supervisor (EDPS) recommends a ban on Pegasus spyware, which reportedly has been used by several governments against journalists and opposition figures. The United States has already blacklisted NSO Group, the Israeli-firm behind Pegasus, saying the company knew foreign governments would use it to “maliciously target” the phones of human rights defenders, journalists, and others.
Britain’s tax watchdog has seized three non-fungible tokens (NFTs), in what is thought to be the first seizure of its type by a UK law enforcement agency. Three suspects have been arrested for attempting to engage in value-added tax (VAT) fraud, trying to claim more VAT than they were owed, using a mix of stolen identities, unregistered phones, and false invoices. The scheme involved 250 alleged fake companies, and authorities seized three NFTs, as well as £5,000 in other crypto assets, as part of the scheme.
Security researchers at Proofpoint are warning that hackers who publish phishing kits are beginning to add capabilities to circumvent multi-factor authentication (MFA) to their software. A recent study found that 78 percent of users have MFA, but the rapid increase in its use is motivating hackers to add capabilities to bypass it, and it looks like they are succeeding.