Treasury’s Office of Foreign Assets Control (OFAC) this week issued a joint business advisory with the Departments of State, Commerce, Homeland Security, and Labor, as well as with the Office of the US Trade Representative, warning US firms about the high risks of transacting with entities in Burma (Myanmar). After Myanmar’s military (Tatmadaw) overthrew the democratically elected government in the country last year, it began engaging in significant human rights violations, corruption, and other abuses, including violently suppressing peaceful protests and targeting Myanmar’s labor unions.
The business advisory additionally warns about illicit finance risks associated with transacting in Burma as a result of corruption and the undermining of the rule of law, as well as failure to implement an AML/CFT framework. Myanmar is already on FATF’s grey list of countries that are subject to increased monitoring because of AML/CFT deficiencies, and the advisory flags specific entities and sectors as being of biggest concern vis-à-vis corruption, human rights abuses, and support to the Tatmadaw:
- State-owned enterprises
- Gems and precious metals
- Real estate and construction
- Arms, military equipment, and defense-related activities
Myanma Oil and Gas Enterprise (MOGE) is specifically highlighted as a state-owned entity that generates significant revenue for the Tatmadaw. MOGE is not sanctioned by OFAC or the EU, but pressure has been growing to designate the entity, with French energy giant Total and US Chevron having both stopped operations in Myanmar and asked the governments of the United States and the EU to sanction MOGE.
We advise the US business community to closely examine its transactions with MOGE and other state-owned enterprises in Myanmar, as we believe that MOGE will soon be included on at least OFAC’s SDN list, to prepare for possible designations, as well as its involvement in entities that may be contributing to corruption and human rights abuses in Myanmar.
Compliance and Due Diligence
The UK and EU are allegedly preparing to impose sanctions on Russian gas projects if Russia attacks Ukraine. This is significant because Europe relies on Russia for 40 percent of its gas imports. The sanctions – as part of a bigger economic sanctions package – would severely curtail financing and technology transfers for new Russian gas projects. The severity of the sanctions would depend on the attack, likely because Germany has been urging caution in light of Europe’s energy crisis. Germany is also bowing to pressure from China, which is using measures similar to the US secondary sanctions to bully companies into cutting off ties with countries that offend Beijing. In response to Lithuania allowing Taiwan to establish a representative office there, China has stopped transacting with German companies that use Lithuanian suppliers, resulting in Germany pressuring Lithuania to meet Beijing’s demands.
The Biden administration is threatening to use a similar export control to damage strategic Russian industries as it used against China’s telecom giant Huawei, potentially depriving Russian citizens of some smartphones, tablets, and video game consoles. The strategy, known as the foreign direct product rule, contributed to Huawei’s first-ever annual revenue drop last year—a decline of nearly 30 percent. The restrictions on products that use microchips that largely rely on US parts, software, or technology could be a weak spot for Russia, which has been dealing with and adapting to financial sanctions since the invasion of Crimea in 2014.
There was a bit of a disagreement this week between Russia’s Central Bank, which wants to ban cryptocurrencies outright, and the Russian government, which wants to regulate it. Unsurprisingly, the Kremlin is winning that food fight. The Russian government plans to have regulations for cryptocurrencies in place by the end of the year. A road map document, signed by the deputy chairman of the government, Dmitry Chernyshenko, suggests introducing all the normal AML/CFT, Know Your Customer, and Customer Due Diligence regulations for cryptocurrency platforms, defining their regulatory status, mandating the creation of a supervisory body, and establishing penalties for violations.
The UK last weekend released an assessment that Russia is planning to install a “puppet regime” in Ukraine. The batch of pro-Ukraine former politicians being considered as potential puppets are Former Deputy Prime Minister Serhiy Arbuzov, former First Deputy Prime Minister Andriy Kluyev, former PM Mykola Azarov. and former Deputy Head of the Ukraine National Security and Defense Council Vladimir Sivkovich, who was sanctioned by OFAC last week. Sivkovich is a former KGB officer who in 2013 was investigated for violence against students who participated in anti-government protests. Former Ukrainian MP Yevhen Murayev is also being considered as a potential candidate, according to the UK. No matter whom Moscow chooses, the UK says Russia will face severe economic sanctions should it install a puppet regime in Kyiv.
A US company has withdrawn environmental and safety classifications from two tankers after US advocacy group, United Against Nuclear Iran (UANI), alleged that they had shipped cargoes of Iranian oil. UANI, which monitors Iran-related tanker traffic through ship and satellite tracking, alerted the American Bureau of Shipping (ABS) last month to what it said were transfers of Iranian oil involving several vessels, including the Panama-flagged Karo and the Belize-flagged Elsa. Without ABS certification, these vessels cannot obtain insurance coverage or call at most international ports. Several shipping sources involved in legal advisory and insurance services to the industry say that inadvertent breaches are also a growing danger for ship certification societies such as ABS because keeping up with Iran’s evasion tactics is getting more and more challenging.
The Executive Director of Uganda’s Finance Intelligence Authority, Sydney Asubo revealed that the country risks being blacklisted by the Financial Action Taskforce (FATF) if the government does not tackle money laundering by May 2022. Uganda is already on FATF’s grey list and made commitments in 2020, when it was listed, to address AML/CFT issues. Unfortunately, a number of AML/CFT problems are still outstanding, and FATF says if these issues are not addressed, the country will be moved to the blacklist.
Fraud and Abuse
Today, roughly 23 public blockchains make up about 99 percent of the total cryptocurrency market cap, forcing blockchain fraud detection systems to integrate with just 23 transparent platforms rather than numerous fiat payment networks, and making blockchain analytics to follow illicit transactions relatively easy. The challenge is figuring out the identity of the criminals using various blockchain addresses to move the proceeds of crime. Last year, high-profile hacks resulted in criminals returning stolen funds or law enforcement clawing them back, because once investigators identify addresses where stolen funds are kept, they cannot be easily moved off the blockchain without being seized.
German federal police have found a link between a gunman, who murdered four people and injured 23 others in Vienna in November 2020, and two men, who may have assisted the attacker using the cryptocurrency exchange Binance. The two men – one from Germany and the other from Kosovo – used a bank account to facilitate several Binance transactions, and a Binance verification code was found on one of their phones. Binance’s CEO dismissed the reports as FUD (fear, uncertainty, and doubt) attempts and claimed on Twitter that the media is simply talking to people with a grudge who were fired from Binance. He also admitted that the cryptocurrency exchange was linked to the two men, but that Binance is now a different institution that complies with AML/CFT regulations. Let’s remember that Binance only recently began complying with AML/CFT rules, and did so only after pressure from regulators in the United States, Europe, and Asia.
The IMF is urging El Salvador to drop bitcoin as legal tender, citing risks to the country’s financial stability and consumer protection. El Salvador in September became the first country in the world to adopt bitcoin as legal tender alongside the US dollar, with authorities convinced it would help save residents remittance commissions and expand financial inclusion. However technical problems have been hindering the use of the government’s cryptocurrency app, and only a fraction of businesses currently accept bitcoin payments.
Two Albanian men who were arrested at a cannabis factory in Glasgow, Scotland, have been released from prison after they turned out to be victims of human trafficking who were too scared to explain that they were trafficked to Scotland to work at the factory, citing potential negative consequences for themselves and their families. Orges Rizak and Agustin Grembi were arrested at a converted industrial building in Possilpark in November 2020, where more than $10 million in cannabis was seized. The two men pled guilty to drug charges out of fear of repercussions for their families and faced long prison sentences. The duo was apparently paying off their “transportation” to the UK after having come there for a better life.
Malaysia-based FINTECH BANK LTD—a commercial bank licensed by the Labuan Financial Services Authority—has started serving a large and rapidly expanding international clientele as the first business and fintech industry-friendly commercial bank in Asia. The bank claims that new account applications can be approved within five minutes via authenticated facial recognition technology, in full compliance with AML/KYC/CFT protocols and via a fully digital onboarding experience with zero physical bank branch visits required. We assess that expedited CDD checks without human compliance expertise to flag risky jurisdictions, possible name variations, and other efforts to evade sanctions and money-laundering checks can result in regulatory or even criminal penalties, as well as reputational decline.