The United States this week imposed new sanctions against Russia over the war in Ukraine, including Russian defense companies, 328 members of the Duma (Russia’s parliament), and Sberbank CEO German Gref.  Although Gref was not included on the SDN list until yesterday, he was included on the Treasury Department’s 2018 “Oligarch List” of elites who are close to Russian president Putin. US firms and financial institutions should look at the list to anticipate possible future Russian sanctions targets and possibly their family members.

Treasury this week also issued a new FAQ in an effort to prevent Russia from using gold to evade sanctions and “remove the benefits and privileges Russia once enjoyed as a participant in the international economic order,” warning that gold-related transactions involving Russia may be sanctionable under Executive Order (EO) 14024.

• Gold comprises roughly one-fifth of Russia’s foreign-exchange reserves, and the existing ban on transactions with Russia’s Central Bank, blocked persons, and those attempting to circumvent US sanctions also cover gold. Treasury, however, stressed in its FAQ that sanctioned Russian individuals use a wide and sophisticated range of sanctions evasion methodologies and warned US firms and financial institutions to be particularly vigilant against these attempts.

• Sanctioned Russian individuals and entities for example, may attempt to sell gold or other precious metals to or route them through foreign countries such as China. In an effort to prevent Russia from evading sanctions using gold, a bipartisan group of Senators this month introduced the Stop Russian Government and Oligarchs from Limiting Democracy (Stop Russian GOLD) Act, that would make Russian gold transactions subject to secondary sanctions, designating any US entities or persons that knowingly sell Russian gold or transport it from Russia’s central bank holdings. The bipartisan group met with Treasury Secretary Yellen this week to discuss the bill.

Russia’s Central Bank began buying gold again shortly after Moscow began its invasion of Ukraine, likely in anticipation of western sanctions, after slowing its acquisition efforts when the COVID 19 pandemic began in 2020.

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Compliance and Due Diligence

The foreign ministers of several EU states say the bloc must consider sanctions against Russia’s energy sector, which will be a tough sell, as many EU countries rely on Russia for gas. The United States is helping alleviate possible gas shortages that would ensue as Europe works to phase out its reliance on Russian gas by ramping up shipments of liquefied natural gas to Europe this year. European countries are also signing new contracts with producers in the Middle East and Africa, France has ended subsidies for new gas heaters in homes and will begin subsidizing electric heat pumps, and Italy is considering burning coal at some power plants rather than natural gas.

Sberbank has received a license from the Russian Central Bank to issue digital assets to clients that would would allow Russian firms to mint digital assets and “invest their currently idle funds to generate income.” The Central Bank’s decision to allow Sberbank to issue digital assets is a departure from the government’s stance of crypto prior to the start of the war in Ukraine, when Russian authorities last year sought to ban cryptocurrencies altogether and the Central Bank called cryptocurrencies a “threat to financial stability.”

Putin this week ordered Gazprom to only accept payments for Russian gas exported to “unfriendly countries” in rubles. Skepticism and confusion were the main reactions from European capitals and energy companies, with conflicting statements about whether this policy would violate long-term contracts (probably, since Russia has no authority to unilaterally change the terms of existing contracts) or whether it would even be possible, as the vast majority of gas sales and contracts are settled in euros or dollars. Russia’s main settlement bank for gas exports, Gazprombank, has been added to the UK sanctions list this week, along with 64 other individuals and entities, such as Russian Railways and Russian diamond producer Alrosa. The UK has sanctioned more than 1,000 individuals and businesses, freezing $660 billion in assets since Russia’s invasion of Ukraine began.

The EU suspects that China may send semiconductors and other tech necessities to Russia in an effort to mitigate the impact of western sanctions. US officials also warn that Beijing may help Moscow, but both China and Russia deny that Moscow requested help from Beijing. The Biden administration has threatened economic consequences should China help Russia continue waging its war on Ukraine.

The United States this week targeted sanctions against North Korea’s missile program, designating two Russian companies and a North Korean entity for transferring sensitive missile program-related items to the DPRK. Russian entities Ardis Group and PFK Profpodshipnik LLC, as well as the Second Academy of Natural Science Foreign Affairs Bureau in North Korea, were designated this week, as well as Russian national Igor Michurin and North Korean Ri Sung Chol. The designations came on the same day North Korea announced its test of a new ICBM.

With regulatory changes on the horizon, and as financial institutions are examining possible impending regulations on how to best implement the national AML priorities we described last year in our advisory with our partner, Sigma Ratings, compliance professionals are weighing their firms’ exposure to the specified government priorities, checking their controls, and adjusting risk assessments. This year’s Association of Certified Anti-Money Laundering Specialists (ACAMS) annual conference put a heavy focus on FinCEN priorities released last year. The technical deadline for proposed regulations to address these priorities was the end of 2021, but the new rules have not yet been issued. Proposed rules could be issued in the coming weeks, along with a requirement that all AML programs be “effective and reasonably designed.”

Scrutiny by regulators for AML/CFT failures by banks and financial institutions will almost certainly increase. The seven largest AML bank fines last year show that compliance professionals need to monitor politically exposed persons (PEP) accounts and use transaction monitoring to detect suspicious activity and abnormal behavior. Compliance experts must also check counter-fraud, antibribery, and corruption controls and monitor both internal and external risks, review high-value transactions from high-risk customers, and cautiously verify the true identity of customers to comply with AML regulations.

Fraud and Abuse

The Justice Department announced indictments this week against four Russian government employees who targeted energy sector systems in 135 countries in a hacking campaign that lasted several years. The indictment charges that Evgeny Gladkikh, who worked at a Russian Defense Ministry research institute, conspired with others to damage critical infrastructure outside the United States, causing emergency shutdowns at one foreign facility. The FSB’s 16th Center—also known by their hacker group pseudonyms “Energetic Bear,” “Berserk Bear,” and “Crouching Yeti”—have also been indicted by the FBI for targeting the systems controlling the Wolf Creek nuclear power plant in Kansas in 2017.

The Manhattan District Attorney has charged a former party organizer with laundering $2.7 million in Bitcoin and cash to help multiple clients obscure the origins of illegal proceeds. Between January 2018 and August 2021, Thomas Spieker converted more than $2.3 million into Bitcoin, as well as more than $380,000 of Bitcoin into US dollars, via “a rotating set of accomplices” who opened bank and crypto exchange accounts to enable the laundering of “criminal proceeds.” The money laundering network helped drug traffickers, an organized crime group, and scammers launder funds and transmit proceeds of crime around the globe.

Food giant Nestlé has announced that it would suspend the vast majority of its sales in Russia, including pet food, coffee, and confections,” but would continue selling baby food and medical nutrition products. The company denied that it was hacked by Anonymous after the group claimed to have released 10 GB worth of the company’s data in retaliation for Nestlé’s refusal to change its policies following Russia’s invasion of Ukraine and was singled out in a speech by Ukrainian President Zelensky last week.

A Russian court this week sentenced Russian opposition leader Alexey Navalny to an additional nine years in prison for alleged embezzlement. In a courtroom speech, Navalny spoke out against Russia’s invasion of Ukraine, proclaiming that “it is every person’s duty to fight against this war” which was started by “a group of crazy old men who don’t understand anything and don’t want to understand anything.” Navalny’s sentence comes as the Russian Duma passed “anti-fake” legislation prohibiting “false” or discrediting information related to the government’s actions abroad, with investigators cracking down on a popular journalist and former Duma Deputy for spreading “false” information about the Russian shelling of civilian targets in the Ukrainian city of Mariupol. We assess that even if Russia withdraws from Ukraine, the individuals and Russian agencies involved in the clampdown on Russian journalists and continued persecution of Navalny could be designated under the Magnitsky Act.

IRS investigators have discovered more than $1.8 billion in fraud related to federal COVID-19 stimulus funds. Since the passage of the Trump administration’s first trillion-dollar stimulus package, which provided $1,200 checks to individuals and forgivable loans to small businesses as the US economy shut down for the pandemic, the IRS closed 660 criminal cases related to pandemic stimulus packages, including fraudulently obtained loans, as well as credits and payments meant for American workers, families, and small businesses.

Western diplomats, intelligence officials, and documents indicate that Iran established a clandestine banking and finance system to handle billions of dollars in annual trade to evade US sanctions, giving it leverage in multilateral nuclear talks by allowing it to engage in global trade. The system allows Iranian banks that serve sanctioned companies to engage affiliate firms in Iran to manage sanctioned trade on their behalf. Those firms then establish companies outside of Iran’s borders to serve as proxies for Iranian traders, which trade with foreign purchasers of Iranian oil and other commodities, or sellers of goods for import into Iran, in dollars, euros or other foreign currencies, through accounts set up in foreign banks. Some of the revenue is smuggled into Iran by couriers who carry cash withdrawn from the proxy company accounts abroad.