Office of Foreign Assets Control (OFAC)

The Financial Crimes Enforcement Network (FinCEN) and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a joint alert on June 28, 2022, warning of evasion attempts by individuals or entities to circumvent BIS export controls implemented in response to the Russian Federation’s renewed invasion of Ukraine. Both agencies urged financial institutions to remain vigilant against bad actors’ attempts to evade BIS export controls. The alert provided an overview of current BIS export restrictions, listed particular commodities of concern for export control evasion, and outlined transactional and behavioral red flags that could indicate attempts to avoid sanctions.

This is FinCEN’s third alert in relation to sanctions imposed on Russian in response to the war in Ukraine.  As we previously blogged, on March 7, 2022, FinCEN urged vigilance by financial institutions against potential Russian Federation attempts to evade sanctions. On March 16, 2022, FinCEN reiterated the need for increased vigilance by financial institutions in detecting suspicious transactions involving real estate, luxury goods, and other high-value assets.

The joint alert comes on the heels of the June 27, 2022 announcement by the United States and the other G7 nations to intensify their coordinated sanction measures in response to Russia’s war of aggression.  A day later, on June 28, 2022, the Treasury Department’s Office of Foreign Assets Control (OFAC) issued determinations pursuant to prior Executive Orders implementing the new measures.  These include prohibiting the importation of Russian gold (EO 14068), as well as new sanctions and export restrictions on entities like Rostec, a key Russian state owned conglomerate, which forms the foundation of Russia’s defense industry (EO 14024).

Continue Reading  FinCEN and BIS Issue Joint Alert on Potential Russian and Belarusian Export Control Evasion

On June 23, 2022, the Office of the Comptroller of the Currency (OCC) released its Semiannual Risk Perspective (SRP) for spring 2022.  In the SRP, the OCC opines on its current safety and soundness concerns for banks under its regulatory umbrella, focusing on Russia sanctions, climate-related risk, and rising inflation.  Despite these challenges, the OCC believes that “[b]anks’ financial condition remains strong and positioned to deal with the economic headwinds.”

Of special note, the OCC also believes compliance risk is “heightened” for Bank Secrecy Act/Anti-Money Laundering (BSA/AML) and Office of Foreign Assets Control (OFAC) compliance because of world events and compliance staffing concerns.  In addition, the OCC warns that banks face an “elevated” risk of cyber attacks and fraud or cybersecurity risks related to digital assets.

Continue Reading  OCC Highlights Risks Associated with Compliance Staffing Concerns, Russia Sanctions, Environmental Crimes, Cyber Attacks and Digital Assets

Enforcement Trends, Crypto, the AML Act — and More

We are very pleased to be moderating, once again, the Practising Law Institute’s 2022 Anti-Money Laundering Conference on May 17, 2022, starting at 9 a.m. This year’s conference will be both live and virtual — and it will be as informative, interesting and timely as always. 

On April 28, 2022, the Acting Director of the Financial Crimes Enforcement Network (“FinCEN”), Himamauli Das (“Das”), appeared before the U.S. House Committee on Financial Services to provide an update on FinCEN’s implementation of the Anti-Money Laundering Act of 2020 (“AML Act”), including the Corporate Transparency Act (“CTA”).  You can find his prepared statement here.

In his opening remarks, Das walked through FinCEN’s activities for the year, and applauded the AML Act for putting FinCEN in a position to address today’s challenges, such as illicit use of digital assets, corruption, and kleptocrats hiding their ill-gotten gains in the U.S. financial system.  The speech focused on financial sanctions on Russia, FinCEN’s continued efforts to fight corruption, and effective AML programs.   Das also indicated that FinCEN is examining whether to issue proposed AML regulations for investment advisers – an effort that stalled in 2015.
Continue Reading  FinCEN Acting Director Das Focuses on Corruption and Transparency During U.S. House Committee on Financial Services Testimony

On April 28, 2022 the New York Department of Financial Services (“NYDFS”) issued its Guidance on Use of Blockchain Analytics, a document directed to all virtual currency business entities that either have a NYDFS Bitlicense or are chartered as a limited purpose trust company under the New York Banking Law.  The Guidance emphasizes “the importance of blockchain analytics to effective policies, processes, and procedures, including, for example, those relating to customer due diligence, transaction monitoring, and sanctions screening.”

The NYDFS is stressing the role of blockchain analytics in anti-money laundering (“AML”) compliance because “virtual currencies such as Bitcoin and Ether can be transferred peer-to-peer directly from one individual or entity to another pseudonymously, absent the use of a regulated third party (e.g., between non-custodial wallets, or self-hosted wallets that allow users to maintain control of their private keys). . . . [T]hese wallet addresses are typically pseudonymous, with nothing on the face of the transfer tying back to the originator, beneficiary, or underlying beneficial owners.”

Given the potential compliance challenges presented by such characteristics, the NYDFS wants virtual currency entities to leverage the fact that virtual currencies also enable provenance tracing because “the blockchain ledger’s immutability typically allows a historical view of a virtual currency transmission between wallet addresses, providing the opportunity for greater visibility into transaction lineage than is typically found with traditional, fiat funds transfers.”

The Guidance provides that, ultimately, all risk mitigation strategies must account for an entity’s business profile to assess risk across types of virtual currencies and effectively address the specific characteristics of any particular virtual currency involved.  If a virtual currency entity chooses to outsource its control functions to third-party service providers rather than use only internally developed blockchain analytics, it must have “clearly documented policies, processes, and procedures with regard to how the [third-party] blockchain analytics activity integrates into the [entity’s] overall control framework consistent with the [entity’s] risk profile.”
Continue Reading  NYDFS Stresses Use of Blockchain Analytics for AML Compliance by Virtual Currency Businesses

On April 14, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued an advisory on kleptocracy and foreign public corruption.  At a high level, the advisory stresses the importance of financial institutions focusing their efforts on detecting and targeting the proceeds of foreign public corruption. This advisory aligns with President Biden’s establishment of the fight against corruption as a core national security interest, as well as FinCEN’s identification of corruption as a national priority for anti-money laundering and countering the financing of terrorism.  The advisory seeks to provide financial institutions with typologies and potential indicators associated with kleptocracy and other forms of foreign public corruption, such as bribery, embezzlement, extortion, and the misappropriation of public assets.  The advisory further identifies 10 financial red flag indicators to assist financial institutions in detecting, preventing, and reporting suspicious transactions associated with kleptocracy and foreign public corruption.
Continue Reading  More from FinCEN to Financial Institutions on the Kleptocracy – With a Continued Focus on Russia

Case Highlights the Role of Correspondent Bank Accounts and Circumvention of AML Programs

Court Order Describes Seizure as a “Reckoning” for Atrocities in the Ukraine

On April 4, 2022, Magistrate Judge Zia M. Faruqui of the United States District Court for the District of Columbia granted the government’s Application for Warrant to Seize Property Subject to Forfeiture, finding that there was probable cause to believe that the yacht Tango, a 255-foot luxury yacht allegedly owned by sanctioned Russian oligarch Viktor Vekselberg, was subject to forfeiture based on alleged violations of U.S. bank fraud, money laundering, and sanction statutes.  The Tango is located in a shipyard on the Spanish island of Mallorca, and the warrant and subsequent seizure by the United States and its allies was part of Task Force KleptoCapture, an interagency law enforcement task force designed to help deploy U.S. prosecutorial and law enforcement resources to identify sanctions evasion and related criminal conduct.

Sanctions were imposed on Vekselberg and the company he founded, the Renova Group, in April 2018 by the Treasury Department. Following Russia’s invasion of Ukraine, Vekselberg was hit with new penalties by the U.S. government on March 11, 2022.  These sanctions were pursuant to various Executive Orders under the International Emergency Economic Powers Act (“IEEPA”) imposed against persons responsible for or complicit in certain activities with respect to Ukraine.
Continue Reading  Russian Oligarch’s Yacht Subject to Forfeiture Based on Alleged Violations of Bank Fraud, Money Laundering, and U.S. Sanction Statutes

On April 5, 2022 the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced sanctions against “the world’s largest and most prominent darknet market, Hydra Market” and Garantex, a virtual currency exchange registered in Estonia but operating in Moscow and St. Petersburg, Russia.  The sanctions are part of a larger initiative targeting Russian cybercrime that spans across multiple federal departments—including the U.S. Department of Justice, Federal Bureau of Investigations, Drug Enforcement Administration, Internal Revenue Service Criminal Investigation, and Homeland Security Investigations—and across the globe—including international partners like the German Federal Criminal Police and Estonia’s Financial Intelligence Unit.  The sanctions follow September and November sanctions of SUEX OTC, S.R.O. and CHATEX, two virtual currency exchanges operated out of Moscow that allegedly facilitated transactions for ransomware actors.  SUEX was the first virtual currency exchange subject to OFAC sanctions (and the subject of a previous post).

While ostensibly focused on closing another avenue for ransomware purveyors to profit off of their wares, the sanctions may also cut off all types of cybercriminals who allegedly find “a haven” in Russia and used Hydra or Garantex.
Continue Reading  OFAC Designates “Hydra” –  the Largest Darknet Market – and Third Russian Virtual Currency Exchange

Sanctions involving Russia is a front-burner issue for all businesses, but particularly for financial institutions. As we previously blogged, the Financial Crimes Enforcement Network (“FinCEN”) issued on March 7 an alert calling for increased vigilance in the face of potential evasion of Russian sanctions. On March 16, FinCEN issued its second alert on the topic (the “Alert”), reiterating the need for increased vigilance and assisting financial institutions in detecting suspicious transactions involving high-value assets to evade sanctions.

We discuss here the Alert, which provides guidance to financial institutions on how to identify suspicious transactions relating to the use of certain high-value assets by Russian elites, their family members and their “proxies.” The Alert reminds financial institutions of the importance of quickly identifying suspicious activity related to the disposition of sanctioned Russian assets. The Alert also highlights the international and domestic task forces that were formed to effectuate the sanctions laws we describe below, emphasizing the need for cross-agency collaboration and information sharing to achieve the common goal of sanctioning Russia’s power players.  However, and as we discuss, the Alert unfortunately offers no guidance on how “proxies” should be identified or defined.
Continue Reading  Russian Sanctions Redux: FinCEN Issues Guidance on Suspicious Transactions and Evasion Using High-Value Assets

On March 7, the Financial Crimes Enforcement Network (“FinCEN”) issued an alert “advising all financial institutions to be vigilant against potential efforts to evade the expansive sanctions and other U.S.-imposed restrictions implemented against potential efforts to evade the expansive sanctions and other U.S.-imposed restrictions implemented in connection with the Russian Federation’s further invasion of Ukraine.”  The press release is here.  The alert itself is here.
Continue Reading  Russian Sanctions:  FinCEN Provides Red Flags for Potential Evasion Attempts