Episode 106

29th April – 5th May 2024

Sanctions

There is an awful lot of sanctions news this week, and we’ll start in the US, where there was a meeting between US Secretary of State, Antony Blinken, and President Xi Jinping of China. Though apparently cordial, there was certainly an undercurrent of issues broadly around the military support China is providing to Russia. Earlier in the week, there was a threat of sanctions for its support, but by the end of the week, this threat had taken the form of action with the targeting of almost 200 entities in Russia, China, and beyond, since these countries were deemed to be enabling Russia to acquire technology and equipment from overseas. As part of the same announcement, the Department of State has also imposed ‘sanctions on over 80 entities and individuals that are engaged in sanctions evasion and circumvention or are related to Russia’s chemical and biological weapons programs and defense industrial base.’ Staying with Russian designations, two removals have been made on the Specially Designated Nationals List by the Office of Foreign Assets Control. The US also designated five individuals ‘for helping U.S.-designated Hizballah money exchanger Hassan Moukalled (Moukalled) and his company, CTEX Exchange, evade sanctions and facilitate illicit activities in support of Hizballah.’

In other sanctions news from the US, a resident of Brooklyn has pleaded guilty to ‘conspiring to defraud the United States for his role in an illicit export control scheme to ship electronic components from the United States to companies affiliated with the Russian military.’ Nikolay Grigorev ‘conspired to supply Russia with U.S.-sourced, dual-use technologies, knowing full well that his actions violated export controls and sanctions designed to stop those items from being sent to Russia and used in the production of drones like those found on the battlefields in Ukraine.’ No date has been set for sentencing. Further, a Green Card holder and the regional leader a sanctioned organisation, has pleaded guilty to lying to the FBI about his participation in the group. Tomas Ianchauskas, regional leader of the Tsargrad Society (the “Society”), a sanctioned organisation, previously known as the Double Headed Eagle Society, will be sentenced at a later date, but could face up to five years imprisonment.

Now, in terms of procedure in the US, the National Security Act 2024 has been enacted which extends the statute of limitations for targeting sanctions violations from five years to 10 years. It does a range of other things in relation to the harmonisation of Russian sanctions with other jurisdictions, additional sanctions on Iranian oil, and so on.

And finally on sanctions news from the US this week, US Department of the Treasury Under Secretary, Brian Nelson, has delivered an address to the ACI’s Annual Conference on the subject of Economic Sanctions Enforcement and Compliance.

To the UK now, which has been as busy as the US this week. First, three entries have been added, and one amended, on the consolidated list. Specifically, the three additions relate to the sanctions against politicians in Uganda. The three individuals, Anita Annet Among, who has been the Speaker of the Parliament of Uganda since 2022; Mary Goretti Kitutu, who was the Minister for Karamoja Affairs between 2021 and 2024; and, Agnes Nandutu, who was the State Minister for Karamoja Affairs between 2021 and 2024. They ‘have been charged with corruption at Uganda’s Anti-Corruption Court, [and] will be subject to travel bans and asset freezes.’ The amendment is to the ISIL (Da’esh) and Al-Qaida financial sanctions regime, and respects Sanaullah Ghafari, who is a member of Islamic State. He remains subject to an asset freeze. The final piece of sanctions-specific action from OFSI this week has been the extension of a humanitarian activity licence respecting Israel and the Occupied Palestinian Territories. The licence will now expire on 14 May 2025.

In other administrative sanctions news from the UK, the Office of Financial Sanctions Implementation has updated a series of guides relating to sanctions. First, its Enforcement and Monetary Penalties guidance has been updated. As the press release provides, ‘this update communicates a change in policy in how OFSI applies its guidance to cases. OFSI will now always apply the most recent iteration of its Enforcement guidance to cases. This makes engaging with the enforcement process easier and clearer for all parties, especially instances where breaches span across the current guidance and previous iterations of the guidance. Chapter 3 of the guidance, which covers case assessment, gives some more details on the change. Other updates are also primarily to Chapter 3. The guidance now better explains how we apply and split the ‘case factors’ that OFSI uses to assess suspected breaches of financial sanctions. It introduces two new distinct case factors, “Knowledge, intention and reasonable cause to suspect” and “Cooperation” that were previously included more generally in the guidance. Chapter 6 also includes a small edit to the delegation of ministerial reviews of monetary penalties.’ OFSI has also moved its Russia guidance to the new digital format, and the FAQs which previously featured in that document have been moved to a new section of the gov.uk website. The FAQs are ‘a new form of additional guidance aimed at providing technical support to industry partners and the public. [The] FAQs are designed to offer easily accessible responses to commonplace compliance questions. Whether … navigating sanctions related to specific countries or industries, or operating in high-risk jurisdictions, [the] FAQs provide the extra support [needed].’

Two more sanctions stories, then we’ll look at the rest of the news. First, debris from a North Korean missile used by Russia has been found in the Ukrainian city of Kharkiv. UN sanctions monitors told the security council committee in a report submitted recently, though the attack is understood to have taken place on 2nd January this year. The sale of the missiles breaches sanctions imposed on North Korea. Secondly, the European Commission is believed to be considering sanctions against Russian liquefied natural gas (‘LNG’) for inclusion in the 14th package of sanctions bring prepared against Russia. Thirdly, Iran has sanctioned a range of individuals and entities from the US and UK over its support for Israel. The individuals include, from the US, General Bryan P. Fenton, commander of the U.S. special operations command, and from the UK, the Secretary of State for Defence, Grant Shapps.

Bribery and Corruption

This week’s bribery and corruption news starts in Malaysia, where the Malaysian Anti-Corruption Commission (‘MACC’), has confirmed that Prime Minister, Mahathir Mohamad, is being investigated in connection with alleged corruption concerning his sons. His sons, Mirzan and Mokhzani were, earlier this year, required to declare their assets as part of inquiries prompted by the Pandora and Panama Papers leaks. Staying in that part of the world, only in Vietnam this time, where the head of the parliament, the National Assembly, has resigned as part of an anti-corruption campaign sweeping the nation. The resignation of Vuong Dinh Hue comes in the wake of the resignation of President Vo Van Thuong who left in March, around a year after the previous President, Nguyen Xuan Phuc. Both are understood to have resigned in response to corruption allegations. Now, to more action taken by the National Anti-Corruption Bureau in Ukraine, where charges have been announced against Andriy Klochko, a member of the Ukrainian parliament, and also part of the President Volodymyr Zelensky's Servant of the People party. This is further evidence of the degree to which the National Anti-Corruption Bureau has been going hard on corruption as part of its desire to meet accession criteria for EU membership.

In other anti-corruption news this week, the US Department of State has marks the 25th anniversary of the foundation of the Council of Europe’s Group of States Against Corruption (‘GRECO’), the ‘multilateral body that monitors member states’ compliance with its anti-corruption standards.’ The US is a non-European member of the group. As the press release from the Department of State provides: ‘Since 2012, GRECO member states have implemented over 500 recommendations to prevent corruption and promote integrity with respect to members of parliament, judges, prosecutors, law enforcement, and persons with top executive functions in central governments. This includes the creation of national anti-corruption strategies, the development of codes of conduct, the establishment of policies and procedures to manage conflicts of interest, the institutionalization of rules for lobbying and asset declarations, the strengthening of freedom of information frameworks, the advancement of whistleblower protections, and more. As a result, member states have changed laws, implemented improved practices, and established or reformed institutions. Authorities are now better able to cope with corruption than ever before.’

And, finally, on anti-corruption news this week, the government has announced, in parliament, which is a rare thing nowadays, the publication of a report by His Majesty’s inspectorate of constabulary and fire and rescue services (‘HMICFRS’). The report is concerned with ‘how effectively the [National Crime Agency (‘NCA’)] is at dealing with corruption, and specifically the NCA’s effectiveness and efficiency in helping and working with police forces and other law enforcement agencies to identify and tackle corruption involving police officers and staff…. The inspection found the agency works well with partners to identify and tackle corrupt police officers and staff, that the agency understands the threat posed by corruption to law enforcement, and that its anti-corruption unit employs effective policies and approaches to tackle corruption. However, it found that the intelligence the agency receives could be improved, and its ACU could strengthen its approach to identifying and prioritising investigations. [It is expected]… the agency [will] ensure that it has dedicated sufficient resources to meet future demand, and has the procedures in place to support law enforcement on the most appropriate and serious cases. The inspectorate also found that a new nationally co-ordinated approach to collating and assessing intelligence relating to corruption in police forces and other law enforcement agencies may strengthen our understanding of this issue and our collective ability to address it. [Government] officials are considering the feasibility of this suggestion with the NCA and relevant partners.’

Money Laundering

The money laundering news this week starts in China where, ahead of its upcoming Mutual Evaluation by the Financial Action Task Force (‘FATF’), the legislature has been reviewing new legislation designed to curb money laundering and terrorist financing. The legislation is broadly designed to achieve an AML system to account for new technologies being used to facilitate money laundering. A public consultation is open until 25th May. This action can come as no surprise. As I reported in the podcast in March, the FATF has announced the registering of virtual asset service providers (‘VASPs’), urging countries to ensure that businesses review procedures to meet the threat. Now, sticking with this subject, namely new technologies and means of finance in use to circumvent anti-money laundering procedures, the opposition in Venezuela has highlighted the dangers of the country's move to use more crypto to conduct oil transactions, especially in light of the reversal of the sanctions lift announced by the US last month. In other contextually relevant news, the founder of Binance, the crypto trading platform, Changpeng Zhao, has been sentenced to four months imprisonment after pleading guilty last year to money laundering violations. You will remember from reporting in this podcast at the time, that both he and the company pleaded guilty to money laundering last year, with the company agreeing to pay in excess of $4bn to resolve the Department of Justice’s investigation.

In news from the UK now, the Joint Money Laundering Steering Group (‘JMLSG’) has opened a consultation on revisions to Part II of AML and CTF guidance on wholesale markets. Comments on the proposed revisions should be received by 1st July 2024. Staying in the UK, a painting by the German-British painter, Frank Auerbach, is to be sold by the National Crime Agency after being seized following the conviction of its owner, Lenn Mayhew-Lewis, for money laundering. The painting – Albert Street, 2009 – is said to have a likely value of millions.

To Europe now, where the Council of Europe’s anti-money laundering monitor, MONEYVAL, has issued a series of updates on a number of European nations and their respective anti-money laundering and countering the financing of terrorism regimes (‘AML/CFT’). Poland has improved its AML/CFT guidance and feedback for reporting institutions; Cyprus improved AML/CFT measures with respect to virtual asset service providers and virtual asset related activities; Croatia strengthened its preventive framework – its compliance framework – to combat money laundering; and, Lithuania has improved coordination and co-operation in its AML/CFT frameworks.

To Australia now, where the government has announced the commencement of the second stage of consultation on proposed reforms to its anti-money laundering and counter-terrorism financing (‘AML/CTF’) regime. As the press release from the Attorney-General’s department provides: ‘These reforms will ensure Australia’s AML/CTF regime … meets international standards set by the Financial Action Task Force. The reforms have been long coming in Australia, which is one of a handful of countries that are not meeting the Financial Action Task Force’s requirement to regulate lawyers, accountants, trust and company service providers, real estate agents and dealers in precious metals and stones.’

And, finally, on money laundering news this week, the Wolfsberg Group has issued its response to the FATF’s public consultation on Recommendation 16 and its Interpretative Note.

Fraud

On fraud news this week, we start in Australia, where the Competition and Consumer Commission has announced that while losses to scams have fallen – by 13.1 per cent – there is much more to do as the headline figure is still high at $2.7bn. The Commission identifies collaborative efforts across government, law enforcement, consumer organisations, and industry which have combined to enhance the fight against financial crime. In 2023, Australians made over 601,000 scam reports to Scamwatch, ReportCyber, the Australian Financial Crimes Exchange (AFCX), IDCARE and ASIC, which was an ‘18.5 per cent increase on 2022. In terms of financial losses, investment scams continued to cause the most harm ($1.3 billion), followed by remote access scams ($256 million) and romance scams ($201.1 million).’

In another report on the scale of fraud, this time in the US, the FBI has announced that elder fraud reports to the FBI’s Internet Crime Complaint Centre (‘IC3’) increased by 14 per cent in 2023, and associated losses increased by 11 per cent. The information comes from the 2023 IC3 Elder Fraud Report. According to the press release, there are five key takeaways from the report:

Elder fraud is an expensive crime. Scams targeting individuals aged 60 and older caused over $3.4 billion in losses in 2023—an increase of approximately 11% from the year prior. The average victim of elder fraud lost $33,915 due to these crimes in 2023.
Older Americans seem to be disproportionately impacted by scams and fraud. Over 101,000 victims aged 60 and over reported this kind of crime to IC3 in 2023. On the flip side, victims under the age of 20 years old seemed to be the least-impacted demographic, with about 18,000 victims in this demographic reporting suspected scams or frauds to IC3 last year.
Tech support scams were the most widely reported kind of elder fraud in 2023. Nearly 18,000 victims aged 60 and over reported such scams to IC3. Personal data breaches, confidence and romance scams, non-payment or non-delivery scams, and investment scams rounded out the top five most common types of elder fraud reported to IC3 last year.
Investment scams were the costliest kind of elder fraud in 2023. These schemes cost victims more than $1.2 billion in losses last year. And tech support scams, business email compromise scams, confidence and romance scams, government impersonation scams, and personal data breaches all respectively cost victims hundreds of millions of dollars in 2023.
Scammers are coming for people’s cryptocurrency. More than 12,000 victims aged 60 and over indicated that cryptocurrency was “a medium or tool used to facilitate” the scam or fraud that targeted them when reporting it to IC3.

In Europe, Europol has announced that Operation Pandora has brought about the closure of 12 scam call centres. Polices forces from Germany, Albania, Bosnian-Herzegovina, Kosovo, and Lebanon ‘…raided 12 call centres identified as the source of thousands of daily scam calls. 21 persons were taken into custody … responsible for defrauding thousands of victims through the use of various modus operandi. The callers’ playbooks would range from … fake police calls, persuasive investment fraud or … romance scams.’

And, finally, on fraud this week, an interesting research briefing from the UK Parliament on the social and psychological implications of fraud. One of the reasons which is sometimes put forward for reluctance to report fraud is that victims can be said to be too embarrassed to admit to another that they have become a victim. This can impact their psychological well-being, mildly undermining the notion that financial crimes are only about loss of money. As the press release which accompanies the briefing paper provides: ‘In addition to financial loss, fraud can cause emotional, psychological and health impacts, and can harm people’s relationships. Impacts may vary for individual victims, and by different fraud characteristics. Victims are most likely to report fraud to their bank or account provider, rather than the national reporting service Action Fraud or police. The published evidence base for fraud against individuals is limited. However, academics and practitioners suggest several areas to consider in implementing effective fraud prevention, including education, and victim care.’ The importance of education has been one theme which I have gone on about again and again.

Other Financial Crime News

In other financial crime news this week, the Serious Fraud Office (‘SFO’) in the UK has published circulars on new powers available for the confiscation and civil forfeiture of cryptoassets. The significant changes include:

Police will no longer be required to make an arrest before seizing crypto from a suspect. This will make it easier to take assets which are known to have been criminally obtained, even if sophisticated criminals are able to protect their anonymity or are based overseas
Items that could be used to give information to help an investigation, such as written passwords or memory sticks, can be seized.
Officers will be able to transfer illicit cryptoassets into an electronic wallet which is controlled by law enforcement, meaning criminals can no longer access it.
UK law enforcement will be able to destroy a crypto asset if returning it to circulation is not conducive to the public good. Privacy coins, for example, are a form of cryptocurrency that grant an extremely high degree of anonymity and are often used for money laundering.
Victims will also be able to apply for money belonging to them in a cryptoassets account to be released to them.

In other news from the UK Home Office, it has also published revised Codes of Practice following certain changes made to the Proceeds of Crime Act 2002 by the Economic Crime (Transparency and Enforcement) Act 2022 and the Economic Crime and Corporate Transparency Act 2023. The Codes are the Certain information orders: code of practice; Investigations: code of practice issued under section 377; Recovery of cryptoassets: code of practice issued under section 303Z25, and in light of the recent announcement just mentioned; and, Search, seizure and detention of property (England and Wales). Additionally, the Attorney-General has also published a Code of Practice under section 377A of the Proceeds of Crime Act 2002. All came into force on 26th April 2024.

Now, in news which is not necessarily related to this, but the cryptocurrency context provides some context, and that is that this week, the World Economic Forum has published a paper explaining how cryptocurrency regulations across the world are changing. A nice, neat and relatively brief, piece, which plenty of infographics to keep you interested.

Cyber Crime

We end this week’s financial crime news with a round-up of cyber-attack news. In the Russia-Ukraine war, alongside the conventional warfare, the cyber warfare continues. Ukraine has claimed, through its Directorate of Intelligence, to have carried out a significant cyber-attack on government and law enforcement. This follows a cyber-attack a couple of weeks ago where a Ukrainian channel was replaced with Russian news and propaganda which was caused by a compromising of a Latvian satellite signal.

In the UK, the Department for Science, Innovation and Technology, alongside other agencies, has announced the introduction of new regulations to embolden consumer protection on hacking and cyber-attacks. ‘Manufacturers [are now] legally required to protect consumers from hackers and cyber criminals from accessing devices with internet or network connectivity - from smartphones to games consoles and connected fridges - as the UK becomes the first country in the world to introduce these laws. Under the new regime, manufacturers will be banned from having weak, easily guessable default passwords like ‘admin’ or ‘12345’ and if there is a common password the user will be promoted to change it on start-up. This will help prevent threats like the damaging Mirai attack in 2016 which saw 300,000 smart products compromised due to weak security features and used to attack major internet platforms and services, leaving much of the US East Coast without internet. Since then, similar attacks have occurred on UK banks including Lloyds and RBS leading to disruption to customers. The move marks a significant step towards boosting the UK’s resilience towards cyber-crime, as recent figures show 99% of UK adults own at least one smart device and UK households own an average of nine connected devices. The new regime will also help give customers confidence in buying and using products, which will in turn help grow businesses and the economy.’

And, finally, on cyber-attack news this week, the National Cyber Security Centre (‘NCSC’) has, first, issued guidance on business email compromise, which is where an unauthorised user gains access to a work email account. Valuable information in that if you are working in compliance for a SME. It’s a useful adjunct to the other guidance out there. Also, the NCSC is promoting another of its Digital Lofts on ‘The future of cyber security for small organisations’. The blurb encourages you to join them as they ‘look ahead at the challenges, threats and opportunities that new technologies present to small organisations.’ It will take place on 15th May 2024, from 1000am – 1100am.

References

Attorney-General’s Department (Australia), Progressing reforms to Australia’s anti-money laundering and counter-terrorism financing laws.

Attorney-General’s Office (UK), Attorney General’s Code of Practice issued under Section 377A of the Proceeds of Crime Act 2002.

Australia Competition and Consumer Commission, Scam losses decline, but more work to do as Australians lose $2.7 billion.

Department for Science, Innovation and Technology, New laws to protect consumers from cyber criminals come into force in the UK.

Europol, Operation Pandora shuts down 12 phone fraud call centres.

Eversheds Sutherland, National Security Act of 2024 extends statute of limitations for sanctions violations to 10 years.

FBI, Elder fraud reports to FBI’s Internet Crime Complaint Center rose by 14% in 2023.

Hansard, National Crime Agency: Dealing with Corruption (Volume 749: debated on Tuesday 30 April 2024).

His Majesty’s inspectorate of constabulary and fire and rescue services, Vetting and anti-corruption part 2: How effective is the National Crime Agency at dealing with corruption?

Joint Money Laundering Steering Group, Consultation – Part II Sector 18 (Wholesale markets).

Joint Money Laundering Steering Group, Consultation April 2024 – Part II Sector 18 (Wholesale markets).