Embedded Files
13th May – 19th May 2024
Sanctions
This week’s sanctions news starts in the EU, where membership of the bloc has agreed to use the profits from €190bn seized in Euroclear to provide military aid and reconstruction support to Ukraine. The amount will be around €3bn. Whether action will be taken on the €190bn remains to be seen, but there is certainly some within the bloc keen to start chipping away at that sum. Staying in the EU, the Commission has confirmed the sanctions against various Russian media outlets, which news was trailed last week in this podcast, with Moscow warning of repercussions.
In the UK, the Office of Financial Sanctions Implementation (‘OFSI’) has amended section six of its general financial sanctions guidance concerning the approach it takes to licensing grounds for UK regimes, including updating the definitions for Extraordinary Expenses and Extraordinary Situations. OFSI has also made minor amendments to the Russian travel licence INT/2022/1839676. However, the significant changes made by OFSI this week concern updates to its guidance. The General, Russia, Counter-Terrorism, and Enforcement & Monetary Penalties guidance documents have all been amended this week to take account of changes to sanctions legislation introduced through the Sanctions (EU Exit) (Miscellaneous Amendments and Revocations) Regulations 2024 and the Sanctions (EU Exit) (Miscellaneous Amendments) Regulations 2024, both of which were laid before Parliament on 15th May 2024. The guidance has been updated to reflect a new reporting requirement on designated persons under Regulation 38A of The Republic of Belarus (Sanctions) (EU Exit) Regulations 2019; new immigration measures under regulation 5 of the Counter-Terrorism (Sanctions) (EU Exit) Regulations 2019 which come into force on 5th June 2024; and, new reporting requirements on designed persons under the Belarus Regulations. Additionally, reporting forms for the designated person asset reporting requirements have been updated on OFSI’s gov.uk page. OFSI’s other activity was to make additions to the Democratic People’s Republic of Korea financial sanctions regime and the Russia financial sanctions regime, as well as two corrections to the Democratic Republic of the Congo and ISIL (Da'esh) and Al-Qaida regimes.
In other news from the UK, the Treasury Select Committee heard oral evidence from industry experts on whether Russian sanctions are working. They were: Bill Browder, CEO at Hermitage Capital Management, and Head at Global Magnitsky Justice Campaign; Emma Hardaker, Head of Financial Crime and Compliance at Lloyds of London; Richard Bronze, Head of Geopolitics and Co-Founder at Energy Aspects; and, Arabella Ramage, Legal Director at Lloyd’s Market Association.
In the US, the Office of Foreign Assets Controls (‘OFAC’) has undertaken a range of actions. First, it has ‘designated one Russian individual and three Russia-based companies involved in an attempted sanctions evasion scheme in which an opaque and complex supposed divestment could have unfrozen more than $1.5 billion worth of shares belonging to U.S.-designated Russian oligarch Oleg Vladimirovich Deripaska.’ The individual is Dmitrii Aleksandrovich Beloglazov, and the three entities all have some involvement in the financial services sector. Secondly, OFAC has sanctioned Ali Yagoub Gibril and Osman Mohamed Hamid Mohamed, who both have involvement in the Sudanese Rapid Support Forces which has concerned itself with attacks on North Darfur over the last month. This has resulted in a humanitarian crisis in the area. Thirdly, OFAC has imposed sanctions on three ‘Nicaragua-based entities, the Training Center of the Russian Ministry of Internal Affairs in Managua (‘RTC’); Compania Minera Internacional, Sociedad Anónima (‘COMINTSA’); and Capital Mining Investment Nicaragua, Sociedad Anónima (‘Capital Mining’)…. The RTC is a Nicaragua-based subdivision of the Government of the Russian Federation’s Ministry of Internal Affairs, which trains those under the Ortega-Murillo regime’s command.’ Fourthly, OFAC has also imposed sanctions ‘on two Russian individuals and three Russia-based entities for facilitating weapons transfers between Russia and the Democratic People’s Republic of Korea (DPRK). This action promotes U.S. government objectives to disrupt and expose arms transfers between the DPRK and Russia and builds upon sanctions imposed by the Department of the Treasury and the Department of State related to DPRK-Russia arms transfers, including the transfer and testing of DPRK-origin ballistic missiles for Russia’s use against Ukraine.’ You will recall the recent report to the UN Security Council which identified debris from a North Korean-manufactured missile found in Ukraine, which means that this action from OFAC should come as no surprise. Finally, OFAC has issued an interim final rule amending the Reporting, Procedures and Penalties Regulations under 31 CFR 510. The new rule will be effective from 8th August 2024.
Bribery and Corruption
This week’s bribery and corruption news starts with more news from Ukraine of action against those alleged to have engaged in corrupt activity. This week, it is the bail in the sum of 12mn hryvnias ($303,000) in the case of Andriy Klochko, a Member of the Ukrainian Parliament, accused of enriching himself in the sum of 11 million hryvnias ($278,000). The bail sum comes with allied condition which bind Klochko until 10th July 2024.
Now, to Russia, with news of anti-corruption arrests. As the Russian invasion of Ukraine began to stall, the issue of poorly maintained military machinery began to raise questions of alleged misuse of funds designated for maintenance and renewal. The allegations were that these funds were syphoned-off in bribes and kick-backs. The Russian state vowed to respond with action to strike at these corrupt practices. Well, anyone following the invasion will know of the changes in military personnel in Russia both from the perspective of military strategy, but also because of allegations of bribery. Well, this week, news comes to us of the arrest of a Russian Defence Ministry official, Lt. Gen. Yury Kuznetsov. Though the allegations do not relate to bribes in maintenance contracts, they are indicative of a desire by the state to address, more or less, the issue of bribery and corruption in the Russian military. It’ll be interesting to see where this one goes.
In Australia, the former general manager of Infrastructure Engineering at the Commonwealth Bank of Australia has been convicted of seven counts of corruption. Jon Waldron accepted bribes of around $3m in return for the award of contracts. Submissions on sentencing will take place in mid-August.
Fraud
The fraud news this week starts in the US where, in order to disrupt international fraud schemes, coordinated action has been taken against 3,000 money mules. The Money Mule Initiative is ‘an annual campaign to identify, disrupt, and criminally prosecute networks of individuals who transmit funds from fraud victims to international fraudsters.’ The action taken in this effort ‘ranged from criminal prosecutions designed to punish those intentionally assisting fraudsters to warning letters intended to advise those who may have been unknowingly recruited by fraudsters.’ Additionally, the agencies involved are undertaking outreach programmes to ‘educate the public about how fraudsters use money mules and how to avoid unknowingly assisting fraud by receiving and transferring money.’
Now, the next story is one which I like to see, and that is a story concerning accountability. It is being reported that the European Public Prosecutor’s Office (‘EPPO’) may be hampered in its work if a threatened budget cut is implemented. The EPPO, which is understood to be investigating alleged criminal wrongdoing in connection with vaccine negotiations in response to the Covid-19 pandemic, has threatened the Commission with legal action over the budget issue. Now, I’m not really concerned with the budget whinges of various organisations within the EU, but I am pleased to see the level of accountability in the EU, and the fact that the Commission is not above the law and that its actions, when the sanctity of the EU budget is at stake, are not something which will be without oversight.
In the UK, the Financial Conduct Authority (‘FCA’) has charged three individuals with a range of fraud offences in relation to contracts-for-difference trades. ‘Kristofer McGuire, Keith Williamson and Karla Walker have been charged with multiple offences, including fraud by false representation and fraudulent trading, after they targeted victims by persuading them to invest in contracts for difference (‘CFD’s)…. Many victims of the alleged fraud were encouraged to use their pensions to invest which were then traded to generate large commissions for those running the scheme, with victims’ pension funds almost entirely lost.’ The defendants will appear before Westminster Magistrates’ Court on 7 June 2024.
Money Laundering
The money laundering news this week opens with news from India concerning VASPs (Virtual Asset Service Providers), specifically Binance and Kucoin, which have been given approval by the Indian government to start trading from the jurisdiction. VASPs have been in the news recently, as has Binance, with VASPs currently in the sights of the Financial Action Task Force (‘FATF’). The FATF is keeping tabs on the status of the implementation of Recommendation 15 of the FATF40 by members and jurisdictions with Materially important VASP activity. Certainly, the FATF will be keeping an eye on this activity, and particularly in respect of India since last month a delegation from the Indian government visited Singapore to update the FATF on its progress in AML and CFT. India’s MER is due to be published in June.
Now, staying on the theme of Binance, the Financial Transactions and Reports Analysis Centre of Canada (‘FINTRAC’) has imposed a fine of $6,002,000 on the company for ‘non-compliance with Part 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated Regulations. Binance Holdings Limited was found to have committed the following administrative violations:
Failure to register with FINTRAC as a foreign money services business; and
Failure to report large virtual currency transactions of $10,000 or more in the course of a single transaction, together with the prescribed information.’
Other news from North America this week, only this time from the US, where the Department of the Treasury has issued its 2024 National Strategy for Combatting Terrorist and Other Illicit Financing. The Strategy identifies four priorities:
close legal and regulatory gaps in the U.S. AML/CFT framework that illicit actors exploit to anonymously access the U.S. financial system by operationalizing the beneficial ownership information registry for law enforcement, national security, and intelligence use; finalizing rules related to the residential real estate and investment adviser sectors; and assessing other sectors that may be vulnerable to illicit finance;
promote a more effective and risk-focused U.S. AML/CFT regulatory and supervisory framework for financial institutions to make them more efficient and effective in preventing illicit finance by providing clear compliance guidance, sharing information appropriately, and ensuring adequate resourcing for supervisory and enforcement functions;
enhance the operational effectiveness of law enforcement, other U.S. government agencies, and international partnerships in combating illicit finance so threat actors cannot find safe havens for their operations; and
realize the benefits of responsible technological innovation in the United States by developing new payments technology, supporting the use of new mechanisms for private sector compliance, and utilizing automation and innovation to find novel ways to combat illicit finance.’
In other news this week, there has been a major coordinated announcement from the Financial Action Task Force (‘FATF’), INTERPOL, and United Nations Office on Drugs and Crime (‘UNODC’). The announcement urged that action needs to be taken to fight money laundering and terrorist financing. The call to action came at the opening of the 33rd Commission on Crime Prevention and Criminal Justice. ‘By focussing on the proceeds of crime and the illicit financial networks behind them, Member States can more effectively combat and disrupt organized crime networks and enhance the effectiveness of crime prevention efforts. Disincentivizing criminal activity through targeting illicit profits would also positively impact across all Goals of the 2030 Sustainable Development Agenda, such as inclusive economic growth, financial stability, and strengthened institutions and governance.’
Now, in other news from the United Nations this week, in a closed session of the Security Council, it is understood, well, certainly it is widely-reported, that North Korea is being held responsible for a host of cyber-attacks on cryptocurrency companies over the last seven years, with an estimated value of $3.6 billion. It is also reported that the country was responsible for a cyber-attack on the HTX cryptocurrency exchange where the $147.5m which was stolen in that attack was laundered in March this year. North Korea has not responded to the allegations.
In the UK, the Home Office has updated its Circular 022/2015: Money laundering: the confidentiality and sensitivity of suspicious activity reports (SARs) and the identity of those who make them. It would appear that the amendment is to the email address for contact where the ‘police or other LEA (‘law enforcement agency’) disclosure team believe, in discussion with the prosecution (as necessary) that SARs (or additional NCA material) should be disclosed, whether at the initial disclosure stage or under the continuing prosecution duty, then they should notify the UKFIU, at the NCA, at ukfiusars@nca.gov.uk.’
And, finally this week, we mentioned last week efforts being made by Turkey to take action to ensure that the Financial Action Task Force (‘FATF’) removes it from its list of ‘Jurisdictions Under Increased Monitoring’ (so-called, ‘grey list’). Well, this week the ruling party has introduced a Bill to parliament with the aim of creating a scheme for licensing and registration of crypto asset service providers (‘CASPs’). With government support, the Bill is likely to become law, and give further confidence to the FATF that Turkey is committed to AML/CFT such that it may be removed from the ‘grey list’. You will also recall, if you have been following this podcast, that the FATF has been focused on CASPs in recent weeks and months, so this action is further likely to be regarded favourably. We’ll keep a close eye on the next FATF plenary.
Market Abuse
On market abuse news this week, in episode 102 the FCWP, we announced that Stuart Bayes had been found guilty of insider dealing. In advance of the acquisition of British Polythene Industries (‘BPI’) by RPC Group plc (‘RPC’), Stuart Bayes traded heavily in BPI shares, encouraging another to do the same. Bayes made a profit of £132,000. This week, he has been sentenced to 18 months’ imprisonment, suspended for two years, and ordered to undertake a Rehabilitation Activity Requirement of 35 days and to carry out 150 hours of unpaid work. A confiscation hearing is fixed for the matter on 4th October 2024.
The other market abuse news this week comes, again, from the FCA in the UK, and it would seem that it is putting its money where its mouth is on action against finfluencers with the announcement of charges against ‘nine individuals in relation to an unauthorised foreign exchange trading scheme promoted on social media. The FCA alleges that, between 19 May 2018 and 13 April 2021, Mr Nwanze and Holly Thompson used an Instagram account (@holly_fxtrends) to provide advice on buying and selling contracts for difference (CFDs) when they were not authorised to do so…. The FCA also alleges that Mr Nwanze paid Biggs Chris, Jamie Clayton, Lauren Goodger, Rebecca Gormley, Yazmin Oukhellou, Scott Timlin and Eva Zapico to promote the @holly_fxtrends Instagram account to their millions of Instagram followers. Ms Thompson, Mr Chris, Mr Clayton, Ms Goodger, Ms Gormley, Ms Oukhellou, Mr Timlin and Ms Zapico each face one count of issuing unauthorised communications of financial promotions. The defendants will appear before Westminster Magistrates' Court on 13 June 2024.’
Other Financial Crime News
In other news, in the UK, the Director of the Serious Fraud Office in the UK appeared before the House of Commons’ Justice Committee this week. Nick Ephgrave put a significant focus on whistleblowers, arguing that there should be alignment with the approach taken in other jurisdictions. No transcript of the hearing has yet been released.
And, finally, the Law Commission for England and Wales has published its annual report for 2023-24, in which, for the purposes of financial crime, it highlights the outcome of the work which it did on the confiscation of the proceeds of crime, as well as the work on corporate criminal responsibility.
Cyber Crime
We end this week’s financial crime news with a round-up of cyber-attack news. The first story concerns Christie’s, the auction house, which has announced that despite a cyber-attack it experienced at the weekend which affected its website, its New York spring art auctions are to go ahead in person and by phone. No claim of responsibility has yet been made.
In the UK, the Information Commissioner’s Office (‘ICO’) has insisted that organisations need to do more to combat cyber-attacks. Drawing on its own trend data, the ICO said that ‘more organisations than ever are experiencing cyber security breaches. Over 3,000 cyber breaches were reported [the ICO] in 2023, with the finance (22%), retail (18%) and education (11%) sectors reporting the most incidents.’ The report (Learning from the mistakes of others – A retrospective review), which is published alongside the call to action, provides practical ‘advice to help organisations to understand common security failures and take simple steps to improve their own security, preventing future data breaches before they can happen.’
Staying in the UK, the National Cyber Security Centre (‘NCSC’) has published a couple of interesting pieces of news. First, it has published Guidance for organisations considering payment of ransomware demands. ‘The NCSC and the insurance industry bodies recommend victim organisations review the following guidance before paying a ransom to a criminal group,’ so the guidance is linked in the podcast description. Secondly, with a general election in the United Kingdom at some point this year, the NCSC has highlighted a new Personal Internet Protection (‘PIP’) service designed to provide an additional layer of security to the personal devices of high-risk individuals, such as political candidates, election officials, and others at high risk of being targeted by malign actors.
And, finally, on cyber-attack news this week, more focus on China from the US and UK. In the US, the House subcommittee on ‘Cybersecurity, Information Technology, and Government Innovation held a hearing titled, “Red Alert: Countering the Cyberthreat from China.”…. Subcommittee members discussed how CCP-sponsored hacking efforts have become more sophisticated and coordinated, including its Volt Typhoon campaign that targets U.S. critical infrastructure. Expert witnesses discussed the urgent need to combat the threat by, for instance, replacing vulnerable legacy IT systems that serve as prime access points for hackers to infiltrate both public and private sector entities across America.’ In the UK, China was also in the spotlight at CyberUK, the National Cyber Security Centre's conference in Birmingham, where the Director of GCHQ, the UK’s intelligence agency, Anne Keast-Butler, stated that China is working with others to disrupt the UK and its allies, and that the response to this is a top priority for the agency. I think this is all a sad fact of the modern geo-political situation.
References
Federal Register, Reporting, Procedures and Penalties Regulations.
Financial Action Task Force, Urgent action needed to fight money laundering and terrorist financing, say Heads of FATF, INTERPOL and UNODC.
Financial Conduct Authority, Stuart Bayes sentenced for insider dealing.
Financial Conduct Authority, Three charged over CFD trading pension fraud.
Financial Conduct Authority, 'Finfluencers’ charged for promoting unauthorised trading scheme.
Financial Transactions and Reports Analysis Centre of Canada, FINTRAC imposes an administrative monetary penalty on Binance Holdings Limited.
House of Commons’ Justice Committee, Work of the Serious Fraud Office - Oral evidence (recording).
Information Commissioner’s Office, Organisations must do more to combat the growing threat of cyber attacks.
Information Commissioner’s Office, Learning from the mistakes of others – A retrospective review.
INTERPOL, Urgent cooperation needed to fight money laundering and terrorist financing.
Law Commission, Annual Report 2023-24.
National Cyber Security Centre, Guidance for organisations considering payment in ransomware incidents.
National Cyber Security Centre, NCSC ramps up support for those at high risk of cyber attacks ahead of election.
Office of Financial Sanctions Implementation, Financial sanctions general guidance amended.
Office of Financial Sanctions Implementation, Guidance: OFSI General Licence INT/2022/1839676.
Office of Financial Sanctions Implementation, Notice: General Licence – Russian Travel INT/2022/1839676.
Office of Financial Sanctions Implementation, UK financial sanctions general guidance.
Office of Financial Sanctions Implementation, Financial sanctions guidance for Russia.
Office of Financial Sanctions Implementation, Counter-Terrorism sanctions: guidance.
Office of Financial Sanctions Implementation, Financial sanctions enforcement and monetary penalties guidance.
Office of Financial Sanctions Implementation, Guidance: Reporting information to OFSI – what to do.
Office of Financial Sanctions Implementation, Financial Sanctions Notice: Democratic People’s Republic of Korea.
Office of Financial Sanctions Implementation, Financial Sanctions Notice: Russia.
Office of Financial Sanctions Implementation, Guidance: Financial sanctions, Democratic Republic of the Congo.
Office of Financial Sanctions Implementation, Guidance: Financial sanctions, ISIL (Da'esh) and Al-Qaida organisations.
Office of Foreign Assets Control, U.S. Exposes Attempted Sanctions Evasion Scheme Connected to Russian Oligarch.
Office of Foreign Assets Control, Treasury Sanctions Sudanese Rapid Support Forces Commanders Expanding War.
Office of Foreign Assets Control, Treasury Sanctions Nicaragua-Based Russian Institution and Gold Companies.
Office of Foreign Assets Control, Treasury Designates Sanctions Evaders Facilitating Illicit Arms Transfers between the DPRK and Russia.
Politico, EU prosecutors threaten to sue Commission in spending spat.
Treasury Select Committee, Are the UK’s Russian financial sanctions working? – Oral evidence.
United National Office on Drugs and Crime, Urgent action needed to fight money laundering and terrorist financing, say heads of FATF, INTERPOL and UNODC.
US Department of Justice, U.S. Law Enforcement Takes Action Against More Than 3,000 Money Mules in Initiative to Disrupt Transnational Fraud Schemes.
US Department of State, Imposing Sanctions in Response to DPRK-Russia Weapon Deals.
US Department of the Treasury, Treasury Announces 2024 National Illicit Finance Strategy.
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