Episode 115

1st July – 7th July 2024

Sanctions

This week’s sanctions news starts in the US, which has confirmed the imposition of sanctions on entities and vessels trading Iranian Petroleum and Petrochemical Products. The action is pursuant to Executive Order 13846, and follows recent action by the US against the shadow banking sector facilitating commerce in Iran. In other news, the Office of Foreign Assets Control (‘OFAC’) has sanctioned a Mexico-based money launderer and China-based members of a money laundering organization with criminal links to the Sinaloa Cartel as part of ongoing efforts to disrupt the flow of illicit narcotics into the United States. Staying in the US, the Department of Justice has announced the guilty plea of an individual for exporting avionics equipment to Russia and Russian End Users. ‘Douglas Edward Robertson, … the former vice president of KanRus Trading Company Inc., pleaded guilty today for his role in a years-long conspiracy to circumvent U.S. export laws by filing false export forms with the U.S. government and, after Russia’s unprovoked invasion of Ukraine in February 2022, continuing to sell and export sophisticated and controlled avionics equipment to customers in Russia without the required licenses from the U.S. Department of Commerce.’ Sentencing hearing is scheduled for 3rd October.

In the EU, sanctions have been announced against Dmitry Beloglazov and his company LLC Titul, for provision of assistance in a sanctions circumvention scheme. Additionally, JSC Iliadis and Rasperia were also sanctioned. The Council has also sanctioned PJSC TransContainer and its General Director Mikhail Kontserev. PJSC TransContainer is Russia’s largest railway operator and has seen increased revenues due to carrying Belarusian cargo. Sticking with the EU, the Directorate-General for Trade has announced that it will explicitly deny ‘the protections of the Energy Charter Treaty (ECT) to investments and investors from Russia and Belarus, in order to reinforce the application of EU sanctions against these countries…. The ECT is a multilateral trade and investment agreement applicable to the energy sector. The ECT contains provisions on investment protection, trade and transit in energy materials and products, and dispute settlement mechanisms. The EU is currently a party to the ECT, together with Euratom and a number of Member States. While the EU is in the process of withdrawing from the ECT, it will be obliged to continue applying the ECT to existing investments for a period of twenty years.’

In the UK, the Office of Financial Sanctions Implementation (‘OFSI’) issued three new licences, and updated another. First, a General Licence allowing for payments to be made to the Revenue Authorities by a UK Designated Person (‘DP’), or on behalf of a DP. Secondly, a General Licence allowing for the sale, divestment or transfer of financial instruments held at the NSD and the payment of safe keeping fees. The NSD is a Russian non-bank financial institution and central securities depository which provides depository, settlement, and related services to financial market entities. Thirdly, a General Licence allowing for payments to Visa Application Services Providers from a Designated Person (‘DP’), or on behalf of a DP. The updated licence is the Oil Price Cap General Licence to extend the Sakhalin-2 Project expiration date to 28th June 2025.

Bribery and Corruption

This week’s bribery and corruption news starts in Andorra, with the news that the Council of Europe’s Group of States against Corruption (‘GRECO’) ‘has called on Andorra to pursue its efforts to prevent corruption in respect of persons with top executive functions, such as members of the government, high-level officials, special relationship personnel and directors, and members of the Police Corps.’ There is recognition that some improvements have been made around integrity pre-checks on ministerial appointments in order to detect and manage possible conflicts of interest, and so on. Additionally, a ‘co-ordinated strategy to promote integrity among PTEFs [persons with top executive functions] needs to be devised on the basis of a risk analysis,’ together with appropriate resourcing of the Prevention and Anti-Corruption Unit. On access to information, the public ought to be to be made broadly aware of the right of access to information.

In news from the UK, the Institute of Chartered Accountants in England and Wales has issued a joint body of guidance, along with the International Federation of Accountants and the Basel Institute, to highlight to accountants the importance of the role which they have in respect of anti-corruption. It calls on all professional bodies in accountancy to encourage members to embrace their role in combating corruption by recognising themselves as key anti-corruption stakeholders; supporting integrated thinking across their organisations; and being champions of Collective Action.

Money Laundering

The money laundering news this week starts in Singapore, fresh from its hosting of the FATF Plenary at the end of its Presidency, where it has been announced that there is an update to its Terrorism Financing (‘TF’) National Risk Assessment (‘NRA’) and National Strategy for Countering the Financing of Terrorism (‘CFT’). ‘Singapore’s key TF threats emanate from: (i) terrorist groups such as the Islamic State of Iraq and Syria (ISIS), Al-Qaeda and Jemaah Islamiyah, as well as potential spillovers from the ongoing Israel-Hamas conflict and tensions in the Middle East; and (ii) self-radicalised individuals who are sympathetic towards the cause of terrorist groups, in particular ISIS. Far-right extremism is also a growing security concern in many countries…. The updated 2024 TF NRA articulates the latest TF threats and vulnerable sectors in Singapore. It takes into account key developments since the last TF NRA in 2020, such as the evolving global and regional terrorism landscape, growth of the digital economy and financial services in Asia, and emerging TF risk typologies. Similar to 2020, the 2024 TF NRA has observed that the TF threat of raising and moving funds for terrorists and terrorism activities overseas remains pertinent in Singapore’s context. Self-radicalised individuals continue to pose the most salient TF threat to Singapore. The key TF risk areas in 2024 are largely similar to those identified in 2020:

a. Money remittances remain at High risk, with cross-border online payments identified as a potential new channel for TF activities;

b. Banks remain at Medium-High risk, with new cross-border fast payment systems identified as a potential new channel for TF activities;

c. Digital Payment Token service providers have been elevated from Medium-Low to Medium-High risk;

d. Non-Profit Organisations remain at Medium-Low risk, with foreign online crowdfunding identified as an emerging TF typology of concern;

e. Cross border cash movements remain at Medium-Low risk; and

f. Precious Stones, Precious Metals, and Precious Products remain at Medium-Low risk.

The 2024 TF NRA supports the refreshed objectives of its National Strategy for CFT, launched in 2022, namely:

a. Prevent: proactively deter prospective terrorists, terrorist organisations, and sympathisers from exploiting Singapore’s openness for TF activities;

b. Detect: promptly detect and trace TF activities through robust monitoring and tracking of red flag indicators, especially in high-risk sectors and emerging TF typologies of concern; and

c. Disrupt: resolutely enforce against terrorists, terrorist organisations, and sympathisers seeking to raise, move and use funds for terrorism activities, both locally and abroad.

To achieve the above objectives, Singapore will implement the refreshed five-pronged National Strategy for CFT which includes coordinated and comprehensive risk identification; secondly, strong legal and sanctions frameworks; thirdly, robust regulatory regimes; fourthly, decisive enforcement actions; and, finally, international partnerships and cooperation.’

On the subject of National Risk Assessments, the Financial Action Task Force (‘FATF’) has announced a public consultation on its National Risk Assessments (‘NRA’s). So, what is a NRA? ‘A National Risk Assessment (NRA) is a comprehensive process used by countries to identify, assess, and understand the ML and/or TF risks they face. This process involves evaluating threats and vulnerabilities, determining the level of risk, and developing strategies to mitigate these risks. The NRA provides a foundation for informed policy-making, resource allocation, and the implementation of effective AML/CFT measures. It ensures that national strategies are aligned with the specific risk landscape of the country and that they address both domestic and international threats. In terms of this consultation, the goal is to update the NRA guidance to make it more effective, comprehensive and useful for all stakeholders involved.’ The FATF is looking for contributions from the private sector, civil society and academia to ensure the guidance is aligned with their experiences.

Staying with the FATF, the South African government has responded to the Singapore plenary where its grey-listing was maintained. ‘National Treasury is satisfied with the outcomes of the FATF Plenary meetings. Given the FATF process, Treasury does not expect South Africa to exit greylisting before June 2025, as per the Action Plan deadlines…. When the FATF greylisted South Africa at its February 2023 Plenary meetings, it adopted a jointly agreed Action Plan containing 22 Action Items linked to the eight strategic deficiencies identified in the country’s Anti-Money Laundering and the Combating of the Financing of Terrorism (AML/CFT) regime. South Africa is required to address all 22 Action Items so as to exit the FATF greylist. The Action Items have differing deadlines, falling between January 2024 to January 2025. The January 2025 deadline serves as a general guide on the earliest time that South Africa can be expected to have addressed all the Action Items in the Action Plan, which is 2 years after the placement of a country on the FATF greylist…. National Treasury notes that whilst South Africa is on track to address all the outstanding Action Items, it remains a tough challenge to address all 14 of the remaining Action Items by February 2025. All relevant agencies and authorities will need to continue to demonstrate significant improvements, and also that such improvements are being sustained and are effective. The Minister of Finance has been leading a process within government to ensure that South Africa addresses all Action Items by February 2025, to enable South Africa to exit greylisting by June 2025.’

The US Financial Crimes Enforcement Network (‘FinCEN’) has also responded to the FATF Plenary by informing US financial institutions of its outcomes, as if they would not be aware anyway. The FinCEN announcement contains nothing we do not already know.

In other money laundering news this week, the Wolfsberg Group has published its Statement on Monitoring for Suspicious Activity which indicates that Improvements need to be made to contribute to the fight against financial crime, targeting the sheer volume of SARs/STRs. As the Statement provides: ‘After many years of focusing on technical compliance, managing false negative cases and a steadily growing number of SARs/STRs that do not always appear to add value to the fight against financial crime, the Group encourages all parties across the MSA [Monitoring for Suspicious Activity] lifecycle to be proactive in the development of innovative techniques and supporting technologies. Such approaches can strengthen FCRM [financial crime risk management] programmes by delivering effective end-to end risk detection capabilities that maximise the utility of critical risk management resources. Existing MSA [Monitoring for Suspicious Activity] methods are inefficient and ineffective at producing timely outcomes that are useful to law enforcement. As a result, the time has come for government agencies to partner more closely with FIs as part of the SAR/STR filing process. The need for a new approach is further necessitated by the fast-changing threat landscape across new communication and transaction channels.’ The Statement urges the adoption of new technologies, notably forms of AI [artificial intelligence] which, as it develops, presents ‘an opportunity for FIs [financial institutions] to work in partnership with law enforcement and supervisors to improve detection capabilities, reduce adverse customer impact, provide more highly useful information to relevant government agencies about crime, and for those agencies to increase their ability to act against the criminals.’

To the European Union, where the European Banking Authority (‘EBA’) has issued guidance on the ‘travel rule’ designed to tackle money laundering and terrorist financing in transfers of funds and crypto-assets.

Market Abuse

In the European Union, the European Securities and Markets Authority (‘ESMA’) has published the ‘second Final Report under the Markets in Crypto-Assets Regulation (‘MiCA’) covering eight draft technical standards that aim to provide more transparency for retail investors, clarity for providers on the technical aspects of disclosure and record-keeping requirements, and data standards to facilitate supervision by National Competent Authorities.

Cyber Crime

We end this week’s financial crime news with a round-up of cyber-attack news, starting with another story on a cyber-warning to power-generation operations. The FBI in the US has issued the warning in a Private Industry Notification ‘to highlight how malicious cyber actors may seek to disrupt power generating operations, steal intellectual property, or ransom information critical for normal functionality to advance geopolitical motives or financial gain within the US renewable energy industry. With federal and local legislature advocating for renewable energies, the industry will expand to keep pace, providing more opportunities and targets for malicious cyber actors.’ The document identifies the threat and makes recommendations to the sector.

The National Health Service in the UK, has updated on the cyber-attack on London hospitals earlier this year. ‘NHS England is also continuing to work with Synnovis and the National Crime Agency to respond to the criminal ransomware attack on Synnovis systems…. Some services, such as outpatient appointments, are now operating to similar levels to before the incident but there continues to be disruption to other services. Urgent and emergency services have remained available as usual,….’

References

Council of Europe, Andorra: GRECO report on preventing corruption in top executive functions and the police.

Department of Justice, Vice President of Kansas Company Pleads Guilty to Crimes Related to Scheme to Illegally Export U.S. Avionics Equipment to Russia and Russian End Users.

EU Directorate-General for Trade, EU protects sanctions against Russian and Belarussian investors under Energy Charter Treaty.

European Banking Authority, The EBA issues ‘travel rule’ guidance to tackle money laundering and terrorist financing in transfers of funds and crypto assets.

European Commission, EU further extends the scope of sanctions on Belarus to fight circumvention.

European Council, Russia's war of aggression against Ukraine: EU lists two individuals and four entities for circumventing EU sanctions and materially supporting the Russian government.

European Council, Belarus’ involvement in Russia’s war of aggression against Ukraine: new EU restrictive measures target trade, services, transport and anti-circumvention.

European Securities and Markets Authority, New MiCA rules increase transparency for retail investors.

Federal Bureau of Investigation, Private Industry Notification: Expansion of US Renewable Energy Industry Increases Risk of Targeting by Malicious Cyber Actors.

Federal Register, Reimposing Certain Sanctions with Respect to Iran.

Financial Action Task Force, Public consultation on FATF Money Laundering National Risk Assessment Guidance Update.