Episode 118

22nd July – 28th July 2024

Sanctions

This week’s sanctions news starts in the UK and the Solicitors’ Regulation Authority, where it has published the six annual report of its Money Laundering Reporting Officer, Sara Gwilliam. Insofar as alleged sanctions breaches are concerned, the report reveals that two reports were made to the Office of Financial Sanctions Implementation (‘OFSI’) detailing suspicions of breaches of the Russia Sanctions regime for their consideration. Those reports involved firms facilitating transactions of more than £300,000. No further detail was provided.

Staying with the UK, OFSI also announced this week the amendment to a licence concerning subsidiaries of Russian Banks and their basic needs, routine holding and maintenance, the payment of legal fees and insolvency related payments. Specifically, this change relates to insolvency proceedings respecting an EU subsidiary.

In the European Union, the Council has extended the economic sanctions imposed on Russia for a further six months until 31st January 2025. ‘These sanctions, first introduced in 2014, were significantly expanded since February 2022 in response to Russia’s unprovoked, unjustified and illegal military aggression against Ukraine. They currently consist of a broad spectrum of sectoral measures, including restrictions on trade, finance, technology and dual-use goods, industry, transport and luxury goods. They also cover: a ban on the import or transfer of seaborne crude oil and certain petroleum products from Russia to the EU, a de-SWIFTing of several Russian banks and the suspension of the broadcasting activities and licenses in the European Union of several Kremlin-backed disinformation outlets. Additionally, specific measures enable the EU to counter sanctions circumvention.’

In the US, the Office of Foreign Assets Control (‘OFAC’) has sanctioned ‘a network of six individuals and five entities based in the People’s Republic of China (PRC), involved in the procurement of items supporting the Democratic People’s Republic of Korea’s (DPRK) ballistic missile and space programs. In … violation of multiple United Nations (UN) Security Council Resolutions (UNSCR), the DPRK has continued to conduct launches using ballistic missile technology, including a recent failed effort to place a military satellite into orbit in late May 2024. Moreover, the DPRK has supplied ballistic missiles to the Russian Federation, which continues to target civilian population centers and infrastructure in Ukraine,…. For its part, Russia has vetoed the renewal of the UN Panel of Experts tasked with monitoring for violations of DPRK-related UNSCR sanctions, making it easier for the DPRK and other actors to evade UN sanctions.’ OFAC has this week also ‘issued a new reporting requirement for financial institutions holding Russian sovereign assets. Pursuant to section 104(a) of the REPO for Ukrainians Act, all financial institutions at which Russian sovereign assets are located, and that know or should know of such assets, must provide notice of such assets to OFAC no later than August 2, 2024 or within 10 days of the detection of such assets,….’ A final story from the US is the news that OFAC has also sanctioned the Congo River Alliance, known by its French name Alliance Fleuve Congo (AFC), a coalition of rebel groups that seeks to overthrow the government of the Democratic Republic of Congo (DRC) and is driving political instability, violent conflict, and civilian displacement.

Bribery and Corruption

This week’s bribery and corruption news starts in Zambia, where the board of the country’s anti-corruption body has been dismissed by the President, Hakinde Hichilema. It is alleged that certain of the board have been involved in corruption following disclosures by a whistleblower. Those concerned deny the allegations made against them, and investigations continue.

In the UK, the new government continues to make announcements on the financial crime front. This week, the Chancellor of the Exchequer, Rachel Reeves, has announced that a covid corruption commissioner will be appointed in the coming weeks with task of recovering public funds lost to pandemic-related fraud. The process begins this week. In related news, Spotlight on Corruption has announced its concern about the lack of specific anti-corruption measure in the recent King’s Speech. Omitted from the Speech, which it would like to have seen, were:

‘A commitment to speedy and concrete ethics and integrity reforms
An Elections Bill to introduce tougher rules on donations for political parties and restore the independence of the Electoral Commission among other democracy reforms, and
A recognition that a third economic crime act will be needed to address ongoing critical gaps for tackling dirty money and to ramp up asset recovery’

These reforms should come sooner rather than later.

Money Laundering

The money laundering news this week starts with Panama, where the International Monetary Fund (‘IMF’) has issued a Technical Note on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) in the jurisdiction. While recognising that its past has been chequered, with periods on the FATF grey-list, improvements have been made around transparency of legal persons, which is ongoing, including outreach efforts to promote registration with the body responsible for oversight of beneficial ownership. However, care should be taken to ensure that it aligns with shifting risk profiles in the country. On fintech, ‘there is a need for the authorities to clearly define what types of financial products/services using financial technology in Panama are subject to AML/CFT obligations, and in a related recommendation, the authorities should enact legislation addressing virtual assets (VAs) and virtual asset service providers (VASPs) that complies with FATF Recommendation 15 and international best practices.’

In the US, the Office of the Comptroller of the Currency (‘OCC’) has issued a Notice of Proposed Rulemaking to ‘amend the requirements that each agency has issued for its supervised banks, currently referred to as Bank Secrecy Act (BSA) compliance programs, to establish, implement, and maintain effective, risk-based, and reasonably designed anti-money laundering (AML) and countering the financing of terrorism (CFT) programs. The proposed changes are:

'Incorporating a risk assessment process in AML/CFT program rules that would require, among other things, consideration of national AML/CFT priorities published by FinCEN.
Including customer due diligence requirements to reflect prior amendments to FinCEN’s requirements.
Including amendments to codify longstanding supervisory expectations and conform to changes made by the AML Act.
Encouraging, but not requiring, banks to consider, evaluate, and as appropriate, implement innovative approaches to meet compliance obligations pursuant to the BSA.’

In other money laundering news this week, MONEYVAL, the Council of Europe’s anti-money laundering body has published its Fifth Round Mutual Evaluation Report on Jersey. While the report highlights some positive action taken by Jersey’s Financial Intelligence Unit, the report does make recommendations. It recommends the Crown Dependency takes steps to ‘strengthen its legal and regulatory framework to combat money laundering (ML), financing of terrorism (FT) and financing of proliferation (FP). It also calls on the jurisdiction to further reinforce the practical application of its frameworks for investigations and prosecutions for ML, as well as the enforcement of sanctions related to AML/CFT preventative measures….’ While ML cases are routinely investigated and proceeds of crime are pursued as a policy objective, the modest number of ML prosecutions, including those for third-party and autonomous ML, call for a more proactive approach by the competent authorities. The report also calls for more robust processes for conducting criminality checks, and that ‘the private sector’s implementation of measures on complex structures, assessment of the risks for the application of exemptions, application of enhanced due diligence measures (EDD) to politically exposed persons (PEPs) and the detection and prompt reporting of suspicious transactions would merit further improvements.’

And, finally, on money laundering this week, the UKFIU has published Issue 26 of its SARs in Action Magazine. The main story this issue is the threat posed by Generative AI-enabled fraud.

Fraud

On fraud news, the leader of a $200m Ponzi scheme has pleaded guilty in the US to wire fraud conspiracy. ‘Court records state that [Johanna Michely Garcia] and her co-conspirators, directly and indirectly, made false statements and fraudulent representations to investors concerning the nature of the MJ Capital Funding investment and the use of investor funds. Garcia and others falsely told investors that their money would be used to fund MCAs and that investor returns would be paid from the profits of MJ Capital Funding’s MCA business. However, the company made few loans and failed to earn anywhere near the profits it needed to pay the investors the promised returns. As a result, Garcia paid investors by running a large Ponzi fraud scheme, paying existing investors using new investor funds while misappropriating millions of dollars for her own personal benefit. Of the nearly $200 million raised, investors lost nearly $90 million.’ Sentencing is set for 20th September 2024.

In New Zealand, the Serious Fraud Office has warned of a cold call scam targeting individuals across the country. According to the warning, it would seem that the fraudsters are purporting to be from the NZSFO, using pre-recorded messages, calling about a phone being hacked or stolen, and asking for remote access to a victim’s computer. The warning reminds individuals that legitimate callers from the NZSFO will provide the contact’s first and last name, a case or matter reference, New Zealand contact details (such as a phone number and/or email address), and a context or an explanation for why they are calling you.

Other Financial Crime News

In other financial crime news this week, Europol has been busy churning out content. First, it has published its Internet Organised Crime Threat Assessment (‘IOCTA’) 2024, which the agency describes as the ‘most comprehensive yearly analysis of the latest threats posed by cybercrime in the EU. In terms of fraud, investment, business email compromise (BEC) and romance fraud remain the most common types of cyber-enabled fraud schemes in the EU, with phishing persisting as the most prevalent vector of attack. Digital skimming is an ongoing threat resulting in the theft, resale or misuse of credit card data. Further, tools and services based on Al and machine learning are becoming common tools for cybercriminals, with the number of cybercriminals entering the market continues to grow steadily, both due to new technologies, which effectively lower the entry barriers, and to an increasing complexity of the digital infrastructure, which widens the potential attack surface.’ In terms of the attacker, there is no typical form, in that they comprise ‘lone actors and networks with various levels of expertise and capability, operating inside and outside the EU. Unsurprisingly, the dark web continues to be a key enabler for cybercrime, allowing offenders to share knowledge, and the use of cryptocurrencies in a number of areas of crime has become more evident.’

Cyber Crime

We end this week’s financial crime news with a round-up of cyber-attack news, starting in the US, where the US Department of the Treasury has announced sanctions against the leader and a principal member of the Cyber Army of Russia Reborn (‘CARR’). Yuliya Vladimirovna Pankratova (Pankratova) and Denis Olegovich Degtyarenko (Degtyarenko), have been designated for having targeted ‘over 2,500 victims worldwide and … alleged to have received more than $500 million in ransom payments.’ Since 2022, ‘CARR,… has conducted low-impact, unsophisticated DDoS attacks in Ukraine and against governments and companies located in countries that have supported Ukraine. In late 2023, CARR started to claim attacks on the industrial control systems of multiple U.S. and European critical infrastructure targets. Using various unsophisticated techniques, CARR has been responsible for manipulating industrial control system equipment at water supply, hydroelectric, wastewater, and energy facilities in the U.S. and Europe. In January 2024, CARR claimed responsibility for the overflow of water storage tanks in Abernathy and Muleshoe, Texas, posting video of the manipulation of human-machine interfaces at each facility on a public forum.’

In the UK, the National Crime Agency has announced that it has infiltrated the world’s most prolific DDoS-for-hire service. The disruption targeting digitalstress.su, a criminal marketplace offering DDos capabilities, was made in partnership with the Police Service of Northern Ireland (‘PSNI’). It comes after the PSNI arrested one of the site’s suspected controllers earlier this month. The NCA took over the site and disabled its functionality, replacing the domain with a splash page, warning users that their data has been collected by law enforcement.

And, finally, the National Cyber Security Centre (‘NCSC’) has published two blog posts this week. First, on the subject of why sharing lessons learned from cyber security incidents and ‘near misses’ will help everyone to improve. Secondly, how the Cyber Security and Resilience Bill announced in the King’s Speech in the UK will assist in combatting the UK’s cyber-threat to critical systems.

References

Council of the European Union, Russia’s war of aggression against Ukraine: Council renews economic sanctions for a further 6 months.

Europol, Internet Organised Crime Threat Assessment (IOCTA) 2024.

Europol, Internet Organised Crime Threat Assessment (IOCTA) 2024 (Report).

International Monetary Fund, Panama: Financial Sector Assessment Program - Technical Note on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT).

MONEYVAL, MONEYVAL acknowledges Jersey’s progress in improving measures to combat money laundering and financing of terrorism.

MONEYVAL, Anti-money laundering and counter-terrorist financing measures Jersey: Fifth Round Mutual Evaluation Report.

National Crime Agency, NCA infiltrates world's most prolific DDoS-for-hire service.

National Cyber Security Centre, "If you have knowledge, let others light their candles in it." (Blog post).

National Cyber Security Centre, New legislation will help counter the cyber threat to our essential services (Blog post).

New Zealand Serious Fraud Office, Phone scam.

Office of Financial Sanctions Implementation, GENERAL LICENCE - Russian Banks – UK subsidiaries – Guernsey subsidiary – EU subsidiaries - Basic needs, routine holding and maintenance, the payment of legal fees and insolvency related payments: INT/2022/1280876.