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  • FinCEN alert covers potential CRE investments by sanctioned Russians

    Financial Crimes

    On January 25, the Financial Crimes Enforcement Network (FinCEN) issued an alert to financial institutions on potential investments in the U.S. commercial real estate sector by sanctioned Russian elites, oligarchs, their family members, and the entities through which they act. The alert provides a list of possible red flags and typologies regarding attempted sanctions evasion in the commercial real estate sector and emphasizes financial institutions’ Bank Secrecy Act reporting obligations. The alert noted that banks frequently work with market participants who seek financing for commercial real estate projects, and that banks have customer due diligence obligations to verify the beneficial owners of legal entity customers. Specifically, the alert noted that “banks therefore may be in a position to identify and report suspicious activities associated with sanctioned Russian elites and their proxies including [politically exposed persons], among banks’ [commercial real estate]-related customers.” According to FinCEN, the recent alert builds on FinCEN’s March 2022 alert identifying real estate, luxury goods, and other high value assets involving sanctioned Russian and elites, and is the fourth alert issued by FinCEN on potential Russian illicit financial activity since Russia’s invasion of Ukraine in February 2022 (covered by InfoBytes here).

    Financial Crimes Of Interest to Non-US Persons FinCEN Russia Real Estate Bank Secrecy Act OFAC Sanctions OFAC Designations Customer Due Diligence Beneficial Ownership SARs Illicit Finance

  • OFAC sanctions Russians individuals and entities

    Financial Crimes

    On January 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against six individuals and 12 entities connected to the Russian Federation. OFAC noted that the designations, which are concurrent with additional sanctions actions by the Department of State, target the infrastructure that supports battlefield operations in Ukraine, including producers of Russia’s weapons and those administering Russian-occupied areas of Ukraine. OFAC also noted that the action includes the designation of persons that support Russian defense-related entities. As a result of the sanctions, all property and interests in property belonging to the sanctioned individuals and entities that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons unless authorized by a general or specific license from OFAC.

    Financial Crimes Of Interest to Non-US Persons OFAC Sanctions Department of Treasury SDN List OFAC Designations Russia

  • FinCEN prohibits engagement with virtual currency exchange connected to Russian finance

    Financial Crimes

    On January 18, the Financial Crimes Enforcement Network (FinCEN) issued its first order pursuant to section 9714(a) of the Combating Russian Money Laundering Act to identify a Hong Kong-registered global virtual currency exchange operating outside of the U.S. as a “primary money laundering concern” in connection with Russian illicit finance. FinCEN announced that the virtual currency exchange offers exchange and peer-to-peer services and “plays a critical role in laundering Convertible Virtual Currency (CVC) by facilitating illicit transactions for ransomware actors operating in Russia.” A FinCEN investigation revealed that the virtual currency exchange facilitated deposits and funds transfers to Russia-affiliated ransomware groups or affiliates, as well as transactions with Russia-connected darknet markets, one of which is currently sanctioned and subject to enforcement actions that have shuttered its operations. The investigation also found that the virtual currency exchange failed to meaningfully implement steps to identify and disrupt the illicit use and abuse of its services, and lacked adequate policies, procedures, or internal controls to combat money laundering and illicit finance.

    Recognizing that the virtual currency exchange “poses a global threat by allowing Russian cybercriminals and ransomware actors to launder the proceeds of their theft,” FinCEN acting Director Himamauli Das emphasized that “[a]s criminals and criminal facilitators evolve, so too does our ability to disrupt these networks.” He warned that FinCEN will continue to leverage the full range of its authorities to prohibit these institutions from gaining access to and using the U.S. financial system to support Russian illicit finance. Effective February 1, covered financial institutions are prohibited from engaging in the transmittal of funds from or to the virtual currency exchange, or from or to any account or CVC address administered by or on behalf of the virtual currency exchange. Frequently asked questions on the action are available here.

    Concurrently, the DOJ announced that the founder and majority owner of the virtual currency exchange was arrested for his alleged involvement in the transmission of illicit funds. Charged with conducting an unlicensed money transmitting business and processing more than $700 million of illicit funds, the DOJ said the individual allegedly “knowingly allowed [the virtual currency exchange] to become a perceived safe haven for funds used for and resulting from a variety of criminal activities,” and was aware that the virtual currency exchange’s accounts “were rife with illicit activity and that many of its users were registered under others’ identities.” While the virtual currency exchange claimed it did not accept users from the U.S., it allegedly conducted substantial business with U.S.-based customers and advised users that they could transfer funds from U.S. financial institutions. 

    Deputy Secretary of the Treasury Wally Adeyemo issued a statement following the announcement, noting that the action “is a unique step that has only been taken a handful of times in Treasury’s history for some of the most egregious money laundering cases, and is the first of its kind specifically under new authorities to combat Russian illicit finance.” He reiterated that the action “sends a clear message that we are prepared to take action against any financial institution—including virtual asset service providers—with lax controls against money laundering, terrorist financing, or other illicit finance.”

    Financial Crimes Of Interest to Non-US Persons FinCEN Department of Treasury DOJ Digital Assets Anti-Money Laundering Russia Enforcement Virtual Currency Illicit Finance Peer-to-Peer

  • OFAC issues Russia-related general licenses for some transactions

    Financial Crimes

    On January 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued several Russia-related General Licenses (GLs), including: (i) General License (GL) 6C, which authorizes transactions related to agricultural commodities, medicine, medical devices, replacement parts and components, or software updates, Covid-19 pandemic, or clinical trials; (ii) GL 54A, which authorizes certain transactions involving certain holdings prohibited by Executive Order 14071; and (iii) GL 28B, which authorizes the wind down and rejection of certain transactions involving a public joint stock company and Afghanistan. OFAC also announced that it is amending four Russia-related Frequently Asked Questions 982, 1054, 1055, and 1059.

    Financial Crimes OFAC Department of Treasury Of Interest to Non-US Persons Russia OFAC Sanctions OFAC Designations

  • OFAC sanctions suppliers of Iranian UAVs used in Russia’s war against Ukraine

    Financial Crimes

    On January 6, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions pursuant to Executive Order 13382 against six executives and board members of a U.S.-designated Iranian defense manufacturer allegedly responsible for designing and producing unmanned aerial vehicles (UAVs) that are being transferred by Iran for use in Russia’s war against Ukraine. The director of a key organization responsible for overseeing Iran’s ballistic missile programs has also been sanctioned. OFAC further announced that it is updating the defense manufacturer’s entry on the Specially Designated Nationals and Blocked Persons List to include its new alias. As a result of the sanctions, all property and interests in property belonging to the sanctioned individuals and entities that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons. Persons that engage in certain transactions with the designated individuals or entities may themselves be exposed to sanctions, and “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today pursuant to E.O. 13382 could be subject to U.S. sanctions.”

    Financial Crimes Of Interest to Non-US Persons Department of Treasury OFAC OFAC Sanctions OFAC Designations SDN List Iran Russia Ukraine Ukraine Invasion

  • OFAC issues preliminary guidance on price cap policy implementation

    Financial Crimes

    On December 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced preliminary guidance on the implementation of the price cap policy for petroleum products of Russian Federation origin. As previously covered by InfoBytes, in November, OFAC published a Determination Pursuant to Executive Order (E.O.) 14071 stating that the prohibitions of E.O. 14071 apply to U.S. persons providing covered services (including (i) trading/commodities brokering; (ii) financing; (iii) shipping; (iv) insurance, including reinsurance and protection and indemnity; (v) flagging; and (vi) customs brokering) as they relate to the maritime transport of Russian Federation crude oil, provided, however, that such covered services are authorized if the Russian oil is purchased at or below the price cap. OFAC also published guidance on the implementation of a policy for crude oil of Russian Federation origin to provide an overview of the determination and the price cap. OFAC noted that it anticipates publishing final, combined guidance for both Russian oil and Russian petroleum products before February 5.

    Financial Crimes OFAC Department of Treasury Of Interest to Non-US Persons Russia

  • FinCEN data reveals Russian oligarchs’ financial activity

    Financial Crimes

    On December 22, the Financial Crimes Enforcement Network (FinCEN) issued a Financial Trend Analysis on the financial activity of Russian oligarchs. In the analysis, FinCEN examined Bank Secrecy Act (BSA) reports from March 2022 to October 2022 involving Russian oligarchs, high-ranking officials, and sanctioned individuals. FinCEN identified 454 reports detailing suspicious activity and reported that some of the trends in the data by Russian oligarchs included: (i) the movement of funds around the start of the invasion of Ukraine in February 2022; (ii) the purchase of high-value goods or property in 2022; and (iii) based on the movement of funds from accounts in Russia to other countries, an indication of potential changes in longstanding oligarch-linked financial flows related to U.S. properties and companies. FinCEN noted that 78 percent of the 454 BSA reports were filed by U.S.-based depository institutions. Other types of financial institutions—such as holding companies or financial technology companies—submitted roughly 19 percent of reports, mainly on suspicious electronic funds transfers or wire transfers and suspicions concerning the source of funds.

    Financial Crimes Of Interest to Non-US Persons Department of Treasury FinCEN Ukraine Ukraine Invasion Bank Secrecy Act SARs Russia Wire Transfers

  • OFAC announces Russia-related sanctions

    Financial Crimes

    On December 9, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions against 18 entities related to the Russian Federation’s financial services sector. According to OFAC, the sanctions are taken in conjunction with the Department of State, which is concurrently designating a prominent oligarch in Russia, his network, and more than 40 additional persons linked to the Russian government as part of the U.S. government’s efforts to further limit Russia's ability to fund its war against Ukraine. As a result of the sanctions, all property and interests in property belonging to the sanctioned persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific OFAC license.

    Financial Crimes Of Interest to Non-US Persons Department of Treasury OFAC OFAC Sanctions OFAC Designations SDN List Russia Department of State

  • Treasury official flags “de-risking” as a concern in combating illicit financial risks

    Financial Crimes

    On December 5, Assistant Secretary for Terrorist Financing and Financial Crimes at the U.S. Department of Treasury Elizabeth Rosenberg outlined key illicit finance risks impacting the broader financial system during the ABA/ABA Financial Crimes Enforcement Conference. Rosenberg noted that for many nations, the illicit finance threat posed by Russia related to its invasion into Ukraine is a top priority. She commented that more than 30 countries immediately implemented sanctions or other economic measures against Russia, and that since then, the U.S. and other countries have created an expansive, multilateral web of restrictions targeting Russia’s ability to fund its war. Rosenberg also recognized that by reassessing their understanding of Russian illicit financial risks and implementing adaptive measures, companies and financial institutions play an important role in providing critical insight into emerging threats. Rosenberg also discussed Treasury’s risk-based approach to crafting policy responses, including those related to beneficial ownership transparency, investment adviser misuse, and the use of residential and commercial real estate to hide and grow illicit funds.

    Rosenberg warned, however, that there are challenges in implementing a truly risk-based approach. She pointed to observations made by the Financial Action Task Force, which showed that while many countries and their financial institutions “are keenly aware of where enhanced due diligence is needed,” many “often can not readily identify the inverse: places where simplified due diligence should be expected and permitted.” She cautioned that focusing on high-risk areas rather than lower-risk parts “is not without costs,” and illustrated a common form of de-risking that occurs “when financial institutions categorically cut off relationships or services to avoid perceived risks—for example, certain geographic regions—rather than applying a nuanced, risk-based approach.” Doing so can lead to “deleterious effects,” she warned, such as excluding businesses based on their location or status, or impacting emerging markets that could serve underbanked populations. Rosenberg said Treasury intends to study these concerns through the Anti-Money Laundering Act of 2020, and will develop a strategy for addressing de-risking, including recommendations on ways to improve public-private engagement on the issue, regulatory guidance and adjustments, and international supervision.

    Financial Crimes Of Interest to Non-US Persons OFAC Department of Treasury Risk Management Russia Ukraine Invasion FATF Anti-Money Laundering Act of 2020 Beneficial Ownership Illicit Finance

  • Treasury announces price cap on Russian crude oil

    Financial Crimes

    On December 2, the U.S. Treasury Department announced an agreement entered into by the 27 member states of the European Union and the members of the G7 (collectively, the “Price Cap Coalition”), which adopts a price cap on seaborne Russian crude oil in an effort to restrict Russian revenue streams for its war in Ukraine. According to the announcement, beginning next week, the Price Cap Coalition will impose a ban on a range of services, including maritime insurance and trade finance, related to the maritime transport of Russian crude oil unless purchasers buy the oil at or below the $60/barrel cap. Starting February 5, 2023, this ban will also extend to the maritime transport of Russian-origin petroleum products unless they are sold at or below a yet-to-be-announced price cap. As previously covered by InfoBytes, last month OFAC published guidance on the price cap policy for Russian crude oil. According to Treasury’s announcement, the guidance clarifies that the price cap policy’s “‘safe harbor’ for service providers through the recordkeeping and attestation process is designed to shield such service providers from strict liability for breach of sanctions in cases where service providers inadvertently deal in the purchase of Russian oil sold above the price cap owing to falsified or erroneous records provided by those who act in bad faith or make material misrepresentations.” OFAC also publishedDetermination Pursuant to Executive Order 14071 officially announcing the price cap on December 5.

    Financial Crimes Of Interest to Non-US Persons OFAC Department of Treasury OFAC Sanctions OFAC Designations Russia Ukraine Ukraine Invasion

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