AMLAnti Money-LaunderingCryptoSanctions

Instex, Crypto Cards and £30,000 of Chocolate

By May 31, 2019 June 14th, 2019 No Comments

Head of Financial Crime, Livia Benisty shares her financial crime highlights from the week that’s passed.

US threatens exclusion for European allies working with Iran

Attempts by Europe and others to work around US sanctions against Iran have faced renewed focus this week. Instex is a special purpose vehicle created by Germany, France and the UK to facilitate trade while getting around US sanctions. Bloomberg obtained a May 7 letter from Sigal Madelker, the US Treasury Department’s undersecretary for terrorism and financial intelligence, warning that if it went into effect, anyone associated with Instex would be barred from the US financial system.

The extraterritoriality of US sanctions is interesting to deal with. Sanctions apply when a transaction involves a “US Person”. While many assume any transaction in dollars is subject to US sanctions, this is only because a dollar transaction would usually clear through the Fed, so technically the transaction ‘touches’ US soil. Instex transactions involve no US banks, no US persons, are denominated in euros and may not involve moving any money across borders at all. They shouldn’t invoke US sanctions. However, perhaps because they are deliberate workarounds or evasion techniques, the US is threatening to exclude those who partake from the US financial system.

You might wonder how the US can get away with this. It’s because of the dominance of the dollar for global trade. India has another system which is already being used, allegedly to trade with Iranian entities names on the US sanctions list. China has a similar system to conduct trade in yuan. While the initial driver behind these systems was the US reimposing sanctions on Iran, they could be the beginning of a decline in the dollar’s dominance. In an op-ed from last year, German foreign minister Heiko Maas wrote it is “essential that we strengthen European autonomy by establishing payment channels independent of the US”. The implications of such a change to the established system would be paradigm-shifting.

RUSI looking to set the direction for future of UK sanctions policy

Whilst the US considers isolating allies over its Iranian sanctions, post-Brexit the UK will have the autonomy to decide how to use sanctions to further its foreign policy. The framework to design and implement sanctions has been put into place. What remains to be seen is whether the UK will lead independently on its objectives, or choose to strategically align with the EU, or the US perhaps.

To examine these issues, RUSI has created a task force on the future of the UK’s sanctions policy. A recording of the launch event can be found here.

UK Government questions source of funds for £80 million London property spend

An undisclosed PEP is the subject of a second set of unexplained wealth orders. UWOs are obtained by the National Crime Agency in the UK when an asset worth over £50k is purchased by someone who seemingly doesn’t have a correspondingly high income. In this case, the targets are three London properties bought for more than £80 million. It’s worth noting that the properties were bought 10 years ago and are worth considerably more now. All three are held by offshore companies.

The case highlights the use of luxury property in London as a way to launder money. In last week’s round up I wrote about the Registration of Overseas Entities Bill which would create a publicly accessible register of beneficial owners of non-UK entities owning or buying UK land. The register is due to be ready by 2021.

The first two UWOs targeted £22 million worth of property belonging to Zamira Hajiyeva, wife of an Azeri banker who was the former chair of the International Bank of Azerbaijan. He was jailed for 15 years for embezzlement and fraud, among other things. Famously, she racked up a bill at Harrods for over £16 million. The itemised details of that bill were also released this week. In among the Cartier and Boucheron was nearly £2,000 of charcuterie (in one day!) £30,000 on chocolate and more than £900 of coffee (irrelevant but interesting details).

Visa and Coinbase bring Crypto a step closer to everyday spending

Coinbase announced a Visa debit card. The cryptocurrency exchange’s customers can now make purchases and cash withdrawals from their account. This news raises an interesting question around whether this is the first step towards ‘normalising’ crypto and making it an everyday payment method. Whilst reading I came across this opinion piece released on Tuesday in the FT regarding the possible money laundering risks.

As the article states, the interesting point for the Coinbase card is what it means for the ease with which crypto can be transformed into real spending power. Usually, it would involve an exchange and money ending up in a bank account which is subject to due diligence and monitoring. Visa appears to be allowing for spending direct from a crypto wallet through the Coinbase exchange.

I would guess that the scheme exists with certain specified wallets which have undergone due diligence and found to meet required standards. Even so, I would be really interested to see how Visa conducted the risk assessment on this and managed to mitigate any concerns they had. It will be an interesting test case for the viability of crypto as a more common means of trade.

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