A Guide to Anti-Money Laundering for Crypto Firms
The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) has sanctioned eight firms that “actively support the biometric surveillance and tracking of ethnic and religious minorities in China.” This includes Xinjiang, a key focus for policymakers concerned about forced labor and human rights violations.
The measures were enacted pursuant to Executive Order (E.O.) 14032, which came into effect in August 2021. It prohibits US persons from investing in Chinese companies found to have ties to the military or the surveillance industry.
One of the eight firms sanctioned is DJI, the world’s largest commercial drone manufacturer. Others include a company using facial recognition technology to track minority groups and alert officials if too many individuals gather in specific locations, and another that tracks image, audio files, and location data from citizens’ cell phones
OFAC’s announcement comes against the backdrop of wider tensions relating to the development and deployment of advanced technologies in China, and increasingly fraught global supply chains.
In July, the US government published a multi-agency business advisory reminding banks of their obligations under the Bank Secrecy Act (BSA) to include in suspicious activity reports (SARs) “all relevant [indications] of human trafficking identified in financial transactions or series of transactions or through other appropriate methods”.
Disputes between the US and China over technology firms and their access to global markets led the Financial Times editorial board to warn of “a clear story of superpower separation”. It cites the US decision to blacklist a leading Chinese artificial intelligence firm and Didi, China’s equivalent to Uber, delisting from the New York Stock Exchange as examples of this. The US-China Economic and Security Review Commission says there are 248 Chinese companies listed in the US as of May 2021, worth a total of $2.1trn.
The semiconductor industry demonstrates most clearly how tensions between the US-China over technology and trade are playing out. China is struggling to achieve self-sufficiency in its semiconductor production, relying heavily on imported equipment. However, Intel, one of the world’s largest semiconductor makers, was forced to issue an apology in December 2021 after issuing a statement to partners and customers in China saying it would not use labor or goods from the Xinjiang region. The letter went viral on social media channels in China, causing a Chinese pop star and former Intel ambassador to cut his ties with the firm. One nationalist media outlet accused Intel of “biting the hand that feeds it”.
A quarter of Intel’s revenue comes from the Chinese market, demonstrating the practical challenges associated with the push at a policy level to restrict ties between the US and China.
Compliance teams should be mindful of the nexus of technology firms, the Chinese market, and Xinjiang-based companies in particular. This includes assessing indirect risks – for example, where the ultimate beneficiary may be a surveillance or technology company associated with Xinjiang. Firms should also evaluate their risk appetite, mindful that tensions over the technology sector are likely to evolve quickly, and additional measures and countermeasures could be introduced at short notice.
To stay ahead of the latest trends in supply chain management and US-China relations, pre-register now for our 2022 State of Financial Crime report.
Originally published December 29, 2021, updated December 29, 2021
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