State of Financial Crime 2023 Report

US Charges Smuggling and Money Laundering Network Linked to Sanctioned Oil Trades

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On October 19, 2022, US prosecutors charged five Russian nationals and two oil traders with participating in schemes to evade US sanctions and export controls applicable to Russia. 

According to the press release, the charges were issued in coordination with the Department of Justice’s Task Force KleptoCapture, an interagency group formed earlier this year to enforce sanctions and export controls that the US and its allies have imposed on Russia in response to the invasion of Ukraine.

Criminal enablers for oligarchs

According to the indictment, the defendants were part of a procurement and smuggling network that illegally obtained military technologies from US companies and transported them to Russia. Federal prosecutors said the electronic components included semiconductors, satellites, and radars, some of which have been found in Russian weapon platforms seized in Ukraine. 

Defendants Yury Orekhov and Artem Uss were also charged with using the US financial system to buy Venezuelan oil from the sanctioned company PDVSA for Chinese and Russian purchasers. The defendants allegedly used a German company to ship the oil and US military technologies to Russia. One of the defendants was arrested in Germany earlier this week, and another in Italy. In both cases, the US is currently undergoing extradition proceedings. If convicted, the defendants face up to 30 years imprisonment.

To obfuscate the trail of illicit funds, the defendants laundered tens of millions of dollars for sanctioned Russian entities and oligarchs involving shell companies, bulk cash transfers, fake shipping documents, and cryptocurrency payments

Sanctions evasion guidance

In March 2022, the Financial Crimes Enforcement Network (FinCEN) alerted all financial institutions to be vigilant against efforts to evade the expansive sanctions and other US-imposed restrictions implemented in connection with Russia’s invasion of Ukraine. In its advisory, FinCEN highlighted sanction evasion red flags, including:

  • Using of corporate vehicles to obscure (i) ownership, (ii) source of funds, or (iii) countries involved, particularly sanctioned jurisdictions
  • Using third parties to shield the identity of sanctioned persons and/or politically exposed persons (PEPs) seeking to hide the origin or ownership of funds
  • Transacting from or sending funds to jurisdictions identified by the Financial Action Task Force (FATF) to have anti-money laundering and combatting the financing of terrorism (AML/CFT) deficiencies
  • Initiating a transfer of funds involving a convertible virtual currency mixing service

A few months later, FinCEN and the Commerce Department’s Bureau of Industry and Security (BIS) issued financial institutions with a further warning, urging firms to be aware of entities attempting to avoid US export controls. Additional “transactional and behavioral red flags” to this end include:

  • A customer in the maritime industry transports commodities of concern and uses trade corridors known to serve as possible transshipment for exports to Russia and Belarus
  • The nature of a customer’s underlying business (specifically military or government-related work), type of service(s) or product(s) offered, and geographical presence pose additional risks of unintentional involvement in the evasion of export controls for Russia and Belarus
  • Transactions related to atypical shipping routes for a product and destination
  • Transactions identified through correspondent banking activities connected to Russian petroleum-related firms or firms that resell electronics and other similar items to Russian firms

Russia and the FATF

At the FATF October Plenary, additional restrictions on Russia’s remaining role as a member of the inter-governmental body were announced. As of October 21, Russia is now banned from participating in current and future FATF project teams and will be excluded from meetings of the FATF-Style Regional Bodies.

These measures expand on the actions the FATF took back in June, which stripped Russia of all its leadership roles, among other restrictions. However, many industry voices, including the National Bank of Ukraine, are urging the FATF to add Russia to the blacklist. According to the International Working Group on Russian Sanctions, designating Russia as a State Sponsor of Terrorism would open the door to blacklisting, which would:

  • Neutralize sanctions evasion mechanisms that involve third countries
  • Undermine Russia’s international trade
  • Decrease foreign direct investment into Russia by compelling remaining investors to leave the country due to increasing operational and compliance problems and costs of transferring funds into and out of Russia

President T. Raja Kumar noted that the FATF would continue to monitor the situation and consider at its Plenary meetings whether grounds exist for lifting or modifying these restrictions.

Key takeaways

Compliance teams should continue to assess and update their compliance programs in light of increased sanctions and export control enforcement. Interactions with higher-risk customers and counterparties should also be carefully reviewed, including communication with firms that have connections to Russia and other high-risk jurisdictions. 

Following statements issued in March, April, and June this year, the FATF has recently reiterated that all jurisdictions must be vigilant to emerging risks from the circumvention of measures taken against Russia to protect the international financial system.

When filling out suspicious activity reports (SARs) related to possible sanctions or export control evasion, compliance staff should take note of the key terms provided by FinCEN. These should be included in SAR field 2:

  • Sanctions evasion: FIN-2022-RUSSIASANCTIONS
  • Export control evasion: FIN-2022-RUSSIABIS” 

The Evolving Use of Sanctions

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Originally published October 28, 2022, updated October 28, 2022

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