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The Financial Crimes Enforcement Network (FinCEN) has issued a warning to all financial institutions asking them to be on the lookout for attempts to evade sanctions.
The U.S. has started to put in place sweeping sanctions against Russia as a result of the Russian Federation’s Ukraine invasion.
This has included the announcement by President Joe Biden that the U.S. will be banning all imports of Russian oil and gas, the freezing of central bank reserves, and sanctioning and removal of Russian banks from the SWIFT network. The U.S. has also sanctioned a number of designated individuals and businesses from Putin’s inner circle.
As a result of these heavy and, in some cases, unprecedented economic sanctions, FinCEN acting director Him Das has said financial institutions should be alive to the fact that there may be possible attempts to evade such sanctions.
“In the face of mounting economic pressure on Russia, it is vitally important for U.S. financial institutions to be vigilant about potential Russian sanction evasion by both state actors and oligarchs,” said Das.
Following these large-scale financial sanctions, a growing number of U.S. payments firms also announced they were pulling out from Russia, effectively cutting off Russia from much of the international payments system. As a result, FinCEN has noted that sanction evasion activities could be conducted by a variety of actors, using crypto-assets within or outside Russia, that retain at least some access to the international financial system.
“Although we have not seen widespread evasion of our sanctions using methods such as cryptocurrency, prompt reporting of suspicious activity contributes to our national security and our efforts to support Ukraine and its people,” said Das.
Later last Friday, the Treasury issued guidance stressing that the U.S. sanctions against Russia apply regardless of whether a transaction is denominated in traditional fiat currency or virtual currency.
The clarification comes after some members of Congress grew wary that the digital currency could circumvent the trails of the traditional global financial system. They are seeking "strong enforcement of sanctions compliance in the cryptocurrency industry."
FinCEN has now also asked U.S. financial institutions to be vigilant of Russia and Belarus banks that have not yet been hit by sanctions as possible vehicles for evasion, as well as be on the lookout for Russian-related ransomware campaigns.
Red flags flying high
The alert published last week breaks down these and others potential vehicles for evasion. For some methods in particular, red flags are highlighted to better help financial institutions identify the chosen means of evasion.
For example, FinCEN has issued seven red flags related to evasion using the U.S. financial system, which include: The “use of shell companies to conduct international wire transfers, often involving financial institutions in jurisdictions distinct from company registration”; and the use of “newly established accounts that attempt to send or receive funds from a sanctioned institution, or an institution removed from the Society for Worldwide Interbank Financial Telecommunication (SWIFT).”
Evasion via crypto-assets focuses on three flags, including “a customer’s transactions connected to CVC addresses listed on OFAC’s (Office of Foreign Assets Control) Specially Designated Nationals and Blocked Persons List.”
There are also three red flags associated with potential ransomware onslaughts and various other cybercrimes. For example, “a customer receiving CVC from an external wallet, and immediately initiating multiple, rapid trades among multiple CVCs, with no apparent related purpose. This is followed by a transaction off the platform.”
Reporting duties
Financial institutions are also being urged to take full advantage of information sharing authorities, which Section 314(b) of the USA PATRIOT Act makes provision for. The act allows financial institutions to share information between each other about “individuals, entities, organizations, and countries suspected of possible terrorist financing or money laundering.”
In addition to red flags and information sharing, the alert reminds financial institutions of their duty to file suspicious activity reports (SARs), as well as other relevant Bank Secrecy Act (BSA) reporting and due diligence.
For example, financial institutions must file a SAR if they suspect or have reason to suspect a transaction is being used for illegal activity, designed to evade regulations, lacks a lawful purpose, or “involves the use of the financial institution to facilitate criminal activity, including sanctions evasion.”
Financial institutions have been called upon to stand as guards at attention ready to fight against potential evasion tactics, wherever they may come from and in whatever form they appear. FinCEN’s alert provides a reminder and guidance to assist firms with their duties.
