On March 16, FinCEN issued an alert and accompanying news release urging financial institutions to exercise vigilance against attempts to evade U.S. sanctions on Russian parties. This alert, which follows a prior, March 7 release, reinforces that the U.S. government will use its anti-money laundering (“AML”) intelligence, investigation and enforcement capabilities to enforce its Russia-related sanctions programs, and that AML-regulated institutions should focus on the AML risk posed by Russia-related transactions, in addition to the sanctions risk.
The March 16 Alert identifies four areas where financial institutions should exercise particular care — transactions involving: (i) commercial and high-end residential real estate; (ii) artworks; (iii) precious metals, stones, and jewelry; and (iv) other high-value assets, including yachts and airplanes. FinCEN notes that sanctioned Russian persons and their proxies may try to evade sanctions through the purchase or sale of these and other fungible high-value assets. The March 16 Alert urges financial institutions to be watchful for red flags, such as the use of shell companies, the involvement of persons, companies, law firms, and institutions associated with sanctioned Russian individuals and companies, and the purchase or termination of insurance policies associated with artwork, real estate, or valuables linked to sanctioned Russian parties or their proxies.
The March 7 Alert also addresses the need for vigilance against sanctions evasion, and specifically addresses sanctions evasion using virtual currency, as well as the risk of Russia-related ransomware attacks. Among other things, the alert calls on virtual asset service providers to watch for transactions involving non-trusted or suspicious IP addresses, and mixers and exchanges in higher-risk jurisdictions.
FinCEN’s announcements emphasize efforts by the U.S. Department of the Treasury (“Treasury”) and the U.S. Department of Justice (“DOJ”) to coordinate with counterparts in Australia, Canada, the European Commission, France, Germany, Italy, Japan, and the United Kingdom as part of the Russian Elites, Proxies, and Oligarchs (“REPO”) Task Force to promote effective implementation of multinational sanctions implemented in response to Russia’s invasion of Ukraine. Through the REPO Task Force, the countries intend to share information to support asset freezing, civil and criminal asset seizure, and criminal prosecution in relation to the sanctions.
In addition to international cooperation on sanctions enforcement, DOJ previously announced the formation of an interagency U.S. law enforcement “KleptoCapture” task force to enforce sanctions, export restrictions, and other economic measures domestically.
Concurrent with FinCEN’s March 16 alert, Treasury launched the Kleptocracy Asset Recovery Rewards Program provided for in the Financial Year 2021 National Defense Authorization Act. This program offers rewards to qualified individuals who provide information leading to the restraint or seizure, forfeiture, or repatriation of assets linked to foreign government corruption. The program will initially focus on assets linked to Russian corruption, as well as certain bribery schemes that have been the subject of ongoing DOJ investigations.
Covington’s AML regulatory and enforcement team would be happy to discuss the steps necessary to implement FinCEN’s March 7 and 16 alerts, which will vary substantially depending on the business and risk profile of a regulated institution. Relevant steps may include adjusting transaction monitoring models, ensuring that compliance staff are trained on the AML modalities described in the alerts, and ensuring that the institution is considering whether suspicious activity related to ransomware may have a Russia nexus. The alert also includes, among other things: (i) instructions for filing Russia sanctions-related SARs, including providing concurrent notifications to the Office of Foreign Assets Control; and (ii) a reminder that FinCEN’s rules and guidance on senior foreign political figures, foreign private banking accounts, and correspondent accounts are particularly relevant to addressing Russia-related money laundering risk.
If you have any questions concerning the material discussed in this client alert, please contact the members of our Financial Services practice.
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