International Regulatory Enforcement (PHIRE)
U.S. Government Agencies Continue to Highlight Risks of Money Laundering Associated with Russia Kleptocrats, Deny Access to U.S. Financial System
On April 14, 2022 the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury (“Treasury”), issued a 13-page advisory on kleptocracy and foreign public corruption (the “Advisory”) urging financial institutions to focus their efforts on detecting the proceeds of foreign public corruption. The Advisory provides typologies and potential indicators of kleptocracy as well as what it characterizes as “other forms of foreign public corruption, namely bribery, embezzlement, extortion, and the misappropriation of public assets.”
Several aspects of the Advisory are worth noting:
- First, while it is presented as a general FinCEN advisory, it is clearly linked to the ongoing situation with respect to Russia. The Advisory explicitly recognizes that “Russia is of particular concern as a kleptocracy because of the nexus between corruption, money laundering, malign influence and armed interventions abroad, and sanctions evasion.”
- Second, while the Advisory is addressed to “financial institutions” (in the broader sense as it covers sectors such casinos and precious metals/jewelry in addition to traditional banks and depository institutions), a number of typologies and red flags identified in it could apply to other industries.
- Third, the Advisory is a further indication that compliance has to be seen in a holistic way and can no longer effectively be addressed in silos. The ongoing situation in Russia and the links established between corruption, money laundering, national security, tax and sanctions evasion is another marker of an evolution that started a few years ago; to this non-exhaustive list one could also add business and human rights issues and the necessary convergence between compliance and corporate social responsibility/ESG.
- Fourth, the coordination and breadth of the reaction of the western world with respect, in particular, to asset recovery and sanctions evasion gives rise to an increased challenge in the form of whistleblowing. Indeed the Advisory notes that Treasury in March 2022 launched the Kleptocracy Asset Recovery Rewards Program, which offers rewards for information leading to seizure, restraint, or forfeiture of assets linked to foreign government corruption, including the Government of the Russian Federation. The EU similarly launched, in early March, an EU Sanctions Whistleblowers tool. Indeed, the EU Directive on Whistleblowing is now applicable in all EU countries.
Echoing these initiatives, the U.S. Department of Justice announced the formation of Task Force KleptoCapture, “an interagency law enforcement task force dedicated to enforcing the sweeping sanctions, export restrictions, and economic countermeasures that the United States has imposed, along with allies and partners, in response to Russia’s unprovoked military invasion of Ukraine.” In recent testimony to Congress, U.S. Attorney General Garland also supported changes to U.S. law to make it easier to seize and impose forfeiture of assets of Russian oligarchs and sanctions evaders.
Along the same lines, on May 8, 2022, Treasury’s Office of Foreign Assets Control (“OFAC”) imposed additional measures to continue to make it more difficult for Russia-related kleptocrats seeking to launder their ill-gotten gains to do so through the U.S. and global financial systems. OFAC announced that it was exercising its authority under Executive Orders 14024 and 14071 to designate the accounting, trust and corporate formation, and management consulting sectors as categories of services that U.S. persons may not provide to subject Russian persons, and which are subject to a prohibition on the export, reexport, sale, or supply, directly or indirectly, from the United States. These latest measures seek to deny to Russian kleptocrats and their enablers the professional services to establish and manage legal entities and otherwise engage in financial transactions required to obscure the provenance and facilitate the movement of, and ultimately enjoy, their ill-gotten gains.
- Fifth, companies are facing an increased risk of finding themselves in a “damned if you do damned if you don’t” situation. On March 4, 2022 news outlets reported that Russia had enacted two new laws to combat what it describes as “fake news.” The new laws cover individuals and organizations opposing the war in Ukraine and those who support financial sanctions against Russia or its citizens and companies. Contemplated penalties include up to fifteen years in jail and various fines. At the same time, in a recent visit to India, the Russian Minister of Foreign Affairs, Sergei Lavrov, indicated that he had “no doubt that a way would be (found) to bypass the artificial impediments which illegal unilateral sanctions by the West create. This relates also to the area of military-technical cooperation.”
In this challenging context companies and financial institutions would be well-advised to:
- Raise awareness of boards and senior management on the increasingly complex web of risks associated with public corruption, money laundering risks and sanctions evasion.
- Reassess their risk assessment and risk mapping in light of the new geopolitical alignments around sanctions, corruption, and evasion risks.
- Revisit their third party due diligence procedures, not only with respect to sanctioned entities and individuals, but also with respect to business partners more generally, as these could be used by such sanctioned entities and individuals as conduits for sanctions evasion.
- Reconsider their internal control and compliance structure in order to avoid gaps or possible mishaps with potential serious consequences.
We continue to monitor legislative, regulatory and enforcement developments associated with the situation in Russia and Ukraine, including Western governments’ response to issues of fraud, corruption, money laundering and sanctions evasion. Please do not hesitate to contact any one of Scott Flicker (firstname.lastname@example.org), Nicola Bonucci (email@example.com), or Tom Best (firstname.lastname@example.org) should you or your company or institution have questions.
 FinCEN, “Advisory on Kleptocracy and Foreign Public Corruption”, (April 14, 2022).
 Id. at 3.
 See Law 360, “Garland Supports Legal Fixes To Go After Russian Oligarchs” (April 26, 2022).
 U.S. Treasury, “U.S. Treasury Takes Sweeping Action Against Russia’s War Efforts” (May 8, 2022).
 See Reuters, “Russia's Lavrov hopes to bypass sanctions in trade with ‘friend’ India” (April 1, 2022) (https://www.reuters.com/world/russias-lavrov-lobbies-india-after-western-emissaries-make-case-sanctions-2022-04-01/).