FinCEN warns of potential evasion of Russian sanctions


The Financial Crimes Enforcement Network (FinCEN) alerted banks and other financial institutions on March 7 to possible suspicious practices aimed at evading economic sanctions imposed on the Russian Federation in connection with the Russian-Ukrainian war.

The agency identified possible ways in which the Russian state and wealthy Russian oligarchs could seek to circumvent sanctions, including transactions through certain unauthorized Russian banks that have access to the international financial system and the use of convertible virtual currencies (CVC), a name for cryptocurrencies such as Bitcoin that can be exchanged for conventional money. He also warned financial institutions of the dangers posed by Russia-linked ransomware campaigns.

FinCen’s announcement follows the US Treasury’s imposition of sanctions that cut off two of Russia’s largest banks, Sberbank and VTB Bank, which together account for more than half of Russia’s banking sector assets, from foreign exchange trading. denominated in US dollars. . Several public financial entities and private institutions in Russia have also been blocked from transactions through the US financial system. Sanctions have also been extended to oligarchs and certain individuals in Russia and its wartime ally Belarus.

Key points to remember

  • FinCEN warns of possible circumvention of economic sanctions imposed on Russia due to its aggression against Ukraine.
  • The agency flagged possible escapes through unauthorized Russian banks that have access to the international financial system and use convertible virtual currencies.
  • The use of Section 314(b) to share information with other financial institutions and timely reporting is necessary to identify and contain suspected illegal activities that violate economic sanctions imposed on Russia.

Section 314(b)

The announcement called for vigilant reporting and due diligence processes to identify evasion practices in a timely manner. Section 314(b) of the USA PATRIOT Act, which allows information-sharing authorities to disclose sensitive and private information to protect national security, will also provide an avenue for investigation and containment of sanctions evasion.

Although participation under Section 314(b) is voluntary, FinCEN encourages banks and other financial institutions, such as stockbrokers, mutual funds, insurance companies, precious metals and jewelry and futures brokers, to avail themselves of the provision. to support Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) activities. Under its general provisions, financial institutions can initiate an investigation and share information about suspected illegal activities (SUA), even when the specific SUA products have not been identified.

Digital currencies and financial crime

CVCs such as Bitcoin and Ethereum were mentioned in FinCEN’s latest announcement. Virtual and digital currencies have gained notoriety for their association with illegal transactions. Because they are unregulated and run on decentralized blockchains operated by pseudonymous users whose digital wallets are linked to a digital address, virtual currencies conceal the identities of senders and receivers.

Due to their global nature and the speed of transactions as well as their peer-to-peer network, CVCs are very difficult to regulate. FinCen has a long-standing position on the risks posed by CVCs that operate on the dark net, peer-to-peer (P2P) exchanges, foreign money services businesses (MSBs), and CVC kiosks. Dark net markets can only be accessed through special software, while P2P and ESMs are required to comply with the Bank Secrecy Act (BSA) to ensure transactions are not illegal or involve the exchange of illicit goods and services. Foreign-based MSBs are not required to comply with FinCEN regulations, making them a conduit for illegal transactions and tax havens for those seeking to evade the US tax system. CVC kiosks or ATMs can also be easily misused to conceal the identity of those conducting digital transactions.

Strict regulations under FinCEN’s Anti-Money Laundering and Anti-Terrorist Financing Actions ensure timely notification and record keeping for those who comply. However, the nature of CVCs and their fungibility with fiat currencies and other CVCs open up financial crime risks that FinCEN has always been alert to. In the context of the Russian-Ukrainian war, financial institutions may need to be on high alert, as CVCs present avenues to evade harsh and potentially ruinous economic sanctions imposed on Russia.

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