Sanctions and AML Insights

The world watched the Russian-Ukrainian conflict unfold in early 2022. While Russian claimed that occupation was not their intention, the Ukrainian government has labeled the attack an invasion. Several countries around the globe have condemned their actions and implemented harsh sanctions against Russia. Failure to comply with sanctions can have serious consequences, including the risk of penalties and even criminal charges.

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Trade compliance is one of the most complex aspects of corporate compliance. Companies that export/import across borders must comply with the regulatory framework of multiple governing bodies, often several within a single country, which can change rapidly and without warning and regulations across trading nations may differ dramatically.

The Anti-Money Laundering Act of 2020 (AMLA) forms part of the National Defense Authorization Act (NDAA) and has greatly widened the scope of enforcement and reporting requirements. Some have called it the biggest overhaul of the bank’s secrecy and AML regime since the Patriot Act.

While President Putin boldly declared that sanctions against Russia have failed, the full impact of Western sanctions has been keenly felt. Severe sanctions cut off Russia’s access to foreign reserves, limited their ability to import key dual-use technology and froze the assets of major banks. The Kremlin responded by hiking interest rates to 20% and forcing Russian businesses to convert their profits to rubles in order to recover. However, this may not suffice in the long run.

In the most simple terms, reverse money laundering is the opposite of typical money laundering schemes where criminals spread illegal gains to lower the odds of being found. With reverse money laundering, legal funds are removed from circulation and used to fund criminal activity, terrorism and tax evasion or bribery. Legitimate funds are used, which means that monitoring, identifying and prohibiting reverse money laundering becomes extremely complex.

The terms smurfing and structuring both refer to money laundering techniques deployed by financial criminals. The two terms are often used interchangeably, but there are subtle differences. Smurfing is highly illegal, goes even further than structuring, and can be even harder to detect. Financial institutions have a duty to familiarize themselves with the inner workings of a smurf to protect their reputation and their clientele.

The convenience and speed of digital banks continue to lure new customers to their businesses, with statisticians predicting that the total number of digital banking users will soon reach new records. Unfortunately, these inherently beneficial qualities make them lucrative and easy targets for money launderers. Leaner teams and the speed of onboarding may cut costs and accelerate service delivery, but it also leaves a gap for financial criminals. Customers are often onboarded in hours, not days, as with traditional banks.  However, as fintech startups and digital banks become fully regulated financial institutions, governments insist on tough compliance standards, and regulators demand that accurate customer data be collected and built into risk assessment processes.