Sanctions and AML Insights

While more resources and attention is spent combating money laundering and terrorist funding than ever before, the first and best line of defense often lies with financial institutions and concerned citizens who report suspicious activities to their local Financial Intelligence Unit. To encourage diligent reporting and monitoring, there are severe penalties for both individuals and institutions who fail to file a suspicious transaction report (STR) or suspicious activity report (SAR) despite having reasonable grounds to believe that a transaction is related to criminal activity.

In June 2022, the European Council adopted a sixth package of sanctions against Russia prohibiting the purchase, transfer or import of crude oil and other petroleum products to the EU, to be applied over the next six to eight months. These restrictions will cover nearly 90% of Russian oil imports to Europe by the end of 2022, reducing their trade profits significantly. While these unprecedented sanctions have not had their desired effect, businesses and citizens affected continue to hope that the conflict will be resolved and that business will resume as normal. Until then, however, it’s important for all businesses involved in international trade to keep abreast of current and potential sanctions that may still be implemented in the coming months.

Sanctions are important political tools that governments use to achieve their foreign policy goals or as a means to punish and discourage violations of international law. It is important to understand that sanctions are not always only applied to persons that fall within the jurisdiction of the sanctioning government but also to persons in foreign jurisdictions who trade with targets who have been sanctioned.

The UK government brought forward its Economic Crime (Transparency and Enforcement) Act 2022 following the unprovoked invasion of Ukraine by Russia. The Act will include important changes to OFSI’s powers so that the organization can respond swiftly and robustly to breaches of financial sanctions. The measures will commence on 15 June 2022.

The terms sanction and embargo are often used interchangeably, but there are several important distinctions between the two. Both sanctions and embargoes are political tools designed to influence the behavior of a targeted country’s government, individuals, or businesses in order to affect change. But whereas sanctions target specific transactions (e.g. prohibiting the sale of arms), an embargo is a complete prohibition of all trade activities between countries.

Sanctions imposed on Russia over its unprovoked attack on Ukraine have left the Office of Foreign Assets Control concerned that Russia may turn to crypto mining and transactions to circumvent western sanctions. Crypto mining (which is used to validate new digital currency transactions) consumes a lot of energy. The concern is that Russia may utilize its natural resources to conduct crypto mining to evade sanctions, a tactic deployed by both North Korea and Iran in the past. Crypto mining can bypass sanctions screening as it avoids the so-called fiat-to-crypto on- and off-ramps at virtual exchanges, making it hard to detect.

The art world has always had a dark side, especially when it comes to money laundering. In many ways, works of art are the ideal vehicle for money laundering. Prices are subjective and manipulable. It’s not uncommon for anonymous buyers to fork out millions for a piece of art on an apparent whim. Art can easily disappear from public view for decades. Art bought at auction can remain in a free port or storage for years, and sold anonymously for huge sums of money, with minimal paperwork.

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.