FinCEN: Stay Alert for Sanction Evasion

This week FinCEN issued an alert directing US financial institutions to increase their vigilance in watching for efforts to evade Russian related sanctions. The alert identifies several possible evasion typologies that may be used. Elliot  sits down with Tim White, Special Advisor at AML RightSource and global sanctions expert to talk about the alert. Elliot and Tim discuss some of the implications for evasion through the use of virtual currency, and the importance of monitoring changes in transaction flows and volumes, and transactions from new sources. They also note that the alert has value for the financial crime prevention community beyond the US.

FinCEN: Stay Alert for Sanction Evasion TRANSCRIPT

Elliot Berman: Hi, Tim, how are you this week?

Tim White: Great, Elliot. And you?

Elliot Berman: I'm good too. So I'm here today with special advisor Tim White. He's our sanctioned expert. And this week, we saw that FinCEN published some new guidance, being vigilant with regard to Russian sanctions and the potential evasion of those. So, Tim, I assume you saw that guidance come out.

Tim White: Absolutely. You know, there was a lot in it. I highly encourage everybody to read through it if you're on the sanctions front, particularly those that wear the BSA hat as well as the sanctions hat. Because there are some pieces in there that speak to a lot of different concerns that the treasury has with respect to compliance and sanctions.

And the red flags in there are quite detailed from a standpoint of looking for a wide variety of things. And some of those elements are looking for SWIFT and wire transactions from companies you've never gotten wire transactions or SWIFT messages from, which would indicate some sort of investigation by an entity that's trying to evade the sanctioned program.

There's also a real big focus on cryptocurrencies, the requirements, of the exchanges with respect to BSA as well as sanctions, because there's a big concern that the Russian and Belarusian entities are going to try and circumvent the standard financial institution network and use crypto, to get around that. So, a great deal of detail in here. And one of the things that I would highly recommend is OFAC put out sanctions compliance guidance for cryptocurrency back in October of 2021—and having familiarized myself with that when it came out. [The] key information here also has implications for the BSA world.

There is a focus from an OFAC standpoint [on] sanctions and crypto that you should be utilizing all information within your institution to stay in compliance [inaudible]. So it actually goes into talking about IP addresses, geo-location information, and it really starts brushing up against know your customer's customer. I've talked with some of my associates about that and, you know, even though sanctions and BSA. If you will, brother and sister side-by-side. I think we're going to see the bar rise on the BSA side because it only makes sense if you're going to use that information for enhanced due diligence on sanctions. Why aren't you using it in the BSA scope as well? So a lot there, Elliot.

Elliot Berman: Yeah, I agree. And while this was issued by FinCEN, which is, of course, part of the US Treasury. I think that some of the guidance is useful on a global basis because the whole issue of the potential of evading the various sanctions regimes that have been put in place by a fair number of countries and groups. [The] UK, EU, the US, and many others, since the invasion of Ukraine by Russia, evasion is a challenge. And so, looking at some of the things to think about in terms of detecting evasion and identifying transactions is very important for those of our listeners who are in the US.

One of the things that treasury asks is if you do file a suspicious activity report that you actually flag it as being related to FIN-2022-RUSSIASANCTIONS and that will help that those SARS get reviewed more promptly. Likely by special teams that are focusing on those types of SARS.

So you mentioned virtual currencies, and you mentioned a little bit the idea of seeing transactions from entities you have before. I think there are other things in there. One of which caught my eye was the idea that just changes in transaction flows and volumes are things to pay attention to. What did you think about that part of guidance?

Tim White: I mentioned that in This Week in AML a week or so ago when talking to John, that some of the delays in going to the SWIFT option of cutting people out and rolling into some of these sanctioned programs a little bit slow to me was kind of a thought process of [the] treasury wanting everybody to identify what's normal.

Now, what are their risks points with respect to Russia and Belarus, and then as we roll these sanctions looking for the change, which is exactly what this guidance is talking about. Do you have accounts that are seeing spikes in value and flow-throughs? So that's very significant, but I also think it's important to talk about one of the specific typologies back on the crypto front.

And that is in those institutions that have visibility. The exchanges and so forth, be looking for a typology of basically a buy trade, trade, trade, and then liquidate. You're going to see; basically, it's that concept of layering. How do we hide this trail as quickly as possible? In the black chain now, obviously, it's all gonna be there, but the faster you accelerate that, the higher probability that it's going to go unnoticed.

So, I think that's a key type of policy there, but the other one is just looking for what's new, what's different. And what has changed. IP indicators, of course, from that part of the world, the specific addresses to those, geographies should be noted. But I think it should also be noted there are tax havens and there are monetary or financial centers all over the world.

You could be seeing this coming in from Hong Kong. You can see it coming in from Singapore. It's just the whole world is connected that way. So be looking for changes, you know, throughout all of those areas.

Elliot Berman: Well, thanks, Tim. I'm going to do our shameless plug. So on March 24th, we're doing a webinar, How to Deal With High-Risk Customers on a Global Basis. So, we urge you to go to our website and sign up for that. It will start streaming live [at] 1 PM ET again, Thursday, March 24th. So, Tim, thanks for joining me this week, and you have a great weekend.

Tim White: Absolutely. You too, Elliot, take care.