Month: April 2023

FiveBy experts are often asked to provide insights on risk-related news, industry trends, and other sanctions and money-laundering issues.

Konstantin Malofeyev; Credit: Lous Whinston/CC BY-SA 2.0, via Wikimedia Commons

Irene Kenyon, FiveBy Director of Risk Intelligence, was recently quoted in an article by the Organized Crime and Corruption Reporting Project (OCCRP) on a Cyprus firm that may have helped sanctioned Russian oligarch Konstantin Malofeyev evade sanctions.

Malofeyev was designated in 2014 for supporting Russian-backed separatists in eastern Ukraine. But the Cypriot firm MeritServus secretly continued to work with Malofeyev’s Cyprus shell company for nearly three years after that before dropping him as a client.

Why? Did the company, which at one time was part of accounting giant, Deloitte, update its watchlists and screening systems to ensure the latest designations were captured? Probably not. Were there alerts to warn of new sanctions? Did they react to those alerts? Did they screen against the new additions? Did they bother monitoring adverse media for the latest information about their clients? Did they bother updating their sanctions risk assessments? Had they even done one? It certainly sounds like the answer to all these questions was no.

Kenyon recalled tracking Malofeev’s finances as early as 2014, while she was at the Treasury Department.

“We had information about him funneling weapons and money to separatists in eastern Ukraine. If he can access the global financial system… to transfer money to these separatists, he is funding an insurgency,” she said.

“Those who are allowing sanctioned individuals and entities to transfer money are opening a gate for these malign actors to access the global financial system and corrupt it,” Kenyon noted, saying that MeritServus may have violated sanctions when it allowed Malofeyev to transfer funds in US dollars after he was designated.

The UK newspaper, the Guardian, also published a shorter version of the story, quoting Kenyon.

To access FiveBy’s expertise on sanctions, money laundering, and other risks that can impact your business, please click below.

FiveBy IntelSentry

Courtesy of em_framing at PixaBay

OFAC today issued an alert to warn US individuals, firms, and financial institutions about possible violations of the price cap on Russian crude oil imposed last year, especially through the Eastern Siberia Pacific Ocean (ESPO) pipeline and ports on Russia’s eastern coast.

OFAC notes that Russian oil may be trading above the price cap and may be using covered services related to maritime oil transport provided by unwitting US providers. Non-US persons involved in the exports may be providing incomplete or false documentation to conceal the illegal trade.

  • The agency warns ship owners about automatic identification system (AIS) manipulation—a common sanctions evasion technique in which ships spoof their locations—as a method of disguising Russian port calls and selling Russian oil above the price cap.
  • Failure to itemize shipping, freight, customs, and insurance costs, which are not included in the price cap—is also a red flag that may indicate efforts to ship oil at a price above the cap.
  • A refusal by a counterparty to provide documentation showing that Russian oil or petroleum products were purchased at or below the price cap should also be considered a red flag for possible efforts to evade the restriction.

OFAC notes that US actors involved in commodities trades can mitigate their risk of penalties by showing good-faith efforts to comply with the price cap, such as retaining invoices, contracts, and receipts/proof of payment. Failure to properly vet counterparties and retain relevant documents can result in OFAC enforcement actions. OFAC expects that US service providers involved in commodities trading will continue to implement and perform the standard due diligence.

Engaging with experts to help navigate the complexities and challenges of Russian sanctions evasion can help US firms and financial institutions moderate the risks of regulatory penalties and reputational damage. FiveBy analysts stand ready to help you perform needed due diligence research and help identify red flags that will demonstrate good-faith efforts to obey US laws. Click below for a free consultation with certified FiveBy compliance experts who possess jurisdictional and linguistic knowledge to help mitigate your risks.

FiveBy IntelSentry

Photo credit: Michael Gaida on Pixabay

The US government’s enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) is resulting in an increased number of shipments being detained at the US border, costing importers millions of dollars. The Department of Homeland Security’s enforcement efforts are exposing the underlying forced labor connections of goods imported by US companies and putting these firms’ reputations at risk. FiveBy assesses that US companies that import apparel, footwear, textile, electronics, solar panels, and automotive parts from entities with ties to China, Malaysia, and Vietnam are most at risk of losing profits and having their shipments detained or confiscated.

  • Since UFLPA went into effect last year, US Customs and Border Protection (CBP) has stopped more than 3,200 shipments, valued at more than $900 million, for inspection. Of these shipments 424—$23.82 million worth—were denied, resulting in losses for US importers. In addition, there are currently 1,723 shipments pending inspection with a total of $545.22 million hanging in the balance.
  • Of the denied shipments, many included apparel, footwear, and textile products—not surprising considering that the Xinjiang region in China produces more than 20 percent of the world’s cotton.
  • The vast majority of shipments currently pending with CBP—a total of 1,058—are electronic products, with industrial and manufacturing materials taking second place. These shipments mostly originating in Malaysia, Vietnam, China, and the Philippines, highlight the necessity of closer examination of goods with supply chains connected to these countries.
  • Products from the pharmaceuticals, health and chemicals, industrial and manufacturing, agriculture and prepared products, consumer products and mass merchandising, machinery, and base metal industries were also stopped by the CBP. These shipments mostly originated in China, Vietnam, Malaysia, Cambodia, and Hong Kong.

Customs officials in January confirmed that the majority of imports detained since the UFLPA went into effect have been solar panels made with polysilicon that was assumed to have been produced in Xinjiang. However, a report released in December by a research team at Sheffield Hallam University’s Helena Kennedy Centre for International Justice and nonprofit human rights organization, NomoGaia, also suggests that most major car manufacturers are using parts that originated in Xinjiang and were made with forced labor.

  • The exhaustive report—the culmination of a six-month investigation—found that 96 companies with ties to the auto industry were mining, processing, or manufacturing parts in the Xinjiang region, and that more than 100 international car and car part manufacturers were possibly sourcing from these companies.
  • During a recent Forced Labor Technical Expo, keynote speaker and Sheffield Hallam University professor Laura Murphy also highlighted that the school by the end of the year plans to make available in pilot form a free supply chain mapping tool. FiveBy judges that the use of this and other, similar tools will become more critical as the United States more aggressively enforces the UFLPA.

The Department of Homeland Security has created a list of entities in China tied to forced labor practices, and adding more entities to this list is one of the department’s top priorities, according to the Undersecretary for Strategy, Policy, and Plans, Robert Silvers. Persuading US partners and allies to pursue similar enforcement regimes is also high on the department’s priority list, indicating that companies with branches and subsidiaries overseas will need to understand and obey import restrictions in those countries as well.

The unique nature of the UFLPA puts the onus on the importer to provide evidence that the goods they are bringing into the United States were NOT made with forced labor – a difficult task considering the complex nature of supply chains and murky origins of many products, as well as efforts to obscure the origins of many goods to hide questionable business practices. Expert investigators can help US companies importing goods from abroad identify the origins of not only the products being shipped, but also their component parts to ensure that US firms are not engaging—even indirectly—with entities that may be using forced labor. Red flags indicating links to forced labor include companies in China that hire workers through government recruiters, provide “vocational training” and “aid to Xinjiang,” source components or other goods from factories located near detention centers, or are connected to the government’s “reeducation” efforts.

Jurisdictional and linguistic expertise, as well as monitoring developments in China and the United States and media coverage of potential business partners are critical to ensuring that goods linked to forced labor are not imported into the United States or stopped at the border, causing financial losses to the importers. A periodic review of business partners’ compliance programs can help US firms avoid financial losses, and examining all entities in the supply chain can be critical to securing the evidence CPB needs to allow the goods to enter the country. Expert FiveBy analysts can help monitor, interpret, and adapt to constantly changing US sanctions and export controls, helping protect your company’s bottom line and reputation.

For a free consultation and help with in-depth analysis of your supply chain, business partners, and other entities that may link to forced labor in Xinjiang, please click below.

FiveBy IntelSentry

Transacting in Russian-occupied territories in Ukraine has become riskier for western firms and financial institutions because Russia has been seizing businesses and schools in these jurisdictions and forcing them to register with Russian tax authorities. The new registrations and tax IDs of previously Ukrainian-owned entities make due diligence research, such as determining ownership, control, and location more challenging. US companies must ensure that they are not providing US-origin products and technologies to entities that are now controlled by Russia and that could support Russia’s operations and reeducation programs in Ukraine.

Certified FiveBy experts understand how to identify Ukrainian entities that may have been seized by Russia.

We have found that more than 2,000 entities in Ukraine have been registered as Russian companies, presenting regulatory, human rights, and reputational risks for US firms transacting in the region. Because Moscow considers these captured Ukrainian establishments to be “Russian,” software and other technologies supplied to an educational institution in Russia could be diverted to occupied Ukraine and used for military and “reeducation” activities.

  • The Russian government has seized existing Ukrainian government establishments and private businesses, as well as assets abandoned by fleeing Ukrainians, including buildings, computer equipment, and vehicles which Russian forces have used for military operations.
  • Russia has captured Ukrainian educational institutions and altered curricula in an effort to reeducate the populace. Russian administration representative in the Zaporizhzhie region, Elena Shapurova, this month signed a decree ending the compulsory study of the Ukrainian language in the region’s schools starting next fall. US-origin technologies, software, and equipment that end up in Russian-controlled schools in Ukraine could be used for reeducation purposes and to help eliminate the Ukrainian culture and identity.
  • Public procurement records reveal that Russian entities will redirect products to what appear to be other Russian entities that are registered with Russian tax IDs, but are in fact located in occupied Ukraine. The Tver government in February organized an order of laptops for educational institutions to be delivered to the Donetsk region. Supplier Gross Komp LLC is not subject to sanctions, is registered in Moscow, can purchase these laptops from western suppliers, and can forward them to the embargoed jurisdiction. Human-driven research into Russian government tenders will help catch these transactions and help prevent US goods and technologies from winding up in the hands of the Russian military or being used in human rights violations.

As Russia’s war in Ukraine rages into its second year, its military equipment has become damaged and depleted, and Moscow has turned to stripping civilian appliances for parts to repair and produce military gear. Western companies must examine their customers for possible connections to Russia’s defense sector and red flags that indicate possible diversion of dual-use components to Russia’s army.

  • Products with dual-use parts such as washing machines, refrigerators, and fans produced by western firms such as EBM, Schneider Electric, NMB-MAT, Siemens, GWE, and Ziehl-Abegg were purchased in December by Moscow-based Soyuzmetallservis LLC. Although the company’s main business activity is “wholesale trade in metals and metal ores,” its general manager Sergei Antonov also manages two metal producers in embargoed Donetsk that have a prewar history of producing metals and alloys for Russia. In addition, the company’s ultimate beneficial owner, Evgeny Yurchenko, has close ties to the Russian military-industrial complex.

Companies that sell seemingly innocuous goods such as education software, personal computers, and appliances to Russian entities could be penalized for violating export controls if they do insufficient research into end-users, and if their products wind up supporting Russia’s war in Ukraine. Significant reputational damage can also result from inadequate due diligence. FiveBy can help US companies conduct enhanced due diligence research on their business partners, customers, supply chains, and end-users to prevent financial penalties and reputational harm.

Contact FiveBy for a free consultation and reduce your risks.

FiveBy IntelSentry