The Financial Action Task Force (FATF) held its latest plenary at the end of October 2022 and updated the list of jurisdictions under increased monitoring for money laundering and terrorist financing concerns. Jurisdictions on this list are working with the FATF to address strategic deficiencies in their regimes with regard to countering money laundering, terrorist financing, and proliferation financing. These countries have committed to work to resolve the deficiencies within the agreed timeframes. The FATF does not require enhanced due diligence measures to be applied to these jurisdictions and does not wish to cut off entire classes of customers, but calls for the application of a risk-based approach for businesses working with these jurisdictions.

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Iranian and Russian based crypto addresses sanctioned by OFAC

A series of crypto wallet addresses including Bitcoin (BTC), Ethereum (ETH) and Tether (USDT) were added to the US SDN sanctions list by OFAC in September. The addresses belong to Iranian ransomware attackers and a neo-Nazi Russian paramilitary group Task Force Rusich. Task Force Rusich is known to be affiliated with The Wagner Group, which is also sanctioned by OFAC.

Sanctions teams should be wary about the potential for sanctioned entities to leverage the ability to move between crypto assets and blockchains in an attempt to obscure illicit activity. 

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Wave of new sanctions aims to cut off professional services to Russia

In response to the illegal annexation of several regions of Ukraine by Russia, the UK government have announced a series of new sanctions which will cut off Russia’s access to:

  • IT consultancy services
  • architectural services
  • engineering services
  • advertising services
  • transactional legal advisory services
  • auditing services

A further 700 goods crucial to Russian industry have been added to the export ban. These moves come alongside actions by Europe and the US. Additionally, the governor of Russia’s Central Bank, Elvira Nabiullina, has also been subjected to a travel ban and an asset freeze.

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A guide to understanding and using sanctions lists

Sanctions are a diplomatic tool used to promote international peace and security and to combat violations of international law and terrorism. They do this by applying economic pressure on a country or regime by restricting dealings with the regime, as well as certain individuals and entities. The goal of using sanctions is to pressure a regime to change its behaviour regarding certain political, military, or social issues. 

Sanctions are legal limitations put in place by individual countries like the United Kingdom or the United States, or by international institutions, such as the United Nations (UN) and the European Union (EU). They may include various forms of trade barriers, from tariffs and restrictions on financial transactions to broad embargoes. 

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The Russian invasion of Ukraine, which began in February 2022, crystalised the role of anti-money laundering in the fight against Russian aggression. Sanctions compliance may have been at the forefront of international efforts to constrain the Russian economy, but money laundering is the vital, long-term compliance programme to ensure those sanctions stick.

Efforts by sanctioned entities or individuals to circumvent legal restrictions or find other ways to use frozen assets, shifts from the realm of sanctions to money laundering. Breaching sanctions is an offence, and thus any funds or economic resources which are a result of breached sanctions become money laundering.

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New requirements for money laundering regulated entities

Legislative background

A series of amendments to the UK Money Laundering Regulations 2017 came into force 1 September 2022. The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 include an obligation for regulated entities to identify, assess and mitigate the risk of proliferation financing (PF). We have further detailed guidance on these amendments here.

Regulated entities have the flexibility to create a new risk assessment on PF, or to incorporate proliferation financing into their existing money laundering and terrorist financing risk assessments.

The Treasury will conduct a national risk assessment in relation to proliferation financing, and regulated persons will also be required to take appropriate steps to identify and assess the risks to which their business is subject, and to establish and maintain policies, controls and procedures to mitigate and manage these effectively.

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The latest updates to the UK’s high-risk jurisdictions for money laundering

The UK periodically updates its list of high-risk countries or jurisdictions for AML, meaning that regulated businesses must apply enhanced customer due diligence measures and enhanced ongoing monitoring in any business relationship with a person in any of these jurisdictions. A high-risk third country is defined for the purposes of the MLRs as a country specified in Schedule 3ZA.

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Sanctions list

Recent events have brought sanctions into the spotlight and sanctions compliance has become an increasing challenge for businesses, but also one that is vital to understand. New laws such as the Economic Crime Act in the UK have ramped up sanctions compliance and increased penalties on businesses – any businesses – who get things wrong.

VinciWorks has released a new guide, Sanctions at Work: A Guide to Compliance, to help your business ensure that it complies with sanctions regimes.

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Understanding why businesses get fined

All businesses must comply with sanctions laws. Failure to do so is a criminal offence. In recent weeks, new laws in the UK have made breaching sanctions rules a strict liability offence. This means there’s no requirement for the business to have intended to breach sanctions. The fact that it happened is enough for a monetary penalty to be levied.

The Policing and Crime Act 2017 gives the Office of Financial Sanctions Implementation (OFSI), part of HM Treasury, the power to impose monetary penalties for sanctions breaches, and publish the reasons why.

Examples of breaches of sanctions:

Here, we review some recent cases to understand where these businesses went wrong with their sanctions compliance.

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What does it mean to comply with international sanctions on Russia?

Thank you to everyone who came along to our sanctions webinar last week. You can listen again to this webinar here, and share it with anyone in your organisation who may be working on sanctions compliance.

We know sanctions is a complex and confusing issue that many businesses are still grappling with. We will soon be releasing a new course on sanctions called Sanctions: Complying with International Restrictions, as well as a new guide to financial penalties and the strict liability offence within the UK sanctions regime.

To help, we’ve collated and answered the questions we’ve received in about sanction compliance into this blog.

You can also preview our new sanctions compliance training here.

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