John Zasada, Shareholder, Financial Institutions Group

On March 7, 2022, the Financial Crimes Enforcement Network (FinCEN) issued an alert, FIN-2022-Alert001, to remind financial institutions of reporting obligations related to convertible virtual currency (CVC) and provide red flags to assist in identifying potential Russian sanction evasion activity.

Sanction Evasion Red Flags

Seven red flag indicators were introduced in the alert for sanction evasion attempts using the U.S. financial system, including:

  1. Use of corporate vehicles.
  2. Use of shell companies to conduct international wire transfers.
  3. Use of third parties to shield the identity of sanctioned persons.
  4. Accounts in jurisdictions or with financial institutions that are experiencing a sudden rise in value being transferred to their respective areas or institutions, without a clear economic or business rationale.
  5. Jurisdictions previously associated with Russian financial flows with notable recent increase in new company formations.
  6. Newly established accounts that attempt to send or receive funds from a sanctioned institution or an institution removed from the Society for Worldwide Interbank Financial Telecommunication (SWIFT).
  7. Non-routine foreign exchange transactions that may indirectly involve sanctioned Russian financial institutions.

It also noted indicators that sanction evasion using CVCs might occur. In these instances the following might take place:

  • A customer’s transactions are connected to CVC addresses listed on Office of Foreign Assets Control (OFAC)’s Specially Designated Nationals and Blocked Persons List.
  • A customer’s transactions are initiated from or sent to:
    • Non-trusted sources
    • Locations in Russia, Belarus and FATF-identified jurisdictions with AML/CFT/CP deficiencies
    • Comprehensively sanctioned jurisdictions
    • IP addresses previously flagged as suspicious

Financial institutions are reminded to be on high alert for possible ransomware attacks and other cybercrime as well in the wake of recent events.

It is important for financial institutions and money service businesses (MSBs) to identify and report suspicious activity associated with sanctions evasion and make use of Section 314(b) to share information related to identifying hidden Russian and Belarusian assets.

If you have questions about your financial institution’s Bank Secrecy Act and related regulatory requirements, contact Doeren Mayhew’s team of regulatory compliance specialists today.