FinCEN’s alert advised that sanctioned parties might seek to evade these restrictions by using non-sanctioned domestic or foreign financial institutions. It reminded U.S. institutions of their obligations under the Bank Secrecy Act (BSA) to identify and report suspicious activity relating to potential sanctions evasion. The alert focused especially on the potential use of Convertible Virtual Currency exchangers and administrators (CVCs) who may facilitate sanctioned individuals and entities’ access to the international financial system. As the alert noted, FinCEN generally considers CVC exchangers to be money services businesses (MSBs) under the BSA and subject to relevant FinCEN regulations.
FinCEN’s select red flag indicators of general sanctions evasion include the following, among others:
- Use of shell companies and other arrangements designed to obscure ownership, source of funds or the involvement of countries and financial institutions subject to sanctions;
- Use of third parties to shield the identity of sanctioned persons or their associates;
- Jurisdictions associated with Russian financial flows experiencing a notable recent increase in new entity formations; and
- Foreign exchange transactions that are non-routine or inconsistent with recent patterns of activity, which may indirectly involve sanctioned entities.
FinCEN also identified select red flags specifically relating to the use of CVCs to evade sanctions:
- Transactions initiated from or sent to non-trusted or suspicious IP addresses or IP addresses located in Russia, Belarus, or other high risk jurisdictions identified by the Financial Action Task Force (FATF) as having anti-money laundering (AML) and counter-terrorist financing (CFT) deficiencies.
- Transactions connected to CVC addresses listed on OFAC’s Specially Designated Nationals and Blocked Persons List.
- Use of a CVC or other foreign MSB located in a high-risk jurisdiction with known AML or CFT deficiencies.
FinCEN is requesting that financial institutions specifically reference this alert going forward in any SARS filed relative to these activities. Institutions should do this by including the designation “FIN-2022-RUSSIASANCTIONS” in SAR field 2 (Filing Institution Note to FinCEN) and discuss in the narrative the potential connection to sanctions evasion activities. In addition, FinCEN encouraged expedited reporting of the evasive activities outlined in the alert through the use of the agency’s 24-hour hotline.
In light of the presently heightened attention and sensitivity concerning the invasion of Ukraine and an increasingly broad swath of financial, commercial and other interactions with Russia, U.S. financial institutions should prioritize review of their protocols related to detection and remediation of potential sanctions evasion. SAR reporting is a significant component of intelligence that DOJ and other U.S. regulators are planning to leverage in their efforts to maximize the impact of sanctions. Financial institutions subject to mandatory SAR reporting are expected to adapt their compliance procedures and internal controls accordingly.
Recommended steps include:
- Review due diligence for current account holders designated as foreign Politically Exposed Persons (PEPs) and determined whether enhanced diligence procedures are warranted;
- Inform authorized individuals of the SAR filing instruction relating to sanctions evasion activities;
- Review due diligence and monitoring processes and consider updates to identify these red flag indicators, where appropriate; and
- Alert and train relevant personnel on these red flag indicators to identify and escalate suspicious activity concerning this alert.
A detailed overview of U.S. sanctions imposed against Russia and Belarus is the subject of a previous posting.
