Updated: Aug 19, 2022
On March 7th 2022, US Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an alert on red flags associated with Russian sanctions evasion. This focus is on the obligations by of Russia and Belarus attempting to evade newly sanctions in connection with the Russian Federation’s further invasion of Ukraine alerting financial institutions to be vigilant against efforts to evade the expansive sanctions and other U.S. imposed restrictions implemented. This alert highlights red flags to assist in identifying potential sanctions evasion activity and reminds financial institutions of their Bank Secrecy Act (BSA) reporting obligationsb, including cryptocurrency businesses to remain on one's guard.
FinCEN signals Crypto-asset Businesses , generally considered money services businesses (MSB) under the BSA of their compliance obligations to identify and report suspicious activity in relation to potential sanctions. There is a high risk that Money Service Businesses (MSB) customers could evade the new sanctions considering Russia’s strong use and adoption of cryptocurrency. Russian designated individuals and entities could potentially circumvent sanctions imposed.
"Anti-money laundering/countering the financing of terrorism/counter proliferation (AML/CFT/ CP) and sanctions compliance obligations apply to CVC transactions, just as they do to transactions involving fiat currency. While large scale sanctions evasion using CVC by a government such as the Russian Federation is not necessarily practicable, sanctioned persons, illicit actors, and their related networks or facilitators may attempt to use CVC and anonymizing tools to evade U.S. sanctions and protect their assets around the globe, including in the United States. CVC exchangers and administrators and other financial institutions may observe attempted or completed transactions tied to CVC wallets or other CVC activity associated with sanctioned Russian, Belarusian, and other affiliated persons. (1)"
Some Red Flag Indicators (2)
Customer transactions connected to crypto addresses on the OFAC SDN/Blocked Persons List
Customer transactions initiated from/made to the following types of Internet Protocol (IP) addresses: non-trusted sources; locations in Russia, Belarus, FATF-identified jurisdictions with AML/CFT/CP deficiencies, and comprehensively sanctioned jurisdictions; or IP addresses previously flagged as suspicious.
A customer uses a CVC exchanger or foreign-located MSB in a high-risk jurisdiction with AML/CFT/CP deficiencies, particularly for CVC entities and activities, including inadequate “know-your-customer” or customer due diligence measures.
A customer initiates a transfer of funds involving a CVC mixing service.
A customer receives CVC from an external wallet, and immediately initiates multiple, rapid trades among multiple CVCs with no apparent related purpose, followed by a transaction off the platform. This may be indicative of attempts to break the chain of custody on the respective blockchains or further obfuscate the transaction.
A customer has either direct or indirect receiving transaction exposure identified by blockchain tracing software as related to ransomware.
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(1) and (2) FinCEN Alert, FIN-2022-Alert001, March 7, 2022