FinCEN issues ‘red flag’ alert to help financial institutions identify efforts to evade latest sanctions on Russia

Following the extensive sanctions imposed on Russia after its invasion of the Ukraine, the Financial Crimes Enforcement Network (FinCEN) has issued an alert, warning all financial institutions in the US to be vigilant against attempts to evade the restrictions.

In a statement, FinCEN’s Acting Director Him Dassaid it is “vitally important for U.S. financial institutions to be vigilant about potential Russian sanctions evasion, including by both state actors and oligarchs.”

To help financial institutions detect any efforts to evade the sanctions, FinCEN has issued a number of ‘red flags’ which it says are indicators of illicit activity. These include:

• The use of corporate vehicles to obscure the ownership and source of funds

• The use of shell companies to conduct financial transactions

• The use of third parties to conceal the identities of ultimate beneficial owners of companies, particularly in the sale of real estate

• Any accounts seeing a sudden rise in value transfers with no clear business rationale

• Jurisdictions previously associated with Russian financial transactions that have a recent increase in new company formations

• Any newly opened accounts that are attempting to transact with sanctioned institutions or an institution recently removed from SWIFT

• Any non-routine financial exchange transactions, especially those inconsistent with general patterns of activity

• Transactions that originate from IP addresses in Russia or Belarus

• CVC transactions that originate in sanctioned countries or jurisdictions

As well as being on the lookout for any suspicious transactions, financial institutions should also be running fresh sanction checks on all existing customers to identify any that are now subject to the new sanctions.

Financial institutions should also be running thorough customer due diligence and screening checks on all new customers to ensure they are who they say they are, as the concealing of identities is one of the key ways in which oligarchs will attempt to evade sanctions.

Martin Cheek, Managing Director at AML experts SmartSearch says the easiest way for US financial institutions to ensure they do not inadvertently become enablers for sanctioned individuals is to use an electronic verification and screening platform that includes the ability to constantly monitor for status changes following the introduction of new sanctions.

Martin said: “Financial institutions in the US need to take a proactive approach to customer due diligence following the implementation of extensive sanctions on Russia.

“Under the BSA/AML rules, financial institutions already have an obligation to run full AML and screening on all new customers at onboarding, and monitor them on an ongoing basis, using what is called a ‘risk based’ approach.

“For some, a risk-based approach might mean running fresh sanctions screening every year, or maybe every two - but that is no longer good enough. Every financial institution in the US now needs to run fresh checks on all existing customers to ensure they are not working with any individuals or companies that are now subject to the new sanctions.

“They will also need to be more vigilant than ever when onboarding new customers to ensure they know exactly who they are working with. And with the heightened risk - as highlighted by FinCEN’s red flag alert that sanctioned individuals will attempt to use corporate vehicles and shell companies to hide their identities - having proper business checks that can identify ultimate beneficial owners has never been more important.”

SmartSearch’s online platform runs full AML checks  - including identification, verification, anti-fraud checks and screening for sanctions, and the identification of the ultimate beneficial owner of any business clients. Then all checks are monitored on an ongoing basis against global watchlists, and financial institutions are alerted of any change in customers’ sanctions status.

“Our ongoing monitoring service means that when something like this happens - a range of new sanctions are imposed - our customers know immediately if any of their customers are affected and are then able to take the appropriate action,” says Martin

Any financial institutions looking for a way to immediately check if their customers appear on sanctions lists can do this using SmartSearch’s batch upload monitoring service, while any already using the SmartSearch platform will already have received updated warning alerts for the new sanctions via the automated ongoing monitoring.

Martin concludes: “These new sanctions have huge implications for financial institutions in the US, and any found breaching the rules will face huge fines and even prison time. But this is not just a legal obligation, it is moral one too, so it has never been more important for financial institutions to take their compliance responsibilities more seriously.”

To find out how to ensure your business is fully compliant and meeting all the new sanctions rules, visit www.smartsearch.com/us