Financial Technology

Russian Oligarchs and Suspicious Financial Flows: A FinCEN Analysis | Ballard Spahr LLP

The Financial Crimes Enforcement Network (“FinCEN”) issued on December 22 a Financial Trend Analysis regarding Bank Secrecy Act (“BSA”) filings during the period of March to October 2022 (the “Report”) reflecting financial activity by Russian oligarchs the time of Russia’s unprovoked military invasion of Ukraine. This publication also refers to three prior alerts issued by FinCEN highlighting red flags on Russian oligarchs, high-ranking officials, and sanctioned individuals, on which we blogged here, here, and here.  FinCEN published the Report pursuant to the Anti-Money Laundering Act’s requirement that FinCEN periodically publish threat pattern and trend information derived from BSA filings.

Overall, FinCEN found that BSA data filed on financial transactions of Russian oligarchs, high-ranking officials, sanctioned individuals, and their family members in 2022 showed transactional patterns indicative of corruption and sanctions evasion, including:

  • the movement or transfer of funds or ownership of assets and trusts;
  • the purchase of high-value goods or property; and
  • changes in financial flows with links to property or companies in the United States.

Data Overview

To gather the data for the Report, FinCEN initially reviewed 7,000 reports that had a nexus to Russia and were filed between March 1 and October 22, 2002. FinCEN then focused on 454 of those reports for a detailed analysis of the parties involved and transaction type. According to FinCEN, the 454 reports detailed tens of billions of dollars of suspicious activity, and 284 of the reports noted FinCEN’s three Russia-related alerts, mentioned above.

Importantly, and as the Report notes, the BSA reports were filed between March and October 2022. But some of the 454 reports pertained to transactions that occurred as early as January 2005. Furthermore, the 454 reports included reports filed for continuing suspicious activity, amended reports, and reports that cover expanded networks involved in potential illicit activity. The Report stresses that Suspicious Activity Report (“SAR”) filings play an essential role in helping FinCEN identify the transactional patterns indicative of corruption and sanctions evasion.

FinCEN’s BSA data analysis also considered what type of financial institution filed the 454 reports: 

  • U.S.-based depository institutions filed the majority of reports (356 or about 78%);
  • Other types of financial institutions (including holding companies and financial technology companies) filed about 19% (85) of the reports;
  • Securities and futures traders filed 2% (11) of the reports.

Only one of 454 reports was filed by a money service business; also, only one report was filed by an insurance company.

Some but not all of the 454 reports included location information for the subject fields. The Report includes the following table to show the top five regions were Russian oligarchs, elites, high-ranking officials, and their family members or proxies were located, based on the available information for 2,276 subject locations:

The Report further explains that Russia, the United Kingdom, and Switzerland were in the top European countries, while the United States, Bermuda, and Canada were the top North American countries.

Financial Transaction Trends by Russian Oligarchs in 2022: Asset Transfers

The Report’s first overall conclusion is that FinCEN’s review of the 454 reports revealed that in late February 2022 (around the time of Russia’s invasion), there was an increase in funds and asset transfers by Russian oligarchs. Amongst other things, the reports revealed that several Russian oligarchs transferred beneficial ownership of their companies, trusts, or accounts to their children, other family members, or close business associates. This observation is particularly relevant in context of the new beneficial ownership information reporting (“BOI”) regime under the Corporate Transparency Act, effective in 2024.  We have blogged most recently here and here on the BOI regime.

Further, the Report also notes that several Russian oligarchs sent large wire transfers to their children, and points out that these wires frequently went to children studying in the United States.  FinCEN apparently followed up on the wire transfers and discovered, according to the Report, that the wired funds were used to purchase residential real estate and luxury items in the United States.

Uptick in Purchase of High-Value Goods or Property

The Report’s second overall conclusion is that several oligarchs purchased high-value goods, including jewelry, art, and property or real estate in other countries leading up to the invasion in February 2022. This behavior was noted in FinCEN’s earlier 2022 Alert on Real Estate, Luxury Goods, and Other High Value Assets Involving Russian Elites, Oligarchs, and their Family Members, available here. That particular alert explained, and again noted in the Report, that the sudden purchase of high-value goods using funds derived from unknown sources could indicate that the transacting individuals were attempting to use the purchase of these goods to shield or launder portions of their wealth from the possibility of future sanctions. According to the Report and the BSA data available to FinCEN as well as open source information, a Russian oligarch transferred assets to a family member before being sanction, and, the family member used these funds and accounts to make payments for luxury goods and real estate potentially located in the United Arab Emirates. 

Changes in Financial Flows Related to U.S. Properties and Companies

The third and last general conclusion FinCEN derived from the BSA data in the 454 reports was that several oligarchs moved funds from accounts in Russia to accounts in other countries, including the United States, usually right before or around the time of the Russian invasion. The Report accurately notes that some of these oligarchs have been transferring funds for years – however, FinCEN concluded that the BSA data showed that the frequency and value of the transfers increased around the time of the invasion. The Report surmises that these oligarchs were motivated “potentially for fear of not being able to use or transfer funds once hostilities commenced” and opines that some of the transfers “may be disguised by using accounts linked to shell companies, family members, or associates.” FinCEN also looked at the activity after the transfer funds by Russian oligarchs and discovered, according to the Report, that the funds were used to cover real property expenses. The Report correctly notes that many of the activities described in the BSA reports, such as having and transferring to a U.S.-based account, owning a U.S. company, and owning U.S. property, are not inherently illegal or suspicious. What seems to have caused the financial institution to file the BSA report is that, in most cases, the financial institution could not determine the source of funds coming from Russia and had concerns the funds could be linked to corruption.

Finally, in the Report FinCEN reminds financial institutions to review formal guidance on reporting suspicious activity related to Russia-linked actors and highlighted the alerts again which include specific red flags, such as

  • A Russian individual or entity requests a wire transfer from a non-U.S. (particularly non-Russian) bank to pay for an all-cash purchase, especially if the wired funds come from an account held by an individual or entity other than the original requestor.
  • The maintenance, purchase, or termination of real estate insurance by persons with a known nexus to sanctioned Russian elites and their proxies.
  • Changes, without an apparent business reason, to the transaction patterns of a firm located in a country other than the United States, Russia, Belarus, and Ukraine, where the new transactions involve convertible virtual currency and Russian-related investments or firms.
  • The use of shell companies and trusts, and/or third-party intermediaries, including art dealers, brokers, advisers, or interior designers, with a nexus to sanctioned Russian elites and their proxies, to purchase, hold, or sell art on a client’s behalf.
  • The involvement of transportation service companies that have been owned by, or have a nexus to, sanctioned Russian elites and their proxies, and that may be used to transport luxury goods and obfuscate their movement.

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