Press Release: In-House Counsel Bear Burden of Today’s Financial Crime

March 4, 2024
In-House Counsel Bear Burden of Today’s Financial Crime
Skyscraper residential and commercial buildings on the Dubai Creek Harbour development, Dubai, UAE, on Nov. 18, 2022. Photographer: Christopher Pike/Bloomberg via Getty Images

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Infortal’s Christopher Mason and Ian Oxnevad share an investigatory and compliance perspective on risks global financial crime networks pose to companies.

Financial crime fuels global conflict. The current administration has responded with increased regulation and oversight, but sanctions and reforms that prioritize geopolitical advantage are forcing financiers of global conflict further underground.

As a result, managing financial crime and compliance risks is becoming more complex for companies that operate globally. The responsibility of interpreting the impact of global conflict on illicit banking and regulatory enforcement falls on general counsel, as companies seek to recalibrate their strategies.

Effective risk management strategy must account for new regulatory pressures and a shifting geopolitical landscape. This centers on knowing where a company may be vulnerable to risk exposure wherever there is a breakdown in international relations.

Evolving global tensions have fueled a convergence of geopolitical focus across US federal regulatory bodies that cover international sanctions, corporate, and anti-money laundering compliance in the US. Several federal agencies have set regulatory enforcement priorities that reflect this dynamic.

The Department of Justice acknowledges the difficulties companies face globally. In late 2023, Deputy Attorney General Lisa Monaco indicated that companies are “on the front line” in responding to geopolitical risks. The DOJ established a program to enforce corporate crime through a national security filter, meaning companies must ensure their compliance programs can withstand global pressures.

The enhanced regulatory focus on geopolitics is also evident in the Office of the Comptroller of the Currency’s Fiscal Year 2024 Supervision Operating Plan, which looks at how examiners will consider “geopolitical events that may have adverse financial, operational, and compliance.”

Regulators have underscored a clear intent to factor geopolitical risk into their enforcement agenda in the coming year. It’s critical for firms to reassess their compliance and operational strategies against the same geopolitical backdrop.

This includes ongoing global risk monitoring and stress testing the sustainability of internal compliance programs. In some cases, companies may need to modify their insurance coverage to account for any increased global risk exposure.

Sanctions Evasion

The USEU, and UK adopted comprehensive sanctions programs aiming to cut off funding of Russian military operations, including strict controls limiting sale of Russian oil and natural gas. In response, an entire industry of sanctions evaders emerged last year to facilitate trade of sanctioned commodities and launder illicit proceeds.

New illicit financial centers have emerged from the shifting dynamics of global conflict, including in the United Arab Emirates, where financial service providers helped facilitate illicit trade in Russian oil. But the UAE has started to curtail Russian sanctions evasion and appears to be fighting for improved corporate governance controls, showing that even established financial centers can become hotbeds for geopolitical-driven financial crime overnight.

Companies need to understand potential risk exposure to ongoing sanctions evasion, particularly through their supply chains. Being linked to a sanctions evasion scheme would be an immediate reputational nightmare.

Money Laundering

Financial crime depends on innovation to stay ahead of law enforcement, and new tactics are constantly emerging.

The alarming trend of criminal networks that offer money laundering as a service is a stark reminder of the evolving nature of financial crime. Chinese gangs and criminal syndicates across the globe have filled the void as go-to providers of illicit money laundering services.

Illegal transfers frequently hide behind complex webs of interconnected companies and individuals. Therefore, compliance teams must be ready to adapt their programs to keep pace with cutting-edge money laundering tactics. This requires updating anti-money laundering training programs and financial crime detection methodologies to account for new money laundering techniques.

Money-laundering-as-a-service schemes have also surpassed the billion-dollar mark. In January, Italian authorities uncovered a Chinese shadow bank network involved in laundering $1.9 billion in assets. This operation shows how massive a company’s risk exposure can become.

Real Estate Risks

Once illegal profits are made, the value must be placed within the legitimate economy. In many ways, real estate is the perfect money laundering vehicle. It can hold massive value, appreciate, and provide tax loopholes conducive to money launderers. As commercial real estate lagged last year, Russian oligarchs began exploiting the US real estate sector.

Treasury Secretary Janet Yellen confirmed last year that the Department of Treasury is placing “a particular focus on excluding corrupt actors from investing in, profiting from, and laundering money through investment firms as well as through purchases of US real estate.”

The Financial Crimes Enforcement Network issued a proposed rule covering anti-money laundering regulations for residential real estate transfers. The new rule will require additional reporting requirements and impose heightened scrutiny of high-risk residential real estate transactions.

The call for diligence in real estate transactions is clear. As regulators monitor real estate markets for potential money laundering activities, it will be important for firms to examine their real estate holdings and investment plans for money laundering risk exposure.

Companies can limit their liability by understanding who is behind any proposed real estate transactions on either the buy or sell side of the deal. If business entities are involved in the transaction, understanding their ownership structure will be paramount to avoiding hidden bad actors.

Raising the Stakes

Fundamental to fighting financial crime risk is understanding your business partners and your customers. This is a complicated endeavor, as bad actors frequently hide behind layers of shell companies to conceal illicit operations, including shelf companies available for purchase. Shelf companies come with a built-in, seemingly legitimate backstory designed to fool would-be business partners and service providers.

The Corporate Transparency Act may change the game going forward. Regulators will now have access to beneficial ownership information based on mandatory self-reporting. This will empower federal agencies to unravel the hidden web of the beneficial ownership behind companies that facilitate transfer of illicit funds or evade regulations.

Understanding who you conduct business with is more than a compliance obligation; it’s a strategic defense against inadvertently supporting global conflict through financial means.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Christopher Mason is vice president of global compliance and investigations at Infortal Worldwide, and served with the Department of Homeland Security for more than 10 years.

Ian Oxnevad is director of geopolitical risk at Infortal Worldwide and leads the firm’s geopolitical risk intelligence and analysis.


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