The American Gaming Association has released an updated version of its Best Practices for Anti-Money Laundering Compliance Guide, designed to help casinos and gaming operators strengthen their defenses against financial crimes. The new edition reflects changes in technology, evolving criminal tactics, and updated regulatory expectations across the gaming sector.
The latest guide places greater emphasis on Know Your Customer procedures and more detailed guidance for filing Suspicious Activity Reports. A major addition is a comprehensive section on risk assessments, giving operators a clearer framework for identifying vulnerabilities and mitigating potential exposure to money laundering. The guide also expands its focus on digital trends, including online gaming, digital wallets, and cryptocurrency transactions, all of which have become more prominent targets for criminal activity.
Another key update is the inclusion of new fraud typologies and red flags that front-line employees can use to detect suspicious behavior. The guide also addresses the links between human trafficking and money laundering, a growing concern in the gaming industry and beyond.
The AGA stressed that strong anti-money laundering practices are essential not just for protecting casinos and their customers but also for maintaining the integrity of the broader U.S. financial system. It is encouraging operators and suppliers to use the updated material to review and improve their internal compliance programs as the industry continues to evolve.
Since the previous version of the guide was issued in 2022, the U.S. gaming landscape has changed significantly, with more than 1,000 land-based casinos now operating and widespread legalization of sports betting and iGaming. This growth has heightened the need for sophisticated anti-money laundering strategies and closer cooperation between the industry, regulators, and law enforcement.
Industry experts believe the revised guide will help casinos tighten internal controls, enhance transaction monitoring, and improve training programs for staff on how to spot potential money laundering activities. As gaming companies face increasingly complex financial environments, the updated anti-money laundering guide is expected to play a critical role in helping the industry adapt to emerging threats and regulatory demands.
James Dean, global generative AI specialist and financial services industry lead at Google Cloud, will speak at Bank Automation Summit U.S. 2024 on Monday, March 18, at 3:15 p.m. CT.
Dean will join the panel “RPA: New approaches and techniques” with Luther Liang, director of product at Grasshopper Bank; David Lyons, intelligent automation program manager at Discover Financial Services; and Mike Reynolds, business technology executive at KeyBank.
Courtesy/LinkedIn
During the session, panelists will discuss:
How to use process mining and discovery to design automation.
In an interview with Bank Automation News, Dean talked about how financial institutions should approach gen AI, new uses for gen AI and innovations at Google Cloud. What follows is an edited version of that conversation.
Bank Automation News: How should financial institutions approach generative AI?
James Dean: Financial Institutions must strike a balance between embracing innovation and managing risks. A pragmatic “test and learn” approach and clear use-case prioritization are keys to success. All priority use cases should have clear intentions, objectives and outputs they want to achieve. Moreover, metrics must be tied to use cases on what value generative AI will bring.
BAN: What are Google Cloud’s bank clients expecting out of generative AI?
JD: Banks are keen on leveraging generative AI across four main objectives.
They want to use generative AI to cut costs, simply said.
They want to improve the customer experience, increasing NPS, CSAT and overall satisfaction of their business.
They are looking for ways generative AI can reduce risk in their business, whether that be improving fraud detection or enhancing anti-money laundering compliance or improving credit risk assessment.
There is a great opportunity to identify new revenue streams. One example is Hyper-Personalized Product Development and Cross-Selling with generative AI to identify unmet needs or pain points. For example, a mortgage customer might get pre-approved for home insurance tailored to their property at the right time.
BAN: What uses of generative AI are you seeing emerge for FIs to leverage?
JD: One way FIs are taking costs out of their business is using generative AI in Intelligent Document Processing. What was done mostly by people now can be achieved with automated extraction of key information from documents (contracts, applications, loan agreements, etc.), reducing manual labor and errors. Another example is self-service chatbots and automated virtual agents as they have advanced using generative AI to the point that customers are very comfortable interacting with them because generative AI has allowed them to communicate like a human with a level of efficiency that customers get what they want faster than they ever could before (no more holding on line or dealing with novice agents).
BAN: What’s on the generative AI roadmap for Google Cloud?
JD: In December, we took a significant step on our journey to make AI more helpful for everyone with the start of the Gemini era, setting a new state of the art across a wide range of text, image, audio and video benchmarks.
However, Gemini is evolving to be more than just the models. It supports an entire ecosystem — from the products that billions of people use every day to the APIs and platforms helping developers and businesses innovate. Gemini is available in 40 languages on the web, and with the new Gemini app on Android and on the Google app on iOS. Gemini Ultra, one of our newest versions, creates a new experience far more capable at reasoning, following instructions, coding and creative collaboration.
For example, it can be a personal tutor tailored to your learning style. Or it can be a creative partner, helping you plan a content strategy or build a business plan. We also recently announced our next-generation model, Gemini Pro 1.5. Gemini Pro 1.5 delivers dramatically enhanced performance optimized for scaling across a wide range of tasks and it introduces a breakthrough experimental feature in long-context understanding.
BAN: What are you most looking forward to during your panel discussion at Bank Automation Summit U.S. 2024?
JD: I am most looking forward to the panel discussion and sharing with the audience how generative AI will help create the AI bank of the future by discussing how banks can pragmatically and responsibly leverage these new technologies today to take costs out of their business, improve the customer experience, reduce risk and create new revenue streams.
Join us for Bank Automation Summit U.S. 2024 in Nashville, Tenn., on March 18-19! Discover the latest advancements in AI and automation in banking. Register now.
BERLIN — At its summit this week, the European Union is threatening to name and shame more than a dozen Chinese companies that, it claims, are supplying critical technology to equip Russia’s war machine.
But what about the Western companies that make dual-use and other advanced gear that is subject to sanctions and yet, according to an analysis of wreckage found on the Ukrainian battlefield, is used in Russian Kalibr missiles, Orlan drones and Ka-52 “Alligator” helicopters?
Radio silence.
So here’s a trivia question for you: Which company is the leading maker of the so-called “high-priority battlefield items” trafficked to Russia that the Western coalition wants to interdict?
If you said Intel, then go to the top of the class: According to the sanctions team at the Kyiv School of Economics, the U.S. semiconductor giant again leads the pack this year. It’s followed by Huawei of China. Then come Analog Devices, AMD, Texas Instruments and IBM — all of which are American.
Russian imports of microelectronics, wireless and satellite navigation systems and other critical parts subject to sanctions have recovered to near pre-war levels with a monthly run rate of $900 million in the first nine months of this year, according to a forthcoming report from the Kyiv School’s analytical center, the KSE Institute.
All of this indicates that, while Western sanctions imposed over Russia’s full-scale invasion on February 24, 2022, had a temporary impact, Moscow and its helpers have largely succeeded in reconfiguring supply chains — with the help of China, Hong Kong and countries in Russia’s backyard like Kazakhstan and NATO member Turkey.
That in turn begs the question as to whether, as the EU strives to deliver a 12th package of sanctions against Russia in time for a leaders’ summit on Thursday, the bloc is serving up yet another case study for the definition of insanity often attributed to Albert Einstein: doing the same thing over and over again and expecting a different result.
For Elina Ribakova, director of the international program at the KSE Institute, the Western private sector must also be held to account. It should, she argues, be required to track its products along the entire value chain to their final destination — just as banks were forced to tighten anti-money laundering controls and customer checks after the 2008 crash.
“We have a policy in a void. We have put it on paper but we don’t have any infrastructure for the private sector to comply — or for us to check,” Ribakova told POLITICO. “We need to have the private sector enforce and implement this.”
Intel, responding to a request for comment, said it had suspended all shipments to Russia and Belarus, its ally, and that it was compliant with sanctions and export controls against both countries issued by the U.S. and its allies.
“While we do not always know nor can we control what products our customers create or the applications end-users may develop, Intel does not support or tolerate our products being used to violate human rights,” the company said in a statement. “Where we become aware of a concern that Intel products are being used by a business partner in connection with abuses of human rights, we will restrict or cease business with the third party until and unless we have high confidence that Intel’s products are not being used to violate human rights.”
As for Europe, while its companies may not feature among the top makers of critical technology sold to Russia, its industrial businesses are facing growing scrutiny over the supply of machinery and spare parts — often via third countries like Kazakhstan that have seen suspicious surges in imports.
It’s here, also, that Europe has fallen down.
In imposing sanctions, it’s a case of “all for one” — the bloc has jointly agreed on and implemented measures affecting everything from energy to banking.
But enforcement is a matter for individual member countries. Some are on board with the program. Others, like Hungarian Prime Minister Viktor Orbán, overtly sympathize with Russia. And others, still, are conflicted — as when it emerged that the husband of hawkish Estonian premier Kaja Kallas owned a stake in a freight firm that still did business in Russia.
Then there are countries like neutral Austria, with historical ties to the Soviet military-industrial complex that have left politicians and law enforcement with a huge blind spot.
That’s important because, as independent researcher Kamil Galeev put it to POLITICO, Russia today still upholds an organizing principle dating back to the early Soviet era that civilian industry should “be able to switch 100 percent to military production should the need arise.”
Justice delayed
Despite evidence of widespread breaches, only a handful of sanctions cases are being pursued by European law enforcement. Among them, German prosecutors have secured the arrest of a businessman suspected of supplying precision lathes to two Russian companies that make sniper rifles.
But the wheels of justice turn slowly: The arrest in August of Ulli S. — prosecutors, following German tradition, have not published his full name — relates to the initial imposition of Western sanctions over Russia’s occupation of Crimea and eastern Ukraine in 2014.
The press had already cracked the case by the time the suspect appeared in court, naming DMG Mori — a Japanese-German joint venture — as the supplier. One customer was Kalashnikov, maker of the famed AK-47 rifle. The other was Promtekhnologia, which has been sanctioned by the U.S. and featured in POLITICO’s sniper bullets investigation. Promtekhnologia makes the Orsis sniper rifle promoted by action movie actor Steven Seagal — now a Russian citizen — and used by President Vladimir Putin’s men in Ukraine.
DMG Mori, formerly called Gildemeister, suspended sales to Russia after the full-scale invasion. But, because it has closed down its operations in the country, it says it is no longer able to keep control over its machines made there (although an internal probe did find that they were being used for civilian purposes). The German Federal Prosecutor did not respond to a request for comment.
The real bad actors
It’s not just in stopping imports to Russia that sanctions are falling short of their stated intention.
Vladimir Putin’s former wife, Lyudmila (left), and her new partner have splashed the cash on luxury property investments in Spain, Switzerland and France a POLITICO investigation found | Yuri Kochetkov/EPA
Russians with close ties to Putin — and their money — continue to be more than welcome in Europe despite the death and destruction his regime has unleashed. His former wife, Lyudmila, and her new partner have splashed the cash on luxury property investments in Spain, Switzerland and France, as a POLITICO investigation found at the start of the year.
And when the European Council — the intergovernmental branch of the EU — does sanction Russian business leaders suspected of aiding and abetting the Putin regime, it has often relied on slipshod evidence that makes the decisions easy to challenge in court, POLITICO has also found.
Nearly 1,600 Western multinationals continue, meanwhile, to do business in Russia. Many that announced they would pull out have struggled to do so, as POLITICO discovered when it investigated Western liquor companies that said they had quit Russia — only to find that their booze was still freely available. And some companies that did stay, like Danone and Carlsberg, have been shaken down by Putin and his cronies — a case of Russian roulette, if ever there was one.
With the EU apparently lacking the means, or the political will, to do more to economically isolate Russia, the bloc is sending its sanctions envoy, David O’Sullivan, on a mission to apply moral suasion to countries that are, as he diplomatically puts it, “not aligned” on sanctions.
On the high-priority battlefield technology, Sullivan told POLITICO’s EU Confidential podcast last month that the EU has had “a limited success — but in an area which is absolutely critical to the defense of Ukraine.”
More broadly, he said: “The sanctions are a sort of slow puncture of the Russian economy. Perhaps not the blowout that some people initially predicted, but … the air is escaping from the tire and sooner or later the vehicle is going to become impossible to drive.”
To be fair, O’Sullivan isn’t overselling the efficacy of sanctions. And he may ultimately be proven right.
But he only will be vindicated if Western governments do a better job of holding their own businesses to account in stemming the flows of technology, equipment and spare parts that sustain Putin and his war of aggression.
That will come down to whether they have the will to enforce their decisions. And the evidence so far is that they don’t.
(Bloomberg) — Binance Holdings Ltd. and its Chief Executive Officer Changpeng Zhao pleaded guilty to anti-money laundering and US sanctions violations under a sweeping settlement with the US that allows the cryptocurrency exchange to continue operating.
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Binance will pay $4.3 billion in one of the largest corporate agreements in US history. Zhao will pay a $50 million fine under a deal that requires him to step down as CEO. Zhao pleaded guilty Tuesday to violating the Bank Secrecy Act in federal court in Seattle. The deal, which includes the Justice Department, Treasury Department and the Commodity Futures Trading Commission, ends a years-long investigation into the exchange.
Binance, which admitted that it allowed transactions with Hamas and other terrorist groups on the platform, was charged with three counts, including anti-money laundering, operating an unlicensed money transmitting business and violating US sanctions. The exchange is paying a criminal fine of $1.8 billion and forfeiting $2.5 billion, according to court filings unsealed Tuesday.
Zhao faces as many as 10 years in prison but is expected to get no more than 18 months under a plea deal that appears to have saved him from the harsh penalties that other prominent crypto criminals have faced. The Justice Department hasn’t decided yet what length of a prison term they will seek for him.
Binance’s violations included failure to prevent and report suspicious transactions with terrorists, including Hamas’ Al-Qassam Brigades, Palestinian Islamic Jihad, Al Qaeda, and the Islamic State of Iraq and Syria, according to the Treasury Department. The announcement comes as Israel and Hamas have been embroiled in a war that began Oct. 7.
Binance also allowed at least 1.1 million transactions, worth more than $898 million, on its platform between customers in US and Iran, according to the court filing.
“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed — now it’s paying one of the largest corporate penalties in U.S. history,” Attorney General Merrick Garland said in a press release.
Money from the fine will be split among DOJ, CFTC and other agencies. It includes $3.4 billion to the Treasury Department’s Financial Crimes Enforcement Network and $968 million to its Office of Foreign Assets Control over Bank Secrecy Act and sanctions violations.
New CEO
BNB, a cryptocurrency tied to the Binance ecosystem, slipped about 5.2% following the news. The token had hit a five-month high earlier in the day on the news that the DOJ would soon confirm its settlement with the exchange.
“Binance turned a blind eye to its legal obligations in the pursuit of profit,” Treasury Secretary Janet Yellen said in a press release. “Its willful failures allowed money to flow to terrorists, cybercriminals and child abusers through its platform.”
The settlement negotiated between the two sides will resolve all allegations of criminal wrongdoing. Bloomberg News reported the settlement on Monday. Garland and Yellen held a press conference Tuesday to announce details of the deal.
Read More: US Is Seeking More than $4 Billion From Binance to End Case
As part of his plea deal with the government, Zhao, who has a net worth of $23 billion according to Bloomberg’s Billionaires Index, has stepped down as Binance CEO and can’t be involved in managing the company for three years. Richard Teng will succeed Zhao as CEO. Richard Teng will succeed Zhao as CEO.
The company has also agreed to enhance its compliance program and appoint an independent monitor for three years. Binance’s multibillion dollar fine reflects a 20% discount for “partial cooperation” with the investigation, the agreement states.
In a blog post Tuesday, the company acknowledged that it did not have proper compliance controls in its early launch, but said the settlement didn’t include any allegations that Binance misappropriated user funds or engaged in market manipulation.
VIP Customers
The Justice Department accused the company — as well as top executives, including Zhao — of taking steps to conceal that it was dodging US laws intended to stem the flow of dirty money around the world. The filing states that from about August 2017 until October 2022, Binance and Zhao were involved in a “deliberate and calculated effort” to profit from the US market without implementing controls required by law.
Binance “chose not to comply with US legal and regulatory requirements because it determined that doing so would limit its ability to attract and maintain US users,” according to the charging document.
Binance created loopholes that allowed US-based VIP customers to trade on the international exchange through offshore entities. The government’s case relied on internal documents, chats and details of phone calls to show how Binance helped VIP customers circumvent IP address blocking.
These strategies, the government claimed, allowed US-based VIP users to carry out virtual currency transactions “equivalent to billions of US dollars per day.” Acting on instruction from Zhao and other senior management, employees encouraged the VIPs to conceal their US connections, including by creating new accounts.
Zhao, according to the government’s court filings, discussed strategies to keep the market makers on Binance.com to reduce “our own losses” and to have “US supervision agencies not cause us any troubles.”
Zhao was well aware of the presence of US customers on the Binance.com exchange. In a chat in 2019, he wrote that if Binance blocked US customers from day one “Binance will not be as big as we are today.”
A year later, US users still made up 16% of total users on Binance, more than any other country. Binance removed the US label for user location and recategorized it as “UNKWN.”
Zhao wrote that it was “better to ask for forgiveness than permission” and described the situation as a “grey zone.”
CZ in Court
Zhao wore a dark suit and light blue tie, and spent most of the hearing seated with his hands clasped. Judge Brian Tsuchida ruled Zhao would be released and was free to return to his home in the United Arab Emirates while awaiting sentencing.
“I want to close the issue, I want to take responsibility and close this chapter of my life,” Zhao told the court during the hearing. Zhao said he was “a little bit scared” to come to the US to face his plea, but said he was reassured by the court’s thoroughness. “I will return.”
Zhao’s bond was set at $175 million, after his lawyers said he would be prepared to put up that amount to secure his release. Lawyers for the government, who had asked that Zhao be ordered to stay in the country because the US lacks an extradition treaty with the UAE, said they would appeal the release terms.
As part of the release, Zhao’s sister also put up a California home, which his lawyers said was valued at more than $5 million, and two unnamed guarantors committed a total of $350,000.
Zhao faces a maximum sentence of 10 years and fines up to $500,000, plus any profits he made from the alleged scheme. His lawyers said in court that his sentencing will be delayed by 6 months. Zhao’s agreement includes a waiver of his right to appeal, provided that his sentence doesn’t exceed 18 months, judge Tsuchida said during the plea hearing.
Crypto Crackdown
The resolution against the world’s largest cryptocurrency exchange and its top leader represents one of the largest penalties imposed within the cryptocurrency industry, which has been facing withering scrutiny from the Justice Department, other government agencies and lawmakers.
Binance, which exploded onto the crypto scene in 2017 and almost immediately took on and surpassed larger rivals, saw its market share surge to more than 60% worldwide after the fall of FTX in November 2022. Since then, its combined market share for spot crypto and derivatives has declined to less than 44% this month, according to researcher CCData.
The Justice Department recently prosecuted FTX co-founder Sam Bankman-Fried in New York for allegedly orchestrating a multibillion-dollar misappropriation of customer funds that led to the cryptocurrency exchange’s collapse. Bankman-Fried was convicted of fraud following a high-profile criminal trial.
Both the CFTC and Securities and Exchange Commission sued Binance and Zhao earlier this year alleging a range of violations, including mishandling customer funds and allowing Americans to illegally access the platform. Tuesday’s settlement resolves the CFTC case but the SEC lawsuit is ongoing.
Zhao worked at Bloomberg LP, the parent company of Bloomberg News, from 2002 to 2005.
–With assistance from Michael P. Regan, Yueqi Yang, stacy-marie ishmael, David Voreacos and Daniel Flatley.
(Updates with details from the press conference and the complaint throughout the story.)
The pictures posted on the Chinese company’s website show a tall, Caucasian man with a crew cut and flattened nose inspecting body armor at its factory.
“This spring, one of our customers came to our company to confirm the style and quantity of bulletproof vests, and carefully tested the quality of our vests,” Shanghai H Win, a manufacturer of military-grade protective gear, proudly reported on its website in March. The customer “immediately directly confirmed the order quantity of bulletproof vests and subsequent purchase intention.”
The identity of the smiling customer isn’t clear, but there’s a fair chance he was Russian: According to customs records obtained by POLITICO, Russian buyers have declared orders for hundreds of thousands of bulletproof vests and helmets made by Shanghai H Win — the items listed in the documents match those in the company’s online catalog.
Evidence of this kind shows that China, despite Beijing’s calls for peace, is pushing right up to a red line in delivering enough nonlethal, but militarily useful, equipment to Russia to have a material impact on President Vladimir Putin’s 17-month-old war on Ukraine. The protective gear would be sufficient to equip many of the men mobilized by Russia since the invasion. Then there are drones that can be used to direct artillery fire or drop grenades, and thermal optical sights to target the enemy at night.
These shipments point to a China-sized loophole in the West’s attempts to hobble Putin’s war machine. The sale of so-called dual-use technology that can have both civilian and military uses leaves just enough deniability for Western authorities looking for reasons not to confront a huge economic power like Beijing.
The wartime strength of China’s exports of dual-use products to Russia is confirmed by customs data. And, while Ukraine is a customer of China too, its imports of most of the equipment covered in this story have fallen sharply, the figures show.
Russia has imported more than $100 million-worth of drones from China so far this year — 30 times more than Ukraine. And Chinese exports of ceramics, a component used in body armor, increased by 69 percent to Russia to more than $225 million, while dropping by 61 percent to Ukraine to a mere $5 million, Chinese and Ukrainian customs data show.
“What is very clear is that China, for all its claims that it is a neutral actor, is in fact supporting Russia’s positions in this war,” said Helena Legarda, a lead analyst specializing in Chinese defense and foreign policy at the Mercator Institute for China Studies, a Berlin think tank.
Were China to cross the red line and sell weapons or military equipment to Russia, Legarda said she would expect the EU to enforce secondary sanctions targeting enablers of Putin’s war of aggression.
But, she added, equipment like body armor, thermal imaging, and even commercial drones that can be used in offensive frontline operations are unlikely to trigger a response.
“Then there’s this situation that we’re in at the moment — all these dual-use components or equipment and how you handle those,” Legarda explained. “I would not expect the EU to be able to agree to sanctions on that.”
Disappearing customer
Shanghai H Win, like other Chinese companies producing dual-use equipment, has enjoyed a surge in business since Russia’s full-scale invasion of Ukraine.
According to customs records obtained by POLITICO, Russia has ordered hundreds of thousands of bulletproof vests and helmets made by Shanghai H Win | Genya Savilov/AFP via Getty Images
“Because of the war, a lot of trading companies are looking for us and ask: ‘Are you making this kind of vest?’ We received a lot of inquiries,” a sales representative told POLITICO over the phone.
At first, the representative said Shanghai H Win wasn’t allowed to export directly to Russia unless the Chinese military issues a certificate and it can provide documentary proof of its final customer.
Yet when asked who the man in the pictures was, and where he was from, the representative denied that he was even a customer — even though the website said so.
“He is our customer’s customer. We cannot ask him directly, ‘Where are you from?’ But I guess maybe he is from Europe — maybe Ukraine, maybe Poland, even maybe from Russia. I’m not sure.”
Shortly after the call, Shanghai H Win took down the post featuring the mystery shopper from its website.
Who are the buyers?
So, who exactly are those customers? Evidence of deals — importers, suppliers, and product descriptions — can be found in a registry of declarations of conformity by anyone with access to the Russian internet who is familiar with international customs classifications.
In an earlier story, POLITICO searched these filings and found evidence that sniper bullets made in the United States were reaching Russia, where they were freely available on the black market.
The declarations enable the final buyer to certify that the products are genuine and, in effect, make it possible to import goods without the express consent of the maker. If goods are traded through an intermediary, the maker may not even be aware that its goods are going to Russia. The registry is, however, searchable so it’s still easy to find the ultimate buyers of the Chinese kit.
One is Silva, a company headquartered in the remote Eastern Siberian region of Buryatia. It filed declarations in January of this year detailing orders for 100,000 bulletproof vests and 100,000 helmets. The manufacturer? Shanghai H Win.
Such importers often bear the hallmarks of “one-day” firms, as shell companies are known in Russia, set up by actors who want to conceal their dealings. They tend to be new, listed at obscure residential addresses, and have few staff or assets. Their financial statements often don’t report the levels of turnover that the filings would imply.
According to public records, Silva was registered only last September. It reported zero revenues for 2022. A Google Street View search of its address in Ulan-Ude, the capital of Buryatia, takes visitors to a dilapidated apartment block.
POLITICO tried to contact Silva but the phone number given on its filings rang off the hook and a message sent to its email address bounced.
The sale of so-called dual-use technology that can have both civilian and military uses leaves enough deniability for Western authorities looking for reasons not to confront China | STR/AFP via Getty Images
Another Russian company called Rika declared a smaller shipment of body armor from Shanghai H Win in March. Before that, in January, Rika declared a consignment of helmets from a company called Deekon Shanghai, which shares an address with Shanghai H Win. The two companies are affiliated, another Shanghai H Win representative said.
A woman who answered the phone at Rika said: “We buy in Russia, not in China.” The company didn’t reply to a follow-up email from POLITICO.
The denial is hardly plausible: In addition to the protective gear, a search of declarations by Rika threw up hits for deals for thermal optical equipment from China. That was corroborated by customs data accessed by POLITICO, which revealed more than 220 shipments, worth $11 million, for thermal optics and protective equipment since the outbreak of the war. Rika advertises Chinese-made night sights right at the top of its website.
Another Russian company called Legittelekom, whose homepage reveals it to be a Moscow freight forwarding company, also appears as a buyer of 100,000 items of headgear and 100,000 suits of outerwear from Deekon Shanghai, according to filings dated last November 24.
A man who answered a call to Legittelekom declined to comment on POLITICO’s findings and would not say whether the company supplied the Russian military.
“This is a commercial activity and we do not disclose our commercial activities,” the man said in response to both questions.
Bigger deal
Then there’s Pozitron, a company based in Rostov-on-Don, the southern city briefly captured by warlord Yevgeny Prigozhin’s Wagner mercenaries in their failed uprising last month. It imported more than $60 million-worth of “airsoft helmets,” “miscellaneous ceramics,” and other items from Chinese firm Beijing KRNatural in November and December 2022, according to customs data shared by ImportGenius.
These flows check out with Pozitron’s own declarations of conformity between late October and December 2022, for a total of 100,000 helmets. The declarations also reveal that Pozitron acquired a range of drones from Chinese multinational SZ DJI Technology Co., Ltd last December.
Although the quantity is unclear, the models specified include ones known to have been used in the Ukrainian theater of war, like DJI’s Mavic 2 Enterprise Advanced quadcopter or the Mini 2 lightweight drone.
At first sight, the product descriptions in the declarations and customs records appear harmless enough — the “airsoft helmets,” for example, are said to be for use in paintball games and “not for military use, not for dual use.”
Sanctions and defense experts say, however, that it’s common practice to mislabel dual-use goods as being for civilian purposes when they’re in fact destined for the battlefield.
At any rate, Pozitron, which was only founded in March 2021, is having a very good war: Its revenues exploded from 31 million rubles — around $400,000 — in 2021 to 20 billion rubles — almost $300 million — in 2022, according to its financial statement.
Reached by email, Pozitron’s general director, Andrey Vitkovsky, said that his company has “never imported drones and similar products” from the People’s Republic of China.
“The main activity of Pozitron LLC is the purchase and sale of consumer goods, sporting goods, and fabrics, both produced in the Russian Federation and imported from China,” Vitkovsky added, saying that his company’s activities were “exclusively peaceful in nature, in compliance with all rules and restrictions.”
The denial is typical — Russian companies have good reason to fear Western sanctions if they are implicated in trade that supports the Kremlin’s war effort. After POLITICO reported in March that a company called Tekhkrim was importing Chinese assault weapons, and declaring them as “hunting rifles,” the firm was sanctioned by the United States.
Pozitron is on the West’s radar, said one sanctions expert, who was granted anonymity as they are not authorized to speak publicly.
As for Beijing KRNatural, POLITICO was able to trace a company with a similar name at the address given in the Pozitron filings. The company, Beijing Natural Hanhua International Trade Co., Ltd, is listed as a “small and micro enterprise.” It was founded in April 2022, a few months before the Pozitron deals. Nobody answered when POLITICO called.
Heavenly mechanics
In contrast to the bulk consignments of protective gear that appear intended to equip a large fighting force, the orders for drones found by POLITICO are more dispersed among different buyers — both companies and individuals.
In addition to Pozitron, buyers of drones from DJI and its subsidiaries include firms called Gigantshina and Vozdukh — neither of which responded to emailed requests for comment. Another is Nebesnaya Mekhanika (“Heavenly Mechanics”), which before the war was the Chinese company’s official distributor in Russia.
A DJI spokesperson said that the company and its subsidiaries had voluntarily stopped all shipments to, and operations in, Russia and Ukraine on April 26, 2022 — two months after the war broke out.
“We stand alone as the only drone company to clearly denounce and actively discourage use of products in combat,” the spokesperson said in comments emailed to POLITICO.
DJI said it had also broken off its relationship with Nebesnaya Mekhanika, although the Russian company filed further declarations for shipments of the Chinese company’s drones last September 15 and on March 27 of this year.
The spokesperson said that DJI was not in any way involved in the drafting of the declarations of conformity found by POLITICO: “These documents would have been filled out by Russian parties, and they do not indicate in any shape or form who ex- or imported the products that are being declared conform.”
“We have seen media reports and other documents that appear to show how our products are being transported to Russia and Ukraine from other countries where they can be bought off-the-shelf,” the spokesperson added. “However, it is not in our power to influence how our products are being used once they leave our control.”
Still, a search of ImportGenius shows that a Chinese company called Iflight has continued to ship DJI drones to Nebesnaya Mechnika via Hong Kong, care of a local company called Lotos. The most recent consignment was delivered last October 10. In an apparent anomaly, Russia is stated as the country of origin for the shipments.
Nebesnaya Mekhanika, which still advertises DJI drones on its website, did not respond to a request for comment.
Political will
The trafficking of low-tech body armor to high-tech drones and thermal optics highlights a vulnerability in the Western sanctions regime. The ambiguity surrounding the dual-use status of this equipment, coupled with the fact that a significant portion of it is manufactured in China, seems, at least for now, to have placed the possibility of the West taking meaningful action beyond reach.
Then there is the flow of technology through China that may include components made in the West that could be of direct military use.
Russia is fully aware of the China loophole and is using it to buy Western technology to fight its war against Ukraine, according to a recent analysis by the KSE Institute, a think tank affiliated to the Kyiv School of Economics. More than 60 percent of imported critical components in Russian weapons found on the battlefield came from U.S. companies, the researchers found.
It’s an issue that U.S. Secretary of State Antony Blinken brought up on a visit to Beijing last month — the first by Washington’s top diplomat in five years. He told reporters that China had given assurances that “it is not and will not provide lethal assistance to Russia for use in Ukraine.” Blinken, however, expressed “ongoing concerns” that Chinese firms may be providing technology that Russia can use to advance its aggression in Ukraine. “And we have asked the Chinese government to be very vigilant about that.”
U.S. Secretary of State Antony Blinken told reporters that China had given assurances that “it is not and will not provide lethal assistance to Russia for use in Ukraine” during a visit to Beijing last month | Pool photo by Leah Millis/AFP via Getty Images
France is also concerned that China is delivering dual-use equipment to Russia. “There are indications that they are doing things we would prefer them not to do,” Emmanuel Bonne, President Emmanuel Macron’s top diplomatic adviser, told the recent Aspen Security Forum. Pressed on whether China was supplying weapons, Bonne said: “Well, kind of military equipment … as far as we know they are not delivering massively military capacities to Russia but (we need there to be) no delivery.”
Yet there’s little the West can do to twist Beijing’s arm into halting flows of dual-use products into Russia. Only the United States would have the real power to impose an outright ban on dollar-denominated transactions — as Washington did when it sanctioned Iran over its secret nuclear program.
The EU, however, lacks such a strong sanctions weapon because the euro is far less ubiquitous on global markets. It’s also been hesitant to act. In its latest package of Russia sanctions last month, the EU compiled a list of seven Chinese companies that shouldn’t be allowed to trade with the bloc. But, after lobbying by Beijing, Brussels dropped four companies from the blacklist.
Elina Ribakova, one of the authors of the KSE Institute report, said indirect shipments via China pose challenges in terms of both the scope and enforcement of Western sanctions. Secondary sanctions may not be sufficient, she said. She called for manufacturers to be forced to take responsibility for where their products end up — just as banks were required by regulators to step up customer oversight and anti-money laundering operations in the wake of the 2008 financial crisis.
“What we can do differently is to create the same infrastructure for the corporates,” explained Ribakova, who is director of the international program at the Kyiv School of Economics. “We have to threaten them with serious fines.”
Maxim Mironov, a sanctions expert and assistant professor of finance at the IE Business School in Madrid, reckons that the West, despite expanding sanctions to punish Putin’s helpers, lacks the political conviction to enforce them against Beijing.
“Do politicians have enough will to put sanctions on China? Basically, the answer is no,” said Mironov.
“China signals: You can try, but I don’t care what you are trying to do,” Mironov added. “And the European Union is like: If you don’t like it, we are not going to do it. And if the Chinese see that, they are just going to continue doing what they think is in their best interest.”
The European Commission, the U.S. National Security Council and the Chinese Mission to the EU did not respond to requests for comment.
Stuart Lau contributed reporting.
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What if a bank’s compliance software could relay messaging in natural language? That’s the question anti-money laundering fintech Lucinity is hoping to answer with Luci, its new generative AI-powered co–pilot for financial institutions. The tool was built in collaboration with Microsoft Azure’s OpenAI and uses natural language understanding to turn data into easy-to-understand insights and […]
Financial crime’s rapidly rising scale and destructive impact amplify the need for a genuinely robust data-driven solution. With global estimates suggesting $2 trillion is laundered annually and fraud now at epidemic levels, illicit finance has become one of the world’s most prevalent businesses.
This is not a victimless, white-collar crime. It exposes the most vulnerable in society to exploitation by criminal groups through the most heinous crimes, including human trafficking, drug trafficking, modern slavery, illegal wildlife trade and terrorist financing. As such, illicit finance is damaging the security and prosperity of all nations by effectively depriving individuals, communities, taxpayers and governments of vast swathes of vital capital.
Legislators, public authorities, regulators and the financial-services industry globally are investing enormous sums to combat the threat, but outcomes remain poor, with less than 1 percent of illicit funds recovered. This means that current efforts across the global ecosystem are not a sufficient deterrent.
Breaking down siloes
A key deficiency in financial-crime-fighting efforts is the continued prevalence of siloed data, driven not only by technical issues but also by legislative and regulatory factors. Financial institutions, governments and regulators frequently tend to guard their data, even in relation to financial crime. Still, this approach is ineffective and illustrates the urgent need for both private and public stakeholders to act far more collaboratively.
Significant potential value rests on combining financial-crime data held in the component parts of the ecosystem, especially across the banking sector and in law enforcement. Unlocking that potential relies on building more complete and durable partnerships and resolving significant legislative and regulatory issues that are culturally ingrained.
Overcoming these hurdles will allow different parts of the system to unlock the value of readily available external data, while data integration and sharing can create complete pictures of criminal activity by helping to uncover patterns and new findings.
Even though roughly $214 billion1 is spent annually on anti-money laundering and sanctions compliance by financial institutions, the return on investment (ROI) is negligible. This is because the interpretations or effects of existing regulations and supervisory frameworks lock efforts into high-volume, low-value activities (such as SARs [Suspicious Activity Reports] reporting at low-suspicion thresholds and on an all-crimes basis), which are not garnering useful data or intelligence. And even when intelligence or insights are generated, they are not routinely shared or acted upon.
Persisting on such a strategy is ineffective and undesirable. Instead, both public and private institutions need to place greater emphasis on bolstering the efforts of law enforcement to create united intelligence efforts enriched by two-way exchanges of information so that public authorities and financial institutions can see fuller and truer pictures of serious criminal threats operating in the financial system.
Failing to do this will perpetuate the rule-following asymmetry that exists between criminals and their prospective captors: Those who commit financial crimes are not bound by any information-sharing rules and arguably exploit the fact that the people trying to uncover them are restrained by such restrictions.
This uneven playing field undermines law enforcement’s ability to build a picture quickly and comprehensively while simultaneously undermining financial institutions’ ability to fully understand their global financial-crime risk exposures. The irony is that it’s often the case that all the pieces of the intelligence jigsaw puzzle exist, and the “bad actors” and criminal organisations involved are already known and on watchlists. Still, the dots simply cannot be connected.
Improved information sharing between domestic and international partners would overcome this issue and provide financial institutions, law enforcement and intelligence agencies with invaluable insights that would significantly enhance efforts to stop the likes of private criminal enterprises and rogue states from inflicting further damage globally.
A more cohesive defence strategy may be able to more quickly and decisively identify where increased illicit activities are occurring or where new pockets are manifesting themselves, as is the case with the real-estate sector at present, and therefore proactively combat them.
Cross-ecosystem collaboration is key
Being reactive will leave the financial-services ecosystem exposed and vulnerable to significant criminal harm and adverse regulatory scrutiny. A sophisticated, joined-up framework between public and private organisations is, therefore, critical to tackling the constant threat of illicit finance and enabling an effective response when global events create the potential for spikes in illicit activity, as we have seen with fraud during the pandemic.
Public-private partnerships (PPPs) are actively encouraged by the Financial Action Task Force (FATF) and are increasingly accepted as high-value, voluntary activities that can drive engagement between policymakers, financial-services participants and other sectors.
Utility models are also widely recognised as beneficial to all stakeholders in the ecosystem, either to allow duplicative processes to be undertaken once on behalf of many—such as Know Your Client/Customer (KYC) protocols—or to bring together datasets for collective analysis to enhance risk-management functions. In addition, setting national risk priorities can support the public and private sectors in working collaboratively on agreed outcomes.
This is where technology, automation, artificial intelligence (AI) and machine learning (ML) can make a difference. Being intelligence-led helps drive efficiency and effectiveness across the financial-crime-detection framework by enhancing and enabling a truly risk-based approach. And by embracing data and analytics alongside innovative technologies such as digital ID (digital identity verification), stakeholders can germinate a crucial enabler of a more robust financial-crime framework that can drive transformation.
Some common examples of digital ID include electronic databases—such as distributed ledgers to obtain, confirm and store identity evidence—and digital credentials—that help authenticate identity for accessing mobile, online and offline applications. Beyond this, biometrics can identify or authenticate individuals2.
Nonetheless, despite the FATF’s estimate that 60 percent of global gross domestic product (GDP) will be digitised by the end of 2022, there remains no comprehensive, internationally agreed-upon set of standards for developing digital IDs3. This is inhibitive for tackling illicit finance, given that leveraging the power of data can provide numerous benefits, even beyond efficient and effective detection.
Data collection and analysis can help institutions manage the ever-increasing costs of compliance by allowing multiple versions of similar systems, such as case management and analytics tools, to be rationalised and specific repetitive, high-volume tasks to be automated. It can also allow a financial institution to build a more comprehensive understanding of risk so that exposures to regulatory sanctions can be reduced at both the corporate and senior-manager levels.
A holistic customer view is critical to enabling financial institutions to protect their own systems and their customers’ assets from criminal exploitation and ultimately deliver better societal outcomes.
While progress relies on all stakeholders, the financial-services industry can take vital steps to demonstrate its commitment to a new way of addressing illicit finance.
Financial institutions must ensure that they do not have any communication barriers internally between anti-money-laundering (AML), cybersecurity and fraud teams, and they must expedite efforts to share data with peers to ensure better levels of financial-crime prevention and detection.
The firms that will prosper are those that acknowledge that the responsibility for driving this forward cannot simply be left with the relevant teams but that success will require board-level sponsorship of such an agenda, with a nominated board member tasked with setting goals and targets for the organisation’s fight against financial crime.
Signs of progress
While significant progress remains to be made, there are some encouraging signs globally of improved detection and prevention frameworks.
In Australia, the AUSTRAC’s (Australian Transaction Reports and Analysis Centre’s) Fintel Alliance is bringing together an increasing number of banks, remittance-service providers and gambling operators, as well as law enforcement and security agencies, to share intelligence and develop solutions. Investments have been allocated to enhancing reporting systems for financial institutions to streamline compliance and drive more timely and effective financial intelligence. A parliamentary committee is examining the adequacy and efficacy of the national AML/CFT (anti-money laundering/combating the financing of terrorism) regime and is due to report on it in the coming months.
In Europe, through the Transaction Monitoring Netherlands (TMNL) initiative, five major banks are piloting collective transaction monitoring of combined pseudonymised transaction data to identify unusual patterns of cross-bank activity relating to money laundering. The immediate goal is to enhance the effectiveness of the participating banks’ efforts against financial crime, with a potential endpoint being the development of an industry-wide utility that will perform transaction-monitoring activities on behalf of the financial institutions involved.
While the TMNL is a private-sector-led initiative, the banks have sought active cooperation with stakeholders in the public sector to build the TMNL platform, such as securing detailed typological input from the Dutch Financial Intelligence Unit (FIU).
These approaches provide substantive blueprints for the wider global financial ecosystem to follow, and mimicking them simply requires the will of all stakeholders to pull together for the common good.
Moving forward
Research and experience show the benefits of connecting data from multiple sources. Not only does such an approach broaden the amount of data available, but it provides an opportunity for greater and more diverse scrutiny of the data, potentially leading to discoveries that may have been almost impossible to identify otherwise.
But for a truly effective and efficient detection-and-prevention system, stakeholders must embed technology, such as AI and ML, into their financial-crime-fighting frameworks to ensure robust data scrutiny and pattern recognition. For such a system to emerge, financial institutions, regulators, governments and law-enforcement agencies must improve the levels of collaboration internally and between each other.
There is growing acknowledgment of this in key financial centres. For example, significant steps have been taken in the United Kingdom, most recently through the new Economic Crime and Corporate Transparency Bill, to implement reforms aimed at preventing the abuse of limited partnerships, providing additional powers to seize and recover suspected criminal crypto-assets, and enabling new intelligence-gathering powers for law enforcement and greater confidence for businesses around information sharing.
Similarly, in the United States, through the Anti-Money Laundering Act of 2020 (US AMLA), the FinCEN (Financial Crimes Enforcement Network) has established national AML/CFT priorities for financial institutions to incorporate into their AML/CFT programmes and for regulators and examiners to include in their rules, guidance and examinations. This establishment of national priorities represents a significant step forward in shifting the primary focus of US regulators and financial institutions from maintaining technical compliance through their AML/CFT programmes to a more risk-based, innovative and outcomes-oriented approach and has the potential to provide a “blueprint” for other jurisdictions to follow once fully implemented.
These changes demonstrate the building momentum for change, growing understanding of the need to embrace cross-ecosystem collaboration and strengthening combined power of data and intelligence underpinned by innovative technology. But for a watertight global defence, this approach needs to be ubiquitous.
Success here will improve global financial well-being, elevate financial institutions’ reputations and support environmental, social and governance (ESG) goals by ensuring that the world’s capital is used for positive and inclusive innovations rather than crime and exploitation.
Anna Celner, Global Banking & Capital Markets Practice Leader
Anna is the Global Banking & Capital Markets Practice Leader for Deloitte, with the responsibility for setting and executing the global banking strategy. In this role, she leads strategic client portfolio, go-to-market strategy, and the coordination of Deloitte’s global network to help banking clients address their strategic priorities and respond to regulatory, technology, and growth challenges.
Sir Rob Wainwright, Partner and Senior Banking Advisor
Sir Rob Wainwright is a Partner and Senior Banking Advisor at Deloitte. He previously served as the Executive Director of Europol for almost a decade. Sir Rob has had a 28-year career in intelligence and international affairs at the Serious Organised Crime Agency, the National Criminal Intelligence Service and the British Security Service. In June 2018, he was awarded a Knighthood by HM Queen Elizabeth II for his services to security and policing.
