U.S. Warns Banks, Crypto Firms Against Potential Efforts to Evade Russian Sanctions

The U.S. and its allies have imposed economic sanctions and trade restrictions on Russia and Belarus in recent weeks, including blacklisting key Russian state-owned banks and prohibiting transactions with some Russian government entities, including the Russian Central Bank.

FinCEN said sanctioned Russian and Belarusian entities and individuals may try to evade sanctions in various ways, including through non-sanctioned Russian and Belarusian banks and financial institutions in third countries. Some indicators of possible sanctions-evasion activity include the use of shell companies to obscure the ownership of entities or funds or to make international wire transfers.

FinCEN said a variety of actors that still retain some access to the international financial system, including crypto exchanges and administrators inside or outside Russia, could conduct evasion activities. For instance, crypto exchanges and administrators and other financial institutions could see attempted or completed transactions tied to crypto wallets or other activities associated with sanctioned Russian and Belarusian individuals or entities, FinCEN said.

Some red flags financial institutions and crypto firms should watch out for include transactions coming from or sent to an internet protocol, or IP, address located in Russia or Belarus, or from IP addresses already flagged as suspicious.

A group of Democratic senators last week voiced concern about the potential for cryptocurrencies to undermine U.S. sanctions against Russia, and asked the Treasury Department to explain how it will mitigate the risk.

FinCEN also warned financial institutions against possible Russia-related ransomware attacks and other cybercrimes. Some U.S. banks expressed concerns about retaliatory hacks from inside Russia following the latest round of Russia sanctions, The Wall Street Journal previously reported. FinCEN said such red flags include customers initiating a transfer of funds using a virtual currency mixer that conceals the source or owner of the currency, according to the alert.

The red flags pointed out by FinCEN, including one on the use of Russian-associated IP addresses, indicate U.S. authorities want institutions to err on the side of reporting possible violations, according to Braddock Stevenson, an attorney at law firm Paul Hastings LLP who previously worked at FinCEN as deputy associate director of enforcement.

“While this will likely result in the reporting of legitimate transactions, it’s clear that FinCEN wants the information first and will ask questions later,” he said, adding that financial institutions should also be prepared to receive requests related to Russian financial activities from FinCEN in the coming weeks.

Write to Mengqi Sun at [email protected]