combating russian money laundering act

the material on FederalRegister.gov is accurately displayed, consistent with 13694 (Blocking the Property of Certain Persons Engaging in Significant Malicious Cyber-Enabled Activities), in which he declared a national emergency to deal with the threat of the increasing prevalence and severity of malicious cyber-enabled activities originating from, or directed by persons located, in whole or in substantial part, outside the United States [that] constitute an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States.[18], In 2021, roughly 74 percent of ransomware revenue, or over $400 million worth of CVC, went to strains highly likely to be affiliated with Russian organizations. That may occur, as it does in the case of Bitzlato, where the financial institution facilitates money laundering transactions for funds derived from illegal activity or the proceeds of illegal activity and that those activities have a nexus to Russia. 5. 9. electronic version on GPOs govinfo.gov. Bitzlato, FinCEN believes that, for the reasons described below, this action will not have an adverse systemic impact, and indeed, will have a positive systemic impact on the international payment, clearance, and settlement system, and on legitimate business activities. https://cryptonews.com/reviews/bitzlato/. The order defines a covered financial institution as having the same meaning as financial institution in 31 CFR 1010.100(t). The order defines transmittal of funds as the sending or receiving of any funds, including CVC, and it defines covered financial institution as any financial institution under the BSA. This site displays a prototype of a Web 2.0 version of the daily For example, Bitzlato's top three receiving counterparties, by total amount of BTC received between May 2018 and September 2022 were: (1) Binance, a VASP; (2) the Russia-connected darknet market Hydra; and (3) the alleged Russia-based Ponzi scheme TheFiniko. Similarly, Bitzlato's top three sending counterparties, by total amount of BTC sent between May 2018 and September 2022 were (1) Hydra; (2) Local Bitcoins, a VASP based/incorporated in Finland; and (3) TheFiniko. The majority of these receiving and sending counterparties have evident ties to and/or significant operations in Russia. Nothing in this order shall be construed to modify, impair or otherwise affect any requirements or obligations to which a covered financial institution is subject pursuant to the BSA, including, but not limited to, the filing of Suspicious Activity Reports (SARs), or other applicable laws or regulations, such as the sanctions administered and enforced by the U.S. Department of the Treasury's Office of Foreign Assets Control. and Mega as Russian darknet markets that offer narcotics and potentially other illicit goods. Since Hydra's closure in April 2022, these three darknet markets show notably increased transaction volumes with Bitzlato as one of their top counterparties by total sending and receiving volumes. See, e.g., (accessed March 2022). Separately, based on blockchain analysis, other ransomware groups have used Bitzlato to facilitate transactions involving ransomware, including ransomware groups based in or linked to Russia. Two thirds of Bitzlatos top receiving and sending counterparties are associated with darknet markets or scams, and Bitzlato received virtual currency worth almost half a billion dollars from illicit activity between 2019 and 2021. frc@fincen.gov. The Extent to Which Bitzlato Is Used To Facilitate or Promote Money Laundering in Connection With Russian Illicit Finance, Including Through Connections to Money Laundering Activity by Organized Criminal Groups, B. Be it enacted by the Senate and House of Representa- tives of the United States of 1503 & 1507. Nearly 50 percent of all known Bitzlato transactions during that time involved Russian illicit finance or otherwise risky sources. (last accessed January 2023). The U.S. government has long engaged on efforts to counter the threat of ransomware, and on April 1, 2015, the President issued Executive Order (E.O.) on NARA's archives.gov. Identifying Bitzlato as a primary money laundering concern effectively renders the exchange an international pariah. As set out on its website, Bitzlato is an online platform that provides exchange and P2P services. [33] Alessio D. Evangelista The significant quantity of Bitzlato transactions involving ransomware and darknet market actors provides further evidence that Bitzlato is not following its stated AML/KYC policy or identifying suspicious transactions in a way that would allow it to identify and halt the use of its platform by illicit actors. 35. Deputy Secretary of the Treasury Wally Adeyemo announced the action at a press conference at the Department of Justice. Reuters Coinciding with Legkodymovs arrest, French and other European authorities took enforcement action to target Bitzlatos online infrastructure and seize its assets. the current document as it appeared on Public Inspection on This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. Updated January 4, 2022 U.S. Efforts to Combat Money However, prohibiting the transmittal of funds involving Bitzlato is the only means of adequately addressing the threat Bitzlato poses. In parallel, through its P2P services, Bitzlato operates as an advertising board for digital assets traders offering wallet, escrow and other related services associated with P2P exchanges. Although Bitzlato's homepage states that it has a Know Your Client [(KYC)] policy, public reporting shows that Bitzlato does not effectively implement is of money laundering concern in connection with Russian illicit finance. Section 9714, therefore, provides FinCEN with significant latitude to determine the most appropriate mechanism and move expeditiously to implement the chosen special measures if there is a Russian connection. This prototype edition of the Andrew M. Good In practice, Bitzlato does not appear to be collecting the identifying information that would be necessary to facilitate meaningful KYC analysis. It is not an official legal edition of the Federal Bitzlato, According to a study performed by a blockchain analysis company of seven VASPs associated with Moscow City, Russia, between 2019 and 2021, Bitzlato received CVC worth $206 million from darknet markets, $224 million from scams, and $9 million from ransomware attackers, with the value of transactions involving Russian illicit finance or otherwise risky sources quantified as 48 percent of all known Bitzlato transactions. This exchange process allows for transfers to or from a traditional financial institution, as well as other traditional methods, and emphasizes that it does not require users to go through the sort of extensive KYC procedures that are required on other exchanges. Register documents. . As explored in greater detail below, section 9714 is a powerful tool that allows the Treasury Department to move quickly to address perceived threats to the U.S. financial system. 40. The highly coordinated nature of FinCENs order and the actions of U.S. and European law enforcement, which involved multiple agencies and jurisdictions, is in keeping with the increasingly multilateral approach that the U.S., EU, and other partners have adopted to combat money laundering, terrorist financing and other illicit financial activities. FinCEN considered the other special measures available pursuant to section 9714 prior to selecting the prohibition reflected in this order. For these reasons, FinCEN assesses that the prohibition on the transmittal of funds, including CVC, involving Bitzlato is the most appropriate special measure. History of Anti-Money Laundering Laws | FinCEN.gov 27. In light of those activities, Bitzlato is a financial institution within the meaning of section 9714(a). Bitzlato Review, daily Federal Register on FederalRegister.gov will remain an unofficial Given Bitzlato's connection with Russian illicit finance, FinCEN believes that this action is necessary to safeguard U.S. national security and the U.S. financial system, as well as serve key U.S. national security objectives. policies and procedures designed to combat money laundering and illicit finance, and in fact, has advertised that it lacks such policies, procedures, or internal controls. Pursuant to Treasury Order 180-01 (January 14, 2020), the authority of the Secretary of the Treasury to administer the BSA, including but not limited to 31 U.S.C. The order defines Bitzlato, a CVC exchanger registered in Hong Kong and previously known as ChangeBot, to mean all subsidiaries, branches, and offices of Bitzlato operating in any jurisdiction, as well as any successor entity. FinCEN was guided in its analysis by the following considerations: (1) the extent to which the institution is used to facilitate or promote money laundering in connection with Russian illicit finance, including through connections to money laundering activity by Russian organized criminal groups; (2) the extent to which the institution is used for legitimate business purposes; and (3) the extent to which action by FinCEN would guard against international money laundering and other financial crimes. As such, this action will complement previous actions taken by the U.S. Government and will serve the United States' national security and foreign policy interests by protecting U.S. businesses and interests from known ransomware threat actors, by publicly countering a financing mechanism used by illicit entities, including entities that seek to further the Russian state's aims of political and economic destabilization, and by reinforcing the expectations of AML/CFT compliance in the virtual asset ecosystem in order to improve the identification and reporting of suspicious activity by financial institutions and agencies around the world. Treasurys action today sends a clear message that we are prepared to take action against any financial institution including virtual asset service providers with lax controls against money laundering, terrorist financing, or other illicit finance. The actions involve both Russian illicit finance and the digital asset space, two areas that will remain a top priority for the international law enforcement community in 2023. has no substantive legal effect. legal research should verify their results against an official edition of https://bitzlato.com/knowledgebase/how_to_buy_cryptocurrency/ Conti, a notorious Ransomware-as-a-Service (RaaS) group and the eponymous strains of ransomware it offers as a service to affiliated criminals for their use, emerged in December 2019. Blockchain analysis identifies BlackSprut, OMG!OMG! 3, Conti refers to both a criminal group, the eponymous ransomware strains it spawned, and other affiliated actors. Bitzlato, All terms used but not otherwise defined herein shall have the meaning set forth in 31 CFR Chapter X and 31 U.S.C. Id. Id. This is the largest proportion of illicit funds received by all seven businesses analyzed during that time, with the second largest being SUEX, at 37 percent. Bitzlato, a convertible virtual currency (CVC) exchanger (a type of VASP) with significant operations in Russia that offers exchange and Peer-to-Peer (P2P) services, is a financial institution of primary money laundering concern in connection with Russian illicit finance, namely, through: (1) its facilitation of deposits and funds transfers by Russian The NDAA for Fiscal Year 2022 amended the Act to specify that the civil and criminal penalties applicable to violations of section 311 special measures will also apply to violations of section 9714 special measures. FIN-2021-A004, Advisory on Ransomware and the Use of the Financial System to Facilitate Ransom Payments (November 8, 2021), available at Bitzlato has repeatedly facilitated transactions for Russian-affiliated ransomware groups, including Conti, a Ransomware-as-a-Service group that has links to the Russian government and to Russian-connected darknet markets. At a time when Russia is waging a brutal and unjust war in Ukraine, and as it seeks to circumvent sanctions and governance controls to fill its coffers and sustain its violence, we have no tolerance for criminal enterprises enriching Russias malicious interests. FinCEN may then impose one or more enhanced due diligence requirements or restrictions (often referred to as special measures) with respect to the designated financial institution, class of transactions, or type of account. In addition to complying with the relevant prohibitions, the guidance specifies that covered financial institutions should incorporate Bitzlatos designation into their AML compliance programs. Section 9714 provides a powerful tool for the U.S. government to target financial institutions identified as enabling or facilitating the evasion of these restrictions or other forms of Russian illicit finance. It will further reinforce the importance of AML/CFT compliance in the virtual asset space, help protect the national security of the United States, notify financial institutions around the world of Bitzlato's illicit activity, and set an example for other international partners to follow in the fight against illicit finance and criminal actors. Meatpacker JBS says it paid equivalent of $11 mln in ransomware attack, Bitzlato, Secret Chats Show How Cybergang Became a Ransomware Powerhouse, 6. The order also highlights Bitzlatos lack of any meaningful AML policies, procedures or internal controls, and underscored its failure to perform KYC on its users. In particular, none of the special measures described in 31 U.S.C. Moreover, the threat of ransomware is not limited to the United States, as ransomware attacks are on the rise across the globe, posing a significant threat to governments, businesses, and institutions on several continents. That comparison illustrates that Bitzlato either had a substantially higher appetite for engaging with this illicit darknet market than a U.S.-registered VASP and/or that Bitzlato did not have the appropriate controls to identify and prevent Hydra's illicit activity from flowing through it. provide legal notice to the public or judicial notice to the courts. This table of contents is a navigational tool, processed from the 31 U.S.C. Terms and Definitions in Bitzlato's Terms of Service page on its website, Bitzlato is identified as registered under the laws of Hong Kong and located at Unit 617, 6/F, 131-132 Connaught Road West, Solo workshops, Hong Kong.[12] This document has been published in the Federal Register. Australia is awash with dirty money heres how to close the [28] Bitzlato further states that it implements a verification procedure, and employs an official responsible for compliance with AML standards, transaction monitoring and risk assessment. 5312. 1. Id. Specifically, section 9714 authorizes FinCEN, acting on authority delegated by the Treasury Secretary, to designate as a primary money laundering concern in connection with Russian illicit finance (i) financial institutions operating outside of the United States; (ii) classes of transactions within, or involving, a jurisdiction outside of the United States; or (iii) types of accounts within, or involving, a jurisdiction outside of the United States. Based on blockchain analysis, 76 Bitzlato deposit addresses received bitcoin (BTC) worth over $300,000 attributed to Chatex. Each of the Departments and agencies concurred in the issuance of this order. Asset Recovery Rewards Act (Subtitle A) and the Combating Russian Money Laundering Act (Subtitle B). Start Printed Page 3924 Federal Register AML Country Guide / Anti-Money Laundering (AML) in Russia. Legitimate actors have access to a broad range of comparable services that provide for appropriate transparency and can support international efforts to protect the integrity of the international financial system, including transactions involving CVC. Start Printed Page 3926 Only official editions of the CVC exchangers, such as Bitzlato, are money transmitters, and therefore, financial institutions within the meaning of section 9714(a). 15. In providing for the rejection of CVC under certain limited circumstances, FinCEN acknowledges that, at this time, there are technological limitations that may limit or preclude covered financial institutions from declining CVC transfers originating at addresses Given Bitzlato's significant connections to Russia and links to Russian illicit finance and Russian criminal actors, the record demonstrates that, in this case, the statutory threshold under section 9714(a) is met. In addition, the Phobos ransomware group and its affiliates have made at least 1,063 direct transfers of funds in the form of BTC to at least 76 Bitzlato deposit addresses identified as having received funds from Chatex, representing 414.84 BTC worth approximately $3 million. Washington Post Register, and does not replace the official print version or the official and Indeed, a study performed by a blockchain analysis company expressly identifies Bitzlato as having a presence in Moscow City (the financial district of Moscow, Russia) during the period between 2019 and 2021,[13] This memorandum is considered advertising under applicable state laws. 2023-01189 Filed 1-19-23; 11:15 am]. The statute only requires that FinCEN determine that the institution is a primary money laundering concern FinCEN reserves its authority pursuant to Section 9714(a) to impose conditions on certain transmittals of funds from or to Bitzlato, or from or to any account or CVC address administered by or on behalf of Bitzlato. As Ransomware Hackers Sit On Millions In Extorted Money, America's Military Is Urged To Hack Back, A ransomware strain is the specific kind of malware that encrypts or exfiltrates data from a victim in order to perpetrate cyber extortion. The order defines convertible virtual currency (CVC) as a medium of exchange that either has an equivalent value as currency, or acts as a substitute for currency, but lacks legal tender status. These consultations involved sharing drafts and information for the purpose of obtaining interagency views on the imposition of a prohibition on certain transmittals of funds by any domestic financial institution from or to Bitzlato, or from an account or CVC address administered by or on behalf of Bitzlato, and the effect that such a prohibition would have on the domestic and international financial system.
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