Crypto transactions monitoring for Russia

Bloomberg released an article Moscow’s Tallest Tower Is a Cybercriminal Cash Machine about dozens of Moscow companies cashing out cryptocurrency. All such companies are united by the location - the Federation-East Tower in Moscow City. According to the US Treasury Department, at least four such companies are associated with money laundering, obtained through extortion worth 1.6 billion.

Separately, we note that one of these companies turned out to be SUEX OTC, which fell under US sanctions at the end of September. Other potential victims of financial regulators include EggChange and CashBank - the largest crypto exchange Binance has already stopped all operations with these companies. It is highly likely that new sanctions against Russian companies involved in cashing cryptocurrencies will soon follow.

Thus, the statement from the article is that Cybercriminal Cash Machine is located in one of the city’s?most prestigious addresses houses companies in Moscow providing a vital service to hackers.

?The financial district has housed at least 50 companies that convert cryptocurrencies into cash, some with connections to illicit activities. That makes it one of the world’s most influential stations for cashing out digital coins, according to cybersecurity and cryptocurrency experts.

How can an American company from the cryptocurrency industry minimize the risks of being involved in dangerous transactions?

We propose to consider practical steps, which triggers, red flags will help the risk of the deportation of the cryptocurrency exchange to assess the risk of transferring to a "clean" company that completely passes through the screening systems in Russia?

As we already wrote in previous articles, it is impossible to be proactive using only formal screening and without resorting to a level of additional investigation of transactions, which will be productive only if you understand the realities of business in Russia.

There are examples of the misconception of risk managers that a Russian-speaking analyst hired from the Russian-speaking diaspora in the United States will be able to check and review complex cases. In this case, it is mistakenly believed that knowledge of the language can replace the experience of working with Russia and identifying red flags, checking the counterparty for indirect risk triggers, such as fraud at the level of the founders, the legal address at the place of mass registration, working with inside information about the possible relationship of the company with bad players

What is a fly-by-night firm in Russia?

We will repeat once again, the criteria for evaluating a given company should be based on the triggers of the country where we are trying to identify it

A fly-by-night company is a legal entity that does not have actual independence, created without the purpose of doing business, as a rule, not submitting tax reports, registered at a mass registration address, etc.

?Signs of a one-day firm:

In the Letter of the Federal Tax Service of the Russian Federation of 08/03/2016 N GD-4-14 / 14126 @, reporting on the work carried out in relation to legal entities registered after August 1, 2016 and having signs of unreliability, the tax authorities provide a list of signs that may indicate the inaccuracy of the specified information in Unified State Register of Legal Entities:

• a person who has the right to act on behalf of a legal entity without a power of attorney, including the managing organization, acts as such in a significant number of other legal entities;
• participants in a legal entity are such in a significant number of other legal entities;
• the address of the legal entity indicated in the Unified State Register of Legal Entities is the address of a significant number of other legal entities;
• a person who has the right to act without a power of attorney on behalf of a legal entity (including on behalf of a managing organization) is an individual in respect of whom there is a valid decision on an administrative offense case, in accordance with which the specified person was assigned an administrative penalty in the form disqualification, and the period for which it is established has not expired;
• in relation to a person who has the right to act on behalf of a legal entity without a power of attorney, there is information about his death.

?In the Letter of the Federal Tax Service of the Russian Federation of June 24, 2016 N ED-19-15 / 104, it recommends paying attention to the following signs when assessing tax risks:

• lack of documentary evidence of the powers of the head of the counterparty company (his representative), copies of his identity document;
• lack of information about the actual location of the counterparty, production and (or) retail space;
• lack of information on the state registration of the counterparty in the Unified State Register of Legal Entities;
• lack of obvious evidence of the possibility of real performance by the counterparty of the terms of the contract;
• the existence of reasonable doubts about the possibility of actual fulfillment by the counterparty of the terms of the contract, taking into account the time required for the delivery or production of goods, the performance of work or the provision of services.

In addition, the signs of fly-by-night firms are constantly revealed in the course of judicial practice:

• the minimum size of the authorized capital (in combination with other features, it may indicate a one-day company, but in itself is not a risk factor);
• a mass registration address at which many taxpayers are registered;
• reporting is not submitted or is submitted with zero indicators;
• lack of staff (depending on the field of activity, it may really indicate the unreliability of the counterparty);
• lack of material and administrative resources;
• suspicious business transactions;
• officials who are not related to the activities of organizations;
• signing of documents by unidentified persons;
• the date of registration of the organization is close to the date of the doubtful transaction;
• failure to comply with the requirements of the tax authorities on the submission of documents;

Conclusion: The procedures for identifying dangerous or toxic companies are different in different countries; triggers and red flags are determined based on the specifics of the region.

Working on a gap analysis of the sanctions program we recommend:

• Allocate 2-3 risky countries between your clients or belonging to citizenship (OFAC targeted countries)
• To drive on the Internet in a foreign language the formulations proposed below and study the methodology of ways to bypass the defense you have built to eliminate the sanction risk – to pass through your KYC process
• Use Russian screening systems for checking and scoring Russian legal entities and individuals
• Identify fraud at the level of relationships at the level of founders, shares in company structures, legal addresses from the list of mass addresses or addresses associated with blocked sanctions by companies

Rodion Tuvaev, CEO of Sanction Adviser

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