FinCEN Alert on Sanctioned Russian Elites
In January 2023, the Financial Crimes Enforcement Network (FinCEN) published an alert, FIN-2023-Alert002, regarding potential investments in the United States commercial real estate (CRE) market by “sanctioned Russian elites and their proxies”. This Alert follows a similar Alert issued in March 2022, FIN-2022-Alert001. CRE, as mentioned in the Alert, can have highly complex ownership and loan structures and financing and, as such, these factors can make CRE difficult to manage even without fraud or sanctions concerns lurking.
As a financial institution you should review the Alert examples provided, conduct an awareness training with personnel from lenders to administrators, and report concerns within suspicious activity reports (SARs) as appropriate. It is imperative to identify all parties, including beneficial owners, involved in the transaction. “Sanctioned Russian elites and their proxies may seek to further obfuscate their involvement in a CRE transaction by decreasing their percentage of ownership in an investment below the threshold set by a bank’s CDD protocols.” Further, it is important to understand the source of funding for the transaction and any previous transfer of assets or properties prior to your transaction. Additional red flags, examples, and details on transactions can be found in the FinCEN Alert, FIN-2023-Alert002, January 25, 2023.
Risks and noted red flags:
• CRE transactions generally involve private companies or institutional investors as the buyer and/or seller.
• Use of trust companies, shell companies or pooled investments/investors can be behind those parties.
• Use of high value properties and the current stability/value of the CRE market to hide wealth.
• Inaccurate disclosures of beneficial ownership information or structure.
• Politically Exposed Person (PEP) involvement in the transaction or just prior to the consummation of the transaction.
Further, the Alert provides important SAR filing instructions: FinCEN requests financial institutions reference this alert in SAR field 2 (Filing Institution Note to FinCEN – see example below) and the narrative by including the following key term: “FIN-2023-RUSSIACRE”
In other notable Bank Secrecy Act (BSA) news the OCC listed BSA as one of the key areas of heightened focus for supervisory strategies in 2023. In the NCUA’s supervisory priorities they called out elevated efforts designed to enhance the identification of fraud red flags at their institutions. Additionally, across the country, we have seen an increase in BSA program criticism. While BSA has been in place for a significant number of years there continues to be a need for investing resources in complying with this regulatory requirement.
Karen focuses on regulatory compliance, BSA, compliance management systems and special projects, such as compliance risk assessments and BSA assessments.
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