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Global money laundering risks rise for Fintech and Blockchain sector and beyond

Western countries have primarily responded to Russian aggression by utilizing financial tools against the Kremlin, President Putin, and Russian organizations and individuals connected to Putin. Since 9/11, economic sanctions have increasingly become a tactic of first resort against both state and non-state actors. The coordinated sanctions in response to Russia’s attack on Ukraine are nonetheless notable in their breadth and seriousness.

Western countries, including Canada, have joined together in banning transactions with the Russian central bank, and have banned key Russian banks from SWIFT, the international payment system. Sanctions have also been leveled against Putin and a growing list of Russian oligarchs, whose foreign assets are now being targeted by joint task forces mandated to identify and seize those assets. The nature and extent of the coordinated sanctions have been described as “weaponizing the financial and payments system.”

The impact of the sanctions will naturally be felt most directly by Russians, perhaps most notably the oligarchs who have long enjoyed their vast holdings of significant foreign assets. The impacted sums are staggering. A 2018 study estimates that, by 2015, the hidden assets of wealthy Russian’s amounted to 85 percent of Russia’s GDP. But the impacts will also be felt more broadly. In addition to the broader economic fallout, there are obvious implications for businesses directly engaged in Russia or with Russian counterparts. Such activity may be restricted (if it is not already), whether as a matter of law, logistics, or public relations.

The risks are also likely to spread. Restrictions placed on the significant foreign assets of sanctioned Russian organizations and individuals create the strong possibility they will respond by engaging in creative and increasingly complex tactics in an attempt to maintain access to their wealth in the global financial system. Such tactics are likely to constitute money laundering, both under the laws of Canada and many other jurisdictions.

In turn, the risk of inadvertently facilitating money laundering is likely to be heightened, not just for traditional financial institutions, but for businesses worldwide. Various forms of corporate financings, investments, capital-intensive projects or other transactions could inadvertently shelter the movement or use of assets subject to sanctions or similar restrictions.

Such risks may be most acute for businesses engaged in the emerging Fintech and Blockchain sector, and those receiving funds from abroad that could be tainted, whether due to underlying failures of due diligence or inadequate sanction adherence.

How should businesses respond?

Businesses operating internationally would therefore be well served to:

  • Ensure that they are undertaking appropriate transactional due diligence and risk allocation.
  • Have in place sufficiently robust policies and procedures to respond to the heightened risk of money laundering.
  • Remain steadfast in their commitment to responding to the increasingly complex legal and regulatory landscape created by Western sanctions.

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Lincoln Caylor, pictured above right, is a litigator at Bennett Jones LLP in Toronto and focuses on cross-border financial crime disputes. He is recognized by peers and clients as the top asset-recovery lawyer in Canada. He is co-founder of The International Academy of Financial Crime Litigators.

Nathan Shaheen, above left, is a litigator at Bennett Jones LLP in Toronto and focuses on cross-border financial crime disputes.

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