Markets Wired

As Prepared for Delivery

Introduction

I am Brian Nelson, the U.S. Treasury’s Under Secretary for Terrorism and Financial Intelligence, or ‘TFI’.  The offices I lead, which include the Office of Foreign Assets Control, known as OFAC, the Office of Intelligence and Analysis, or OIA, the Office of Terrorist Financing and Financial Crimes, TFFC, the Financial Crimes Enforcement Network, or FinCEN, and the Treasury Executive Office for Asset Forfeiture, or TEOAF, are tasked with deploying our financial intelligence, expertise, and economic authorities to combat terrorist financing, money laundering, weapons proliferators, corrupt actors, and other national security threats.

I am in India to meet with my government counterparts to discuss the full range of our shared priorities, such as countering the financing of terrorism and implementing strong AML/CFT standards to regulate virtual assets and VASPs.   

I also value the opportunity to meet with you all and other private sector partners here in Mumbai as key stakeholders in our fight to combat financial crime.  I would like this to be a frank and open discussion and exchange of perspectives. 

Russia

One of Treasury’s top priorities, as you might guess, is Russia.  I put immense value in hearing from industry as we continue our efforts to hold Russia accountable for its brutal war in Ukraine. 

Treasury’s top priorities are reducing Russian revenue and preventing sanctions evasion to disrupt Russia’s ability to acquire goods that are used on the battlefield in Ukraine.  We are deeply concerned by an increase in Russian procurement from third countries of key inputs and technologies directly supporting Russia’s attempt to build a self-sufficient wartime economy.

Combatting Russian sanctions evasion and illicit procurement will increasingly implicate money laundering typologies, sanctions evasion, and the circumvention of export controls regimes.  For financial institutions, addressing this is critical to mitigating regulatory and reputational risks.  Front-line industry compliance is critical to our efforts and critical to you for protecting your bank from sanctions exposure.

As you may be aware, the U.S. Department of Commerce is working with our partners, including those in the EU and dozens of others, to maintain a set of high priority-controlled Harmonized System (HS) codes covering items that are key inputs for Russian military capabilities. 

The Treasury and Commerce Departments have specifically identified items that include key potential inputs for Russian military capabilities. We have identified a set of forty-five 6-digit controlled HS codes that cover those items that include these key inputs used by Russia in missile systems and other equipment used on the battlefield.

These items pose a heightened risk of being diverted illegally to Russia because of their importance to Russia’s war efforts.  To assist financial institutions, the U.S. financial intelligence unit, FinCEN, published an alert with the Department of Commerce’s Bureau of Industry and Security in June 2022 and a supplemental alert in May 2023 on potential Russian export control evasion. 

Both alerts are publicly available on the FinCEN website and outline typologies and red flag indicators for financial institutions to incorporate into their existing risk assessments and suspicious activity reporting.  We have and continue to strongly encourage our financial institutions to review these alerts and incorporate them into their transaction screening.

Private sector firms make their own risk-based decisions, and Treasury expects all financial institutions to strictly monitor, and address threats related to sanctions evasion and illicit procurement.

Russia will continue to adapt its evasive activity and deceptive practices to acquire essential goods and technologies, so it is imperative that financial institutions also continually reassess their internal controls particularly with regard to the sectors core to Russia’s military industrial complex. 

Earlier this week, the United States designated more than 150 targets as part of our ongoing effort to implement the commitments made by G7 Leaders by taking action against Russian military procurement networks and those who help Russia acquire machine tools, equipment, and key inputs. 

Treasury will continue to issue more designations of individuals and entities that are providing support to Russia’s military industrial complex and supporting its broader efforts to evade our existing sanctions.

Hamas

Turning to Hamas, I want to clearly note that the U.S. Treasury is unequivocal in its determination to cut off Hamas’ ability to access the international financial system following the atrocities perpetrated on October 7.  

The United States considers Hamas a terrorist organization, and their attack on innocent civilians on October 7 certainly qualifies them as such.  

Hamas receives significant financial support from Iran and generates revenue through its secret investment portfolios, with a network of global assets estimated to be worth hundreds of millions of dollars.  The portfolio includes companies operating in Sudan, Algeria, the United Arab Emirates, and Türkiye, among others. 

The companies in Hamas’s portfolio have operated under the guise of legitimate businesses, and their representatives have attempted to conceal Hamas’s control over their assets.

To launder and move their illicit proceeds, the group operates a vast network of shell companies and take advantage of permissive jurisdictions and facilitation hubs to move these funds.  They also smuggle physical currency and use a regional network of money transmitters, exchange houses, and a longtime US-designated, Hizballah-affiliated bank, Bayt Al-Mal, to move funds from Iran into Gaza.

Our job in protecting the international financial system is to look at the activity and ensure we have strong enough due diligence to guard against suspicious illicit activity.  

But to be clear, compliance should not equate to cutting off legitimate humanitarian aid.  We are also concerned by the humanitarian crisis in Gaza.  As President Biden has said, too many Palestinians have died.  The U.S. government strongly supports the delivery of humanitarian assistance to the Palestinian people, and we want to make clear that U.S. sanctions do not stand in the way of these life-saving efforts.  

I recently held several roundtables with over sixty-five NGO representatives to reinforce this commitment and will continue to work with the sector to ensure that our sanctions do not impede legitimate humanitarian aid. 

Just last month, Treasury issued a communiqué in response to questions from the NGO community and the general public on how to provide humanitarian assistance while complying with OFAC sanctions. 

It is in our collective interest to work together to protect the international financial system and your jurisdiction from exploitation by illicit actors. 

Regulatory Agenda

I know the Indian government has focused on its AML/CFT regime, as have we.  

Top of mind for me is beneficial ownership.  For the United States, we will operationalize our beneficial ownership registry on January 1, 2024, finally addressing one of our greatest deficiencies in our regime by limiting illicit actors’ ability to use shell companies to abuse the U.S. and international financial systems.  

I look forward to hearing your experience in implementing India’s beneficial ownership regulations.  I know that the ownership threshold has tightened from 25 to 10 percent, so I am interested to hear your experience with this shift as well.  

The purpose of today is also for me to hear from you, so with that, I conclude my prepared points and happy to hear questions and observations.  I look forward to hearing how we can be good and better partners in effectively enforcing our sanctions and regulatory priorities globally. 

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