Cyber sanctions and war: illicit financial flows

The G7 has been coordinating extensively in the face of war in Ukraine, but longer-term thinking and a global framework for prosecuting international atrocities will be key to increasing the group’s effectiveness

Illicit finance linked to cybercrimes, sanctions breaches and war crimes require focused attention from leaders at this year’s G7 summit in Elmau. Russia’s attack on Ukraine, the mass adoption of technology, changes to ways of living and working, and the recent market crashes in traditional and new financial markets have created more opportunities and incentives for corrupt actors and criminals who are not restricted by national borders. The global criminal landscape is undergoing massive changes as criminal organisations and kleptocrats rebuild from COVID-19 and exploit global tensions and policy responses, resulting in new threats that need to be addressed. At the same time, governments in many G7 members have launched the most far-reaching sanctions ever and initiated the biggest overhaul of anti-money laundering and counterterrorist financing legislation since 2001. These changes are generating opportunities for G7 collaboration to use data and technology innovatively to improve global frameworks to prevent, identify, disrupt and repatriate illicit finance.

Cybercrimes

G7 leaders should continue to endorse the work of their digital ministers and direct them to explore more closely the links between cybercrimes, cyberwarfare and illicit financial flows. Cybercrimes and related criminal proceeds are soaring, as fast-paced digital adoption continues. Internet of Things attacks have reached 9.5 million per day and ransomware attacks could cost $265 billion by 2031. The world is already seeing new types of threats such as cryptojacking and increasingly blurred lines between independent and state-sponsored cybercrime. 

The G7 should seek to document the full scale of the threat of cybercrime and associated financial flows. It should encourage the use of privacy enhancing technologies to protect against the theft of data. G7 data protection authorities should work closely with the Financial Action Task Force to discuss how to balance data protection principles with national security concerns and the requirement to identify and report suspicious activities. This should include developing high-level principles to allow law enforcement authorities and oblige entities to fight financial crime without tipping off the subjects of suspicious activity reports. G7 members should also commit to bolstering cyber defences and to attract talent to repel cyberwarfare attacks or take criminal action against them. Russia will likely remain a major hub for cybercrime.

Sanctions

The use of sanctions by G7 and partner countries is unprecedented, particularly as they are directed against a G20 member. A complex set of sanctions has been placed on over 7,500 Russian persons and entities and many industries, including aerospace, marine, electronics, technology and defence, and have been subjected to targeted export controls. G7 members recently committed to phase out their dependence on Russian oil and gas. 

For sanctions to be effective, G7 members must continue to coordinate their targets but also target the enabler network of designated persons and entities. G7 members should commit to corporate transparency by having public registries with powers to validate beneficial ownership structures and to screen to identify criminal conduct, sanctions and disinformation. Producing legislation on transparency in trust structures is also key, as is the need to target the use of nominees, shadow directors and ghost companies, which are often used to circumvent sanctions. G7 members should also garner the support of offshore jurisdictions, Russian proxy states and secrecy havens that are currently used to move funds and other assets owned or controlled by sanctioned persons to circumvent sanctions. 

An additional area for G7 focus is the use of professional enablers to set up trusts and companies, obtain bank accounts and advise on how to move funds. G7 members should explore the use of civil powers to seize and repatriate assets that have been associated with criminal activity linked to corruption. The G7 Russian Elites, Proxies and Oligarchs (REPO) Task Force should develop criteria for removing sanctions in ways that mitigate against major macroeconomic shocks to global supply chains and markets. 

Although the G7 has been coordinating extensively to manage the war in Ukraine, longer-term thinking is required for prosecuting war criminals and seizing and repatriating criminal assets. Russia’s invasion of Ukraine has created a need for a mechanism to target the financiers and financial beneficiaries of war crimes and human right abuses. To that end, the G7 should explore existing mechanisms that look at the financial angle of war crimes and human rights abuses. G7 members could commit to making war crimes or gross human rights abuses a predicate offence for money laundering. They should also create a global framework for prosecuting international atrocities, particularly those carried out by legal entities, and consider how to increase the effectiveness of mechanisms already in place.