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The Morning Risk Report: Russia Built Parallel Payments System That Escaped Western Sanctions
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Good morning. Western sanctions have disrupted nearly every part of Russia’s financial system, but there is one big exception.
The domestic-payments system continued to work smoothly after Visa Inc. and Mastercard Inc. pulled out earlier this month. While the card giants’ exit from Russia was viewed as a significant move by many in the West, the reality on the ground was anything but. Most Russian consumers never lost the ability to use their Mastercard- and Visa-branded cards to pay for things within the country.
[Continued below...]
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There were roughly 197 million Mastercard or Visa cards in Russia at the end of 2020, according to the Nilson Report, a trade publication. But behind the scenes, the cards don’t rely on the U.S. networks’ systems to process payments in Russia. For years, they have used a homegrown system overseen by Russia’s central bank.
The National Payment Card System—known by its Russian initials NSPK—runs the financial plumbing that underpins card transactions in Russia, even for cards bearing Visa and Mastercard logos.
The system was part of Moscow’s eight-year effort to insulate the Russian economy from Western financial pressure.
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WSJ Risk & Compliance Forum
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Brian Nelson, undersecretary for terrorism and financial intelligence and the senior U.S. Treasury official for sanctions, will be speaking at the Risk & Compliance Forum on May 10. We’ve also added a breakout session to discuss navigating sanctions imposed on Russia due to the Ukraine war. Use the code DJR&C to sign up here.
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From Risk & Compliance Journal
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Ecuador’s Former Comptroller General Indicted in Case Tied to Odebrecht
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A former Ecuadorean comptroller general appeared in a Miami courtroom on Tuesday to face charges he laundered money in the U.S. to hide the proceeds of a bribery scheme partially tied to Brazil-based construction company Odebrecht SA.
U.S. authorities have accused Carlos Ramon Polit Faggioni of soliciting and receiving more than $10 million in bribes from Odebrecht between approximately 2010 and 2016 in exchange for using his position to benefit the company and its Ecuador business.
The U.S. Justice Department also alleges an Ecuadorean businessman bribed Mr. Polit around 2015 to help him obtain contracts from Seguros Sucre SA, the state-owned Ecuadorean insurance company. Another member of the conspiracy helped hide the bribery proceeds by using Florida companies registered in the names of associates, often without their knowledge, according to the Justice Department.
The co-conspirators used the bribery gains to purchase and renovate real estate in South Florida, among other places, and to buy restaurants and other businesses, according to the Justice Department.
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Businesses Leaving Risk Managers Out of AI Oversight, Survey Says
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Many large companies let their technology departments, not their risk and legal teams, manage the enterprise risks associated with using artificial intelligence in their human-resources departments, law firm Baker McKenzie LLP said after conducting a survey of U.S.-based top executives.
The majority of businesses surveyed put oversight of AI-enabled HR tools in the hands of their technology and information-security departments, rather than their risk and legal teams, Baker McKenzie said in a report scheduled to be released later today. Some 42% of companies have risk managers oversee those tools and 27% give an oversight role to legal, whereas a full 75% give technology departments an oversight role.
Most companies can override only some of the AI-enabled outcomes, a potential bias management problem, the report said. The survey was based on a poll in December and January of 500 C-suite executives working for companies with average annual revenue of at least $10 billion each.
–Richard Vanderford
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Intuit said 17 million people filed taxes for free on TurboTax in 2021.
PHOTO: TIFFANY HAGLER-GEARD/BLOOMBERG NEWS
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FTC sues Intuit over TurboTax ads offering free tax filing. The Federal Trade Commission is asking a court to stop Intuit Inc. from advertising that TurboTax users can file their taxes for free, saying that in many cases people don’t qualify to file for free on TurboTax and are instead pushed to pay for services.
“Much of Intuit’s advertising for TurboTax conveys the message that consumers can file their taxes for free using TurboTax,” the FTC said in a complaint filed late Monday in the U.S. District Court Northern District of California San Jose division, “even going so far as to air commercials in which almost every word spoken is the word ‘free.’ ”
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Credit Suisse ignored signs banker was bilking billionaire client, judge says. A Bermuda court said Credit Suisse Group AG must pay billionaire Bidzina Ivanishvili about $555 million for allowing a private banker to steal from the former Georgia prime minister and mismanage his money.
Mr. Ivanishvili sued the bank for breach of contract and fiduciary duty after his private banker, Patrice Lescaudron, admitted to cutting and pasting signatures to make unauthorized stock bets. Credit Suisse had said it too was a victim of Mr. Lescaudron and shouldn’t be held liable for his actions.
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U.S. officials get approval to travel for China plane crash probe. Crash investigators from the U.S. are hoping to travel within a matter of days to China to help with the investigation into the crash of a China Eastern Airlines Corp. plane that killed all 132 people on board.
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Destroyed Russian military vehicles sat next to a train station Tuesday in Trostyanets, a northeastern town recaptured by Ukrainian forces. PHOTO: ROMAN PILIPEY/SHUTTERSTOCK
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Russian Assault on Kyiv Eases as Missile Strikes, Ground Attacks Continue Around Ukraine. Moscow may be starting to follow through on its advertised shift in war plans in Ukraine to concentrate on the country’s east, where Russian forces are pressing their assault with ground and air attacks while scaling back fighting around the capital, Kyiv.
The Ukrainian military early Wednesday said it had fought off four Russian advances in the Donetsk and Luhansk areas of eastern Ukraine’s Donbas region, which Moscow over the past few days has said it would prioritize in the fighting.
Russia, meanwhile, said it continued its long-range strikes throughout the country, attacking what it characterized as military targets. Russia’s Defense Ministry said it destroyed Ukrainian military equipment and struck two large warehouses in the Donbas area with short-range ballistic missiles.
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Robinhood offers extended trading hours. Robinhood Markets Inc. said it is extending the hours it will let its users trade to between 7 a.m. ET and 8 p.m. ET, an announcement that sent the stock surging Tuesday amid hopes that the investment platform can rebound from slowing growth.
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The brokerage, which is popular with individual investors, is expanding its trading hours in an attempt to combat slowing growth tied to its trading revenue.
Brokerages and investment professionals caution that extended-hours trading can be riskier than during the regular session. Trading outside of normal market hours can be thinner, making it more difficult to execute trades and more likely that prices exhibit wide swings.
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Environmental groups pressure bitcoin community to lower energy use. A consortium of environmental groups launched a campaign on Monday seeking to change bitcoin’s code to decrease its energy use, which has grown substantially in the past few years.
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Hackers steal crypto from online game. A cryptocurrency startup that operates a popular online game called “Axie Infinity” said Tuesday that hackers stole more than $500 million worth of cryptocurrency. It was the second-largest crypto hack ever, according to analytics firm Elliptic.
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Firms like PricewaterhouseCoopers have been beefing up their climate literacy.
PHOTO: RICHARD B. LEVINE/LEVINE ROBERTS/ZUMA PRESS
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Auditors assess complex new climate disclosures. Professional-services firms are assessing an array of knotty and often subjective information from companies under a new proposal from U.S. securities regulators on climate disclosure.
The Securities and Exchange Commission last week put forward a plan that would require companies to provide information about their greenhouse-gas emissions and climate-change-related risks to their businesses. The proposal, which is now open for public comments, would add to the growing amount of work for auditors around assessing companies’ climate risks.
Under the proposal, climate metrics and disclosures included in the footnotes of companies’ financial statements would be subject to a full audit.
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