Fake News vs. Real News

We exist in an age when mass media outlets are criticized for bias and manipulation, and when foreign disinformation efforts further erode trust in traditional journalism, confidence in media reports not just as a compliance tool, but also as reliable news sources is likely at near record lows. However, adverse media reports are a critical compliance tool that can serve as a springboard for more extensive due diligence research and can help identify potential indicators of sanctions evasion and other financial crimes. 

• Russian investigative media outlet The Insider recently identified a likely Russian military intelligence (GRU) officer Viktor Labin, whose company has been routing sensitive European technologies to a Moscow-based entity owned by Labin’s son, who admitted that his company worked with Russia’s defense sector.  
• An investigation by the International Consortium of Independent Journalists last year revealing that that Cyprus-based lawyers and accountants helped sanctioned Russian oligarchs avoid the seizure of their assets prompted President Nikos Chrisodoulides to seek help from third-country experts with investigations into the allegations. 
• Media outlets in August 2023 reported that short-seller Hindenburg Research found that Kazakhstan-based Freedom Holding Corp. continues to engage in business in the Russian market and has “openly flouted sanctions along with anti-money laundering (AML) and know-your-customer (KYC) rules.” 
• Foreign Policy in September reported that Greek shipping companies are selling ageing vessels to Russia, helping Moscow evade sanctions. The magazine reported that Greek ships account for almost 50 percent of tanker capacity from Russian ports, and the Wall Street Journal reported that Greek shipping company TMS Tankers has transported tens of millions of barrels of Russian crude and fuel since Moscow’s invasion of Ukraine began. In response to continued media attention, three major Greek shipping companies, including TMS, have stopped moving Russian oil from Europe to other continents. 

Although adverse media reports should not be the sole source of research informing risk decisions for firms and financial institutions, they should be a sign that a closer look at the issue is warranted. Media reports can serve as a starting point for enhanced due diligence research, but corroboration and source characterization should be a staple of research efforts. 

• Has the media outlet reported reliably in the past? 
• Does the media outlet have a reputation for accurate reporting? 
• Does the article cite primary sources or reputable secondhand information? Are the primary sources credible? 
• Is the information provided by the media report current? 
• Are the claims in the media report corroborated by other sources? 
• Who owns or controls the media outlet?  
• Has the media outlet had to issue retractions? 
• Who is the journalist writing the article? Could they be linked to individuals or entities who might compromise their objectivity? 
• Does the source have a motive for publishing the story? 

These are just some of the questions compliance officers should ask when examining whether a media report warrants additional attention and whether risk assessments should be adjusted based on the report. Sources such as academic journals, video or audio recordings of primary sources corroborating the report, or government databases can help corroborate the claims in a given article and can provide insights to inform risk assessment decisions. 

A PBS report in March 2023 detailed allegations that Haas Automation—an industrial manufacturer that produces high-precision computer numerical control (CNC) machines was supplying Russia’s military with these machines through Abamet Management LTD—a Russian company that is an official distributor for the Russian arms industry. The report cited the Economic Security Council of Ukraine which helps develop expertise in identifying and counteracting internal and external threats to the economic security of Ukraine. The group examined public procurement records and databases to establish that Haas—through Abamet—shipped CNC machines to Russian weapons manufacturers. Haas denied the allegation, but PBS examined customs records that showed shipments from Haas continued months after the Russian invasion of Ukraine began, and that at least 18 shipments were made to Russia directly from Haas worth $2.8 million through October 2022. The report also highlighted that at least two sanctioned entities in Russia have displayed Haas equipment in their promotional materials. 

PBS in August 2023 aired a follow-up story asserting that Haas Automation continued to supply the Russian arms industry, albeit indirectly. The report noted that the Novosibirsk building plant (aka NPZ in Russian) got its high-tech equipment from Haas and sloppily tried to cover Haas’s logo with its own. The story zooms in on a promotional video that features Haas’s distinctive red “H” above the CNC machine’s control panel. The story flagged that a mysterious Chinese company, Suzhou Sup Bestech Machine Tools Co., LTD. that does not have a website or phone number, was created two weeks after Haas officially pulled out of Russia. The company between October 2022 and August 2023 supplied or conducted around 200 shipments of Haas machine tools and spare parts to Abamet. Procurement records show that NPZ owns a Haas machine tool made specifically for it and that the NPZ plant is one of Abamet’s clients. 

The New York Times reported in May 2023 that millions of dollars’ worth of Boeing and Airbus aircraft parts were sent to Russia in 2022. The newspaper cited data compiled and analyzed by trade data aggregator Import Genius to show that tens of millions of dollars of aircraft parts were sent to sanctioned Russian airlines, such as Rossiya Airlines, Aeroflot, Ural Airlines, S7 Airlines, Utair Aviation, and Pobeda Airlines. The New York Times also reported that it consulted with export control lawyers and former government officials to confirm that numerous shipments flagged by Import Genius data likely violated sanctions. 

Hindenburg Research in 2023 published a scathing 106-page report about India’s Adani Group, raising concerns about possible stock manipulation, tax evasion, the use of shell entities controlled by company head Vinod Adani or close associates, and money laundering. The report sparked at least $150 in losses for Adani’s publicly listed companies. Numerous media outlets reported on the research, including Reuters and Bloomberg, citing Hindenburg’s research. India’s Supreme Court ruled that the company does not need to be investigated any further after Hindenburg’s allegations became public. Gautam Adani is a close ally of India’s Prime Minister Modi. Hindenburg is a forensic financial research firm dedicated to finding corporate wrongdoing and shorting companies’ stock based on its research. Corroborating reporting from reputable media companies also cited Hindenburg’s research. Although Hindenburg’s research is likely geared toward short selling, additional research into Adani shows that the firm is being investigated by the U.S. Justice Department for bribery. 

Conclusion 

Adverse media reports do not always indicate that an entity’s risk profile should be updated, but they can provide a critical launching pad for additional research. Corroborating information should be carefully vetted, as should the media outlet’s record of credibility, ownership, reputation, and motivation. Although trust in the media is at a low point, compliance specialists should use media reports as a springboard for possible further research that could impact a client’s or business partner’s risk profile and help them avoid relationships with risky entities.