Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On February 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $5.5 million settlement with a German chemical manufacturer for 304 alleged violations of the Cuban Assets Control Regulations (CACR). According to OFAC, the settlement resolves the manufacturer’s alleged involvement in fulfilling Cuban orders for chemical reagents on 304 invoices. Prior to and upon acquiring the manufacturer, an Illinois-based company sent warnings to the manufacturer that all Cuban transactions must be ceased, along with guidelines for complying with U.S. sanctions. OFAC noted, however, that the manufacturer designed and implemented a system to conceal its on-going transactions, engaged an external logistics company to handle shipping documents and declarations, and conducted training sessions for staff to ensure the system was concealed from the Illinois company.
In arriving at the settlement amount, OFAC considered the following as aggravating factors: (i) the willful conduct of the manufacturer’s management; (ii) the utilization of written procedures to “engage in a pattern of conduct in violation of the CACR”; (iii) the number of transactions over an extended period of time “caused significant harm to the sanctions program objective of maintaining a comprehensive embargo on Cuba”; and (iv) the sophistication and revenue stream of the manufacturer, and the fact that it is a subsidiary of a large, international company.
OFAC also considered several mitigating factors, including the Illinois company’s cooperation with OFAC, voluntary self-disclosure, and execution of a tolling agreement on behalf of the manufacturer. OFAC further stressed the importance of implementing risk-based controls and due-diligence procedures to ensure subsidiaries comply with OFAC sanction obligations.
Visit here for additional InfoBytes coverage on Cuban sanctions.
On February 15, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced additions to the Specially Designated Nationals List pursuant to Executive Order 13692. OFAC’s additions to the list include five current or former officials connected to former President Maduro, including the president of Venezuela’s state-owned oil company, which was sanctioned at the end of January. (See previous InfoBytes coverage here.) According to OFAC, the designated individuals have engaged in “significant corruption and fraud against the people of Venezuela,” and continue to assist the Maduro regime’s repression of Venezuelan people. As a result, any assets or interests therein belonging to the identified individuals—along with any entities directly or indirectly owned 50 percent or more by such individuals—subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are prohibited generally from dealing with any such property or interests.
See here for continuing InfoBytes coverage of actions related to Venezuela.
OFAC sanctions Iranian entities and individuals supporting intelligence gathering and cyber targeting of U.S. persons
On February 13, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against an Iran-based entity and four affiliated Iranian individuals for their alleged roles in providing support for the Islamic Revolutionary Guard Corps-Qods Force’s (IRGC-QF) efforts to recruit and collect intelligence from foreign attendees of international conferences, including facilitating contact between the IRGC-QF and U.S. persons. According to OFAC, the sanctions were issued pursuant to Executive Order 13224, which authorizes “the U.S. government to designate and block the assets of foreign individuals and entities that commit, or pose a significant risk of committing, acts of terrorism.” The same day, OFAC also sanctioned a separate Iran-based entity and six associated individuals, pursuant to Executive Order 13606, for their alleged involvement in the cyber targeting of current and former U.S. government and military personnel, in an effort to gain access to their computer systems and implant malware.
As a result of the OFAC sanctions, all property and interests in property belonging to the identified individuals and entities and subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from entering into transactions with the individuals and entities. Additionally, OFAC notes that “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the persons designated today pursuant to E.O. 13224 or that are Iranian persons on OFAC’s list of Specially Designated Nationals and Blocked Persons . . . could be subject to U.S. correspondent account or payable-through sanctions.”
Visit here for additional recent InfoBytes coverage of actions related to Iran.
U.S. Treasury concerned with European Commission's identification of AML/CFT-deficient U.S. territories
On February 13, the U.S. Treasury Department issued a statement responding to a list of jurisdictions published by the European Commission as having strategic deficiencies related to anti-money laundering and countering the financing of terrorism (AML/CFT). The list—which includes certain jurisdictions with strategic deficiencies that were already identified by the Financial Action Task Force (FATF) (see previous InfoBytes coverage here)—also identifies 11 additional jurisdictions, including the U.S. territories of American Samoa, Guam, Puerto Rico, and the U.S. Virgin Islands. According to the European Commission, the “banks and other entities covered by EU anti-money laundering rules will be required to apply increased checks (due diligence) on financial operations involving customers and financial institutions from these high-risk third countries to better identify any suspicious money flows.”
In its response, the Treasury Department stated that it has “significant concerns about the substance of the list and the flawed process by which it was developed,” noting that the same AML/CFT legal framework that applies to the continental U.S. also generally extends to its territories. Treasury said it does not expect U.S. financial firms to take account of the European Commission’s list in their AML/CFT policies and procedures, and stressed that the FATF already develops a list of high-risk jurisdictions “as part of a careful and comprehensive process,” which does not list the U.S. territories.
Hawaiian executive's bribery guilty plea leads to Micronesian official charged with money laundering conspiracy
On February 11, the Department of Justice (DOJ) unsealed conspiracy to commit money laundering charges against a Micronesian government official alleged to have taken bribes to secure engineering and project management contracts from the government of the Federated States of Micronesia (FSM). The charges follow the recent guilty plea by a Hawaiian executive to a charge of conspiracy to bribe the Micronesian official in violation of the FCPA.
According to the DOJ, a Micronesian citizen was a government official in the FSM Department of Transportation, Communications and Infrastructure who administered FSM’s aviation programs. Between 2006 and 2016, the Hawaiian executive’s Hawaii-based engineering and consulting company allegedly paid around $440,000 in bribes in the form of cash, vehicles, and entertainment to FSM officials, including the citizen, to obtain and retain contracts with the FSM government valued at nearly $8 million. The complaint unsealed on Monday contains specific examples of requests by the citizen to the executive for cash gifts and a 2014 Chevy Silverado. According to the executive’s guilty plea, he fulfilled the citizen’s requests and sent wire transfers and the automobile internationally for the citizen’s personal use.
On February 11, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) amended two General Licenses (GL) and issued three revised FAQs regarding sanctions against Venezuela’s state-owned oil company pursuant to Executive Order 13850. GL 3C, which supersedes GL 3B, authorizes transactions related to, provision of financing for, and other dealings in certain bonds, provided the divestment or transfer (including the facilitation) of any holdings of these bonds are to a non-U.S. person. GL 9B, which supersedes GL 9A, authorizes certain transactions related to securities issued prior to August 25, 2017 by the oil company and its subsidiaries. Additionally, OFAC issued revised FAQs 650, 661, and 662 to provide additional clarification on expected levels of due diligence, as well as implications for U.S. and non-U.S. persons.
Visit here for additional InfoBytes coverage of actions related to Venezuela.
OFAC designates Turkish individual as “Foreign Sanctions Evader” in relation to settlement resolving alleged Iranian sanctions violations
On February 7, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $13,381 settlement with a Virginia-based corporation on behalf of its Turkish affiliate for six alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR). The settlement resolves potential civil liability for the Turkish affiliate’s alleged practice of dispatching employees to Iran to fulfill service agreements and providing products, parts, and services while knowing that they were going to Iranian end-users. OFAC’s findings included that the Turkish affiliate willfully took steps to continue its Iranian business despite the Virginia corporation’s “extensive efforts to ensure [the affiliate] complied with the ITSR,” and “fraudulently certified” that no Iranian business was continuing.
In arriving at the settlement amount, OFAC considered the following aggravating factors: (i) the Turkish affiliate violated Iranian sanctions by “willfully provid[ing] goods and services to Iran”; (ii) the Turkish affiliate’s management was aware of and directed its employees’ actions; (iii) the Turkish affiliate’s management took actions to delete and falsify records in an attempt to conceal the apparent violations; and (iv) the violations economically benefitted Iran.
OFAC also considered numerous mitigating factors, including (i) neither the Virginia corporation nor the Turkish affiliate had received a penalty or finding of a violation in the five years prior to the transactions at issue; (ii) the Virginia corporation voluntarily self-disclosed the apparent violations and conducted an extensive internal investigation; and (iii) the Virginia corporation took “extensive preventative and remedial” measures.
In a concurrent action the same day, OFAC sanctioned a Turkish individual as a “Foreign Sanctions Evader,” pursuant to Executive Order 13608, for allegedly instructing the Turkish affiliate to violate the Iranian sanctions. According to OFAC, the sanctioned individual “regularly and fraudulently” certified to the Virginia corporation that no products were being sent to Iran. Additionally, OFAC claims that upon learning of the corporation’s internal investigation, the individual and other members of the Turkish affiliate’s management team attempted to conceal the apparent violations. As a result, all direct and indirect transactions involving the individual intended for the U.S., or provided by or to U.S. persons, are prohibited. Moreover, U.S. financial institutions are instructed to reject payments involving the identified individual.
View here for additional InfoBytes coverage of actions related to Iran.
On January 31, the United Kingdom’s Financial Conduct Authority (FCA) announced that the Global Financial Innovation Network (GFIN) officially launched and is now seeking cross-border testing applications. As previously covered by InfoBytes, in August 2018, the FCA announced the creation of the GFIN in collaboration with 11 other global financial regulators, including the CFPB. The network has now expanded to include 29 organizations, including financial regulators and other related entities, committed to supporting financial innovation. The GFIN has three primary functions: (i) to collaborate on innovation and to provide accessible regulatory contact information for firms; (ii) to provide a forum for joint regulation technology work; and (iii) to provide firms with an environment in which to trial cross-border solutions.
The announcement states that the network has opened a one month application window for firms interested in joining a pilot cohort for cross-border testing for new technologies. Firms interested in participating are required to meet the application requirements of all the jurisdictions in which they would like to test. Each applicable regulator will decide whether the firm’s proposed test meets the screening criteria and ensure safeguards are in place in their jurisdiction for testing. The deadline for testing applications is February 28.
On February 6, the U.K. SFO announced that a former sales executive of an oil-services company had pleaded guilty in the U.K. to 11 counts of bribery regarding payments made in exchange for winning oil-services contracts in Iraq and Saudi Arabia. The executive – a British citizen and the former global head of sales for a subsidiary of the company – pleaded guilty to participating in payments of more than $6 million to agents to win contracts worth more than $4 billion in Iraq and Saudi Arabia. The SFO’s investigation of the company regarding suspected bribery and money laundering, which was announced in May 2017, is ongoing, but no other officers or employees are currently charged.
On February 5, the Federal Reserve Board (Fed) released the scenarios banks and supervisors will use to conduct the 2019 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress tests exercises for large bank holding companies and large U.S. operations of foreign firms. Each of the three scenarios—baseline, adverse, and severely adverse—include 28 variables that cover domestic and international economic activity. The Fed noted that “less-complex” firms with total consolidated assets between $100 billion and $250 billion have been moved to an extended stress test cycle for the 2019 cycle. (See related InfoBytes coverage here.) Capital plan and stress testing submissions are due by April 5.
In addition, the Fed finalized enhanced disclosures of the stress testing models used in annual CCARs beginning in 2019, which will be updated each year. The Fed also amended its policy regarding the economic scenario design framework for stress testing, and adopted a policy statement on prior disclosures, which outlines the Fed’s approach to model development, implementation, and validation. The changes are designed to increase the transparency of the stress testing exercises and provide significantly more information for firms.
- Michelle L. Rogers to discuss "Preparing for servicing exams in the current regulatory environment" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jon David D. Langlois to discuss "Regulatory risks of convenience fees" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jessica L. Pollet to discuss "Law & compliance speedsmarts" at the American Financial Services Association Law & Compliance Symposium
- Daniel P. Stipano to discuss "Lessons learned from recent high profile enforcement actions" at the Florida International Bankers Association AML Compliance Conference
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program