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OFAC sanctions cut cash flow supporting violence in Sudan
On June 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 14098, against four companies for generating revenue from, and contributing to, the conflict in Sudan. Two of the companies are affiliated with the paramilitary Rapid Support Forces and two companies are affiliated with the Sudanese Armed Forces. OFAC stated that sanctions against those who have “directly or indirectly engaged or attempted to engage in actions or policies that threaten the peace, security, or stability of Sudan” will hinder the financial support for the entities waging war in Sudan.
As a result of the sanctions, all property and interests in property belonging to the sanctioned persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless authorized by a general or specific OFAC license, or otherwise exempt.
In conjunction with the sanctions, OFAC issued several Sudan-related general licenses (see General Licenses 1, 2, 3 and 4).
OFAC announces new Sudan E.O., issues and amends several sanctions general licenses and FAQs
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) recently announced several sanctions-related actions, including President Biden’s new Executive Order (E.O.) Imposing Sanctions on Certain Persons Destabilizing Sudan and Undermining the Goal of a Democratic Transition. The E.O. expands the scope of a 2006 Executive Order following the determination that recent events in Sudan “constitute[] an unusual and extraordinary threat to the national security and foreign policy of the United States.” The E.O. outlines specific prohibitions and provides that all property and interests in property that are in the U.S. or that later come in the U.S., or that are in the possession or control of any of the identified U.S. persons must be blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in. Concurrently, OFAC issued a new FAQ clarifying which sanctions authorities are applicable to Sudan and the Sudanese government.
OFAC also issued Venezuela-related General License (GL) 42, which authorizes certain transactions related to the negotiation of settlement agreements with the IV Venezuelan National Assembly and certain other entities. The authorized transactions must relate to debt owed by the Venezuelan government, Petróleos de Venezuela, S.A., or any entity owned, directly or indirectly, 50 percent or more. GL 42 does not authorizes transactions involving the Venezuelan National Constituent Assembly convened by Nicolas Maduro or the National Assembly seated on January 5, 2021. OFAC also released three new related FAQs and one amended FAQ.
Additionally, OFAC released cyber-related GL 1C, which authorizes certain transactions with Russia’s Federal Security Service that would normally be prohibited by the Weapons of Mass Destruction Proliferators Sanctions Regulations, and issued three amended cyber-related FAQs. A few days later, OFAC issued Russia-related GL 8G, which authorizes certain transactions related to energy that would otherwise be prohibited by E.O. 14024, involving certain entities, including Russia’s central bank. OFAC clarified that GL 8G does not authorize prohibited transactions related to (i) certain sovereign debt of the Russian Federation; (ii) the “opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity subject to Directive 2 under E.O. 14024, Prohibitions Related to Correspondent or Payable-Through Accounts and Processing of Transactions Involving Certain Foreign Financial Institutions”; and (iii) or “[a]ny debit to an account on the books of a U.S. financial institution of the Central Bank of the Russian Federation,” among others.
OFAC, FinCEN take action against virtual currency exchange
On October 11, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), together with the Financial Crimes Enforcement Network (FinCEN), announced two settlements for more than $24 million and $29 million, respectively, with a Washington state-based virtual currency exchange. According to OFAC’s announcement, this is the agency’s largest virtual currency enforcement action to date, and represent the first parallel actions taken by FinCEN and OFAC in this space.
OFAC settlement. OFAC’s web notice stated that between March 28, 2014 and December 31, 2017, the exchange operated 1,730 accounts that processed 116,421 virtual currency-related transactions totaling roughly $263,451,600.13, in apparent violation of OFAC sanctions against Cuba, Ukraine, Iran, Sudan, and Syria. Specifically, due to alleged deficiencies in the exchange’s sanctions compliance procedures, the exchange failed to prevent persons located in the sanctioned jurisdictions from using its platform to engage in more than $263,000,000 worth of virtual currency-related transactions. OFAC claimed that while the IP addresses and physical address information collected on each customer at onboarding should have given the exchange reason to know that the persons were located in jurisdictions subject to sanctions, the exchange did not “screen customers or transactions for a nexus to sanctioned jurisdictions.” Rather, the exchange only screened transactions for hits against lists including OFAC’s List of Specially Designated Nationals and Blocked Persons. In arriving at the settlement amount of $24,280,829.20, OFAC considered various aggravating factors, including that the exchange did not exercise due caution or care for its sanctions compliance obligations and conveyed economic benefit to persons located in jurisdictions subject to OFAC sanctions, thus causing harm to the integrity of multiple sanctions programs. OFAC also considered various mitigating factors, including that the exchange provided substantial cooperation throughout the investigation, most of the transactions were for a relatively small amount and represented a small percentage when compared to the exchange’s annual volume of transactions, and the exchange has undertaken remedial measures intended to minimize the risk of recurrence of similar conduct.
FinCEN settlement. According to FinCEN’s press release, an investigation found that from February 2014 through December 2018, the exchange failed to maintain an effective AML program, resulting in its inability to appropriately address risks associated with its products and services, including anonymity-enhanced cryptocurrencies. The exchange also failed to effectively monitor transactions on its trading platform, and relied “on as few as two employees with minimal anti-money laundering training and experience to manually review all of the transactions for suspicious activity, which at times were over 20,000 per day.” FinCEN claimed that the exchange conducted more than 116,000 transactions valued at over $260 million with persons located in jurisdictions subject to OFAC sanctions, including those operating in Iran, Cuba, Sudan, Syria, and the Crimea region of Ukraine, and failed to file suspicious activity reports (SARs) between February 2014 and May 2017. The exchange also “failed to file SARs on a significant number of transactions involving sanctioned jurisdictions, including the processing of over 200 transactions that involved $140,000 worth of virtual assets—nearly 100 times larger than the average withdrawal or deposit on the Bittrex platform—and 22 transactions involving over $1 million worth of virtual assets,” FinCEN said in its announcement. Under the terms of the consent order, the exchange—which admitted to willfully violating the Bank Secrecy Act (BSA) and its implementing regulations—will pay a $29,280,829.20 civil money penalty. FinCEN stated it will credit the $24,280,829.20 the exchange has agreed to pay for the OFAC violations.
During remarks delivered at the Association of Certified Anti-Money Laundering Specialists, Under Secretary for Terrorism and Financial Intelligence Brian Nelson discussed, among other topics, Treasury’s efforts to counter illicit finance. Nelson highlighted the aforementioned settlements, stressing that failing to comply with BSA/AML requirements and SARs filing obligations “are not something that companies focused on growth can simply put off to a later day.” He also emphasized that Treasury will continue to strengthen ties with interagency partners and international counterparts to identify and pursue potential violations.
OFAC reports on licensing activities
On September 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced its Quarterly Reports of Licensing Activities pursuant to Section 906(b) of the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), covering activities undertaken by OFAC under Section 906(a)(1) of the TSRA from April 2019 through September 2021. According to OFAC, as required by TSRA-related regulations, OFAC processes license applications requesting authorization to export agricultural commodities, medicine, and medical devices to Iran and Sudan under the specific licensing regime set forth in Section 906 of the TSRA.
OFAC settles with banks for multiple sanctions violations
On September 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $720,258 settlement with an indirect subsidiary of a Switzerland-based bank for allegedly processing transactions in violation of the Cuba, Ukraine-related, Iran, Sudan, and Syria sanctions programs. According to OFAC’s web notice, from April 2013 to April 2016, the bank processed 273 transactions totaling approximately $3,076,180 on behalf of individuals residing in Cuba, Crimea, Iran, Sudan, and Syria. Specifically, OFAC noted that customers in sanctioned jurisdictions were able to continue to purchase and sell securities through the U.S. financial system and to receive related dividend and interest payments until the bank took further steps to prevent such payments.
In arriving at the settlement amount of $720,258, OFAC considered various aggravating factors, including that bank personnel “had reason to know they were processing transactions through the U.S. financial system for individual customers located in comprehensively sanctioned jurisdictions based on the underlying [know-your-customer (KYC)] data obtained by [the bank], which included address information indicating the customers’ location,” and “conferred approximately $3,076,180 in economic benefit to persons in Cuba, Crimea, Iran, Sudan, and Syria,” which caused harm to multiple sanctions programs' integrity. OFAC also considered various mitigating factors, including that the bank cooperated with OFAC throughout the investigation, and has undertaken remedial measures intended to minimize the risk of recurrence of similar conduct.
Separately, the same day OFAC announced a $401,039 settlement with a different indirect subsidiary of the Switzerland-based bank for allegedly processing transactions in violation of the Cuba, Ukraine-related, Iran, Sudan, and Syria sanctions programs. According to OFAC’s web notice, from December 2011 until July 2016, the bank processed 426 transactions totaling approximately $1,233,967 on behalf of individuals ordinarily resident in Cuba, Iran, and Syria.
In arriving at the settlement amount of $401,039, OFAC considered various aggravating factors, including that bank personnel “had reason to know they were processing transactions through the U.S. financial system for individual customers located in comprehensively sanctioned jurisdictions based on the underlying KYC data [the bank had] obtained,” and the bank “conferred approximately $1,233,967 in economic benefit to persons in Cuba, Iran, and Syria,” which caused harm to multiple sanctions programs' integrity. OFAC also considered various mitigating factors, including that the bank cooperated with OFAC throughout the investigation, and has undertaken remedial measures intended to minimize the risk of recurrence of similar conduct.
Agencies release risk advisory for businesses operating in Sudan
On May 23, the U.S. Departments of Treasury, State, Commerce, and Labor issued an advisory, Risks and Considerations for U.S. Businesses Operating in Sudan, highlighting growing risks to American businesses and individuals associated with conducting business with Sudanese State-Owned Enterprises. According to the advisory, the risks outlined come from recent actions undertaken by Sudan’s Sovereign Council and security forces under the military’s control and could adversely impact U.S. businesses, individuals, other persons, and their operations in the country and the region. The advisory also noted that the U.S. recently imposed sanctions on the Central Reserve Police (CRP) for serious human rights abuse under Executive Order 13818. As previously covered by InfoBytes, OFAC noted that, the “CRP has used excessive force against pro-democracy protesters peacefully demonstrating against the military-led overthrow of the civilian-led transitional government in Sudan.” As a result of the sanctions, all property and interests in property belonging to the sanctioned person subject to U.S. jurisdiction are blocked and must be reported to OFAC. OFAC also noted that its regulations generally prohibit all dealings by U.S. persons that involve any property or interests in property of designated persons.
OFAC announces human rights abuse sanctions
On March 21, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions pursuant to Executive Order 13818 against the Republic of the Sudan Central Reserve Police (CRP) for serious human rights abuse. According to OFAC, the “CRP has used excessive force against pro-democracy protesters peacefully demonstrating against the military-led overthrow of the civilian-led transitional government in Sudan.” As a result of the sanctions, all property and interests in property belonging to the sanctioned person subject to U.S. jurisdiction are blocked and must be reported to OFAC. OFAC also noted that its regulations generally prohibit all dealings by U.S. persons that involve any property or interests in property of designated persons.
UAE bank fined $100 million for Sudanese sanctions violations
On November 9, NYDFS announced that a United Arab Emirates bank will pay a $100 million penalty to resolve an investigation into payments it allegedly processed through financial institutions in the state, including one of the bank’s New York branches. These transactions, NYDFS stated, were in violation of Sudan-related U.S. sanctions. According to NYDFS’ investigation, the bank instructed employees to avoid including certain details in messages sent between banks that would have linked the transactions to Sudan. By concealing these details, the transactions bypassed other banks’ sanctions filters, which otherwise might have triggered alerts or transaction freezes, NYDFS said. As a result, between 2005 and 2009, the bank illegally processed more than $4 billion of payments tied to Sudan. Following an announcement in 2009 that a Swiss bank used by the bank to process these transactions was being investigated by the New York County District Attorney’s Office for violating economic sanctions rules, the bank closed all U.S. dollar accounts held by Sudanese banks, but failed to disclose the prohibited transactions to NYDFS as required until 2015. NYDFS asserted that “despite having ample notice of the prohibited nature of the Sudan-related [transactions] by 2009,” the bank’s New York branch processed an additional $2.5 million in Sudan-related payments. Under the terms of the consent order, the bank—which was previously cited by NYDFS for anti-money laundering and sanctions compliance deficiencies in a 2018 consent order that included a $40 million fine—is also required to provide a status report on its U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) compliance program, in addition to paying the $100 million penalty. NYDFS acknowledged the bank’s substantial cooperation and ongoing remedial efforts.
NYDFS coordinated its investigation with the Federal Reserve Board and OFAC, both of which announced separate settlements with the UAE bank the same day. The Fed’s announcement of its order to cease and desist cites the bank for having insufficient policies and procedures in place to ensure that activities involving branches outside the U.S. were in compliance with U.S. sanctions laws. Under the terms of the order, the bank is required, among other things, to implement an enhanced compliance program to ensure global compliance with U.S. sanctions, and must also conduct annual reviews, including a “risk-focused sampling” of its U.S. dollar payments, led by an independent external party. The order did not include any additional monetary penalties for the bank.
OFAC also issued a finding of violation (FOV) for violations of the now-repealed Sudanese Sanctions Regulations related to the bank’s actions. These violations included 1,760 transactions that involved USD transfers from Sudanese banks that were processed by the bank’s London branch and routed through U.S. banks. In determining that the appropriate administrative action was an FOV rather than a civil monetary penalty, OFAC stated the bank “voluntarily entered into a retroactive statute of limitations waiver agreement, without which OFAC would have been time-barred from charging the violations.” Because the payment messages did not include the originating Sudanese bank, U.S. correspondent banking partners “could not interdict the payments, and the payments were successfully processed through the U.S. financial system,” OFAC stated. However, OFAC credited the bank with providing substantial cooperation during the investigation, and noted that the bank had taken “extensive remediation” efforts before the investigation began in 2015, and has spent more than $122 million on compliance enhancements.
OFAC reaches multiple settlements with companies that exported goods to Russia and Sudan
On September 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a roughly $1.4 million settlement with a Texas-based supplier of goods and services for the oil and gas industries (a subsidiary of a Netherlands corporation) for allegedly approving contracts that allowed a foreign subsidiary to supply goods to a Russian energy firm blocked under Directive 4 of Executive Order (E.O.) 13662, “Blocking Property of Additional Persons Contributing to the Situation in Ukraine,” as implemented by the Ukraine-Related Sanctions Regulations. According to OFAC’s web notice, between July 2015 and November 2016, U.S.-senior managers at the company approved five contracts for its foreign subsidiary to supply oil and exploration goods to the blocked energy firm, thus constituting a “prohibited provision of services involving a person determined to be subject to Directive 4 ([the blocked energy firm]), its property, or its interests in property.”
In arriving at the settlement amount, OFAC considered various aggravating factors, including, among other things, that (i) U.S. senior managers knew that their approvals were for contracts to supply goods to a blocked entity; (ii) the company “acted directly contrary to U.S. foreign policy objectives by approving the sale of oil production or exploration equipment to an entity subject to the restrictions of Directive 4”; and (iii) the company should have recognized the risk involved when the contracts were approved.
OFAC also considered various mitigating factors, including, among other things, that the company took meaningful corrective actions upon discovering the alleged violations to ensure sanctions compliance, and cooperated with OFAC’s investigation and entered into tolling agreements.
OFAC separately reached a $160,000 settlement with a subsidiary of a subsidiary of the same Netherlands corporation for its apparent violation of OFAC’s now-repealed Sudanese Sanctions Regulations. According to OFAC’s web notice, three of the subsidiary’s U.S. employees allegedly facilitated the sale and shipment of oilfield equipment intended for delivery to Sudan, which was, at the time of the transaction, an apparent violation.
OFAC reaches $2.3 million settlement with Chinese bank
On August 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a roughly $2.3 million settlement with a UK subsidiary of a Chinese financial institution for allegedly processing transactions in violation of the Sudanese Sanctions Regulations, “which prohibited the exportation, directly or indirectly, to Sudan of any goods, technology, or services from the United States.” According to OFAC’s web notice, between September 2014 and February 2016, the bank processed 111 commercial transactions totaling more than $40 million through U.S. correspondent banks on behalf of parties in Sudan. In conducting a lookback review to identify potential Sudan-related transactions, the bank identified two customers who processed transactions through the U.S. financial system. For both of these customers, the bank’s internal customer database did not reference Sudan in the name or address fields, and messages processed on behalf of these customers by the bank through U.S. banks also failed to include any references to Sudan.
In arriving at the settlement amount, OFAC considered various aggravating factors, including, among other things, that (i) the bank demonstrated reckless disregard for U.S. sanctions regulations by processing the transactions “despite having account and transactional information indicating the Sudanese connection to the accounts and in contravention of the bank’s existing policies and procedures”; (ii) certain bank personnel responsible for processing the transactions knew that the payments were related to entities in Sudan; (iii) the bank conferred economic benefit to a comprehensively sanctioned country; and (iv) the bank “is a commercially sophisticated financial institution that processes transactions internationally.”
OFAC also considered various mitigating factors, including, among other things, that the bank (i) has not received a penalty notice from OFAC in the preceding five years; (ii) self-identified the alleged violations, cooperated with OFAC’s investigation, conducted a lookback, and entered into a tolling agreement; and (iii) has undertaken remedial measures, including enhancing policies and procedures to improve compliance with U.S. sanctions when processing payments through the U.S.