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OFAC Amends Burmese Sanctions Regulations
On May 17, OFAC amended the Burmese Sanctions Regulations, 31 C.F.R. part 537 by adding a general license to authorize most transactions related to U.S. persons residing in Burma that are otherwise prohibited by the Regulations, including paying rent and purchasing goods and services for personal use. In addition, the amendments add general licenses to (i) extend indefinitely General License 20, which authorizes transactions “ordinarily incident to exports to or from Burma that are otherwise prohibited involving an individual or company that is designated or otherwise blocked by OFAC’s sanctions”; and (ii) support trade-related transactions by permitting certain transactions incident to the movement of goods within Burma. OFAC also updated an existing general license to authorize most banking services involving Innwa Bank and Myawaddy Bank (two currently designated financial institutions in Burma) and terminated sanctions on Myanma Economic Bank, Myanmar Foreign Trade Bank, and Myanma Investment and Commercial Bank, which, taken together, authorizes “most transactions involving all Burmese financial institutions.”
OFAC Updates Cuba-Related Frequently Asked Questions
On April 21, OFAC updated its list of frequently asked questions related to Cuba. The updated document includes eight new FAQs clarifying (i) that Section 515.584(d) of the Cuban Assets Control Regulations (CACR) permits authorized U-turn transactions to originate or terminate at foreign branches and subsidiaries of U.S. banking institutions; (ii) due diligence expectations for banks processing an authorized U-turn transaction from a sanctions compliance perspective; (iii) that the importation into the United States of goods previously exported to Cuba for servicing requires a specific license; (iv) requirements regarding the export and reexportation of mixed-origin goods to Cuba; (v) that persons subject to U.S. jurisdiction may provide insurance-related services to persons subject to U.S. jurisdiction and engaging in authorized activity in Cuba; (vi) OFAC license requirements for insurance-related services; (vii) that educational grants, scholarships, or awards may be given to a Cuban state-owned entity; and (viii) the circumstances under which a person subject to U.S. jurisdiction is authorized to purchase or lease real property in Cuba.
OFAC Issues Hizballah Financial Sanctions Regulations
On April 15, OFAC issued new regulations to implement the Hizballah International Financing Prevention Act of 2015. The regulations authorize the Secretary of the Treasury to prohibit U.S. financial institutions from opening or maintaining correspondent or payable through accounts, or to impose strict conditions on the opening or maintenance of such accounts, for foreign financial institutions determined to knowingly: (i) facilitate significant transactions for or on behalf of Hizballah or any person whose property or interests in property are blocked due to a connection with Hizballah; (ii) engage in money laundering to carry out such transactions; or (iii) facilitate or provide significant financial services in relation to transactions described in (i) and (ii). OFAC will publish the names of foreign financial institutions sanctioned under the Hizballah Financial Sanctions Regulations in the Federal Register, and include them in the Hizballah Financial Sanctions Regulations List, a new list maintained on OFAC’s website. The regulations took effect immediately upon issuance.
OFAC Issues Burundi Sanctions Regulations
On April 14, OFAC issued the Burundi Sanctions Regulations, 31 CFR part 554 to implement the November 22, 2015 Executive Order 13712, “Blocking the Property of Certain persons Contributing to the Situation in Burundi.” OFAC issued the regulations in abbreviated form to provide immediate guidance to the public. The regulations provide limited definitional and interpretive guidance, and contain a number of licenses permitting U.S. persons to engage in activities otherwise prohibited by Executive Order 13712, including, among others, providing legal services and emergency medical services to designated persons. Persons designated pursuant to Executive Order 13712, i.e., those whose property and interests in property are blocked, are published in the Federal Register and incorporated into OFAC’s List of Specially Designated Nationals and Blocked Persons with the identifier ‘[BURUNDI].’” OFAC intends to issue a more comprehensive set of regulations in the future, which may include additional interpretive and definitional guidance, as well as additional general licenses and statements of licensing policy.
Pakistani Bank Reaches Agreement with NYDFS to Enhance AML Compliance Controls
Recently, the Federal Reserve and NYDFS announced that a New York branch of a Pakistani bank agreed to strengthen its compliance with BSA/AML requirements and OFAC regulations. The NYDFS’s and the NY Federal Reserve Bank’s recent examination into the bank’s branch found deficiencies related to its risk management and compliance with BSA/AML and OFAC regulations. Pursuant the agreement, the bank must submit written plans to the NYDFS and the NY Federal Reserve Bank on its strategy to improve its BSA/AML/OFAC compliance and its suspicious activity reporting. In addition, the bank must submit quarterly progress reports to the aforementioned regulators.
The recently issued agreement comes after a similar agreement earlier this month in which a New York branch of a Korean bank agreed to enhance its BSA/AML/OFAC compliance.
President Expands North Korean Sanctions
On March 16, the President issued an Executive Order broadening sanctions in response to North Korea’s continuing pursuit of its nuclear and ballistic missile programs. The order blocks the Government of North Korea and the Workers’ Party of Korea; prohibits the exportation of goods, technology and services (including financial services) to North Korea from the United States; prohibits new investment in North Korea by U.S. persons; and establishes nine new criteria for designation as a blocked person. One provision authorizes the Secretary of the Treasury to identify sectors of the North Korean economy to target for asset blocking sanctions. Under this authority, Treasury Secretary Jacob J. Lew determined that persons in the transportation, mining, energy, or financial services sectors of North Korea can be targeted.
Simultaneously, OFAC designated 17 officials or organizations of the Government of North Korea as SDNs, meaning that all of these persons’ property or interests in property in the United States or the possession or control of a U.S. person are blocked. OFAC also identified 20 vessels as blocked.
Finally, OFAC issued nine general licenses permitting certain activities involving North Korea that would otherwise be prohibited by the new Executive Order. These general licenses authorize, among other activities, noncommercial, personal remittances on behalf of individuals normally resident in North Korea; third-country consular funds transfers and transactions related to intellectual property; and support of non-governmental organizations and telecommunications and mail.
OFAC Updates Cuban Assets Control Regulations
On March 15, OFAC issued a final rule updating the Cuban Assets Control Regulations (CACR), 31 C.F.R. Part 515. The amendments advance policy changes announced by the Obama administration in 2014 by further facilitating travel to Cuba for authorized purposes, expanding the range of authorized financial transactions, and authorizing business and physical presence in Cuba. Regarding financial transactions, the final rule (i) amends section 515.584(d) to authorize certain U-turn payments through the U.S. financial system; (ii) adds new section 515.584(g) to allow U.S. banking institutions to process U.S. dollar monetary instruments presented indirectly by Cuban financial institutions; and (iii) adds new section 515.584(h) to “authorize banking institutions to open and maintain accounts solely in the name of a Cuban national located in Cuba for the purposes only of receiving payments in the United States in connection with transactions authorized pursuant to or exempt from the prohibitions of this part and remitting such payments to Cuba.”
OFAC’s amendments to the CACR were published in the Federal Register on March 16, 2016 and are effective immediately. OFAC simultaneously released a revised set of FAQs and a fact sheet regarding the changes set forth in the CACR.
OFAC Issues Finding of Violation for Alleged Violations of the Reporting, Procedures, and Penalties Regulations
On March 16, OFAC issued a Finding of Violation to a New York-based international digital payments solutions and technology company for allegedly violating the Reporting, Procedures and Penalties Regulations (RPPR), 31 C.F.R. part 501. According to OFAC, the company failed to report that it held accounts – albeit dormant – in which two Iranian banks on OFAC’s SDN List had an interest. OFAC asserted that, while no company personnel appeared to have knowledge of the conduct that led to the violations, the company had reason to know that it maintained funds associated with the sanctioned Iranian banks because it is “a large and commercially sophisticated company that deals primarily with banks and other financial institutions.” OFAC also noted that the company’s failure to report the accounts resulted in OFAC’s reports to Congress being incomplete, that the failure to record interest on the accounts reduced the value of the blocked accounts, and that the company apparently did not have internal controls sufficient to prevent or identify the violations. On the other hand, OFAC acknowledged that there was no actual knowledge of the violations or a history of similar violations, that the funds did not reach the sanctioned parties, and that the company eventually disclosed the issue and then fully cooperated with the investigation.
OFAC Announces Settlement with London-Based Financial Institution for Alleged Violations of the Zimbabwe Sanctions Regulations
On February 8, OFAC settled with a London-based financial institution for alleged violations of the Zimbabwe Sanctions Regulations, 31 C.F.R. part 541 (ZSR). The financial institution agreed to pay $2,485,890 for processing 159 transactions to or through financial institutions located in the United States for or on behalf of corporate customers of the financial institution’s Zimbabwean subsidiary that were owned, directly or indirectly, 50% or more by a customer identified on OFAC’s SDN List. According to OFAC, the financial institution relied on the subsidiary’s electronic customer records and documentation to perform cross-border transactions screenings and sanctions-related customer screening. Due to deficiencies in the subsidiary’s electronic customer system and its “Know Your Customer” procedures, neither the financial institution nor its subsidiary detected certain customers as blocked persons – under Executive Order 13469 of July 25, 2008 – on the SDN List and “continued to process [U.S. Dollar] transactions for or on their behalf to or through the United States in apparent violation of the ZSR.” OFAC determined that the company did not voluntarily self-disclose the apparent violations, and that the apparent violations constitute a non-egregious case. In determining the settlement amount, OFAC found the following to be mitigating factors: (i) the financial institution had not received a penalty notice or Finding of Violation in five years preceding the earliest date of the transactions giving rise to the apparent violations; (ii) the financial institution took remedial action in response to the apparent violations; and (iii) the financial institution substantially cooperated with OFAC’s investigation. In addition, OFAC “considered the fact that the prohibited entities were not publicly identified or designated and included on the SDN List at the time that Barclays processed transactions for or on their behalf.”
OFAC Issues Finding of Violation for Alleged Violations of Sudanese Sanctions Regulations
On February 4, OFAC announced that a subsidiary of a New Jersey-based manufacturer violated the Sudanese Sanctions Regulations, for a period of 7 months in 2010, by facilitating the exportation of goods to Sudan by coordinating and supervising shipments of goods from an Egyptian branch of the company to Khartoum, Sudan. Pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, OFAC issued a Finding of Violation to the subsidiary based in part on the following “aggravating” factors: (i) acting with reckless disregard for U.S. sanctions requirements by making exports to Sudan when it knew it may be subject to restrictions under U.S. sanctions; (ii) failing to properly take into consideration the implications of OFAC regulations – even though it is part of a corporation with experience in international trade – when it restructured its consumer business and placed a U.S. company in charge of sales to Sudan; and (iii) failing to include in its compliance program training on OFAC regulations for its General Manager, who was responsible for sales to Sudan. OFAC also determined that the subsidiary’s General Manager for Emerging Markets in the Middle East and North Africa was not only aware of but also involved in conduct giving rise to the violations. OFAC issued a Finding of Violation in lieu of a civil money penalty, after considering various mitigating factors, including the subsidiary’s effort to take remedial action, such as implementing additional compliance training and conducting an internal investigation of the violations, the absence of a prior OFAC sanctions history and its cooperation with OFAC’s investigation.