InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OFAC targets companies for facilitating Iranian petroleum products
On March 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13382 against five United Arab Emirates-based companies for facilitating the Iranian regime’s petroleum and petrochemical sales, which helps to finance Iran’s Islamic Revolutionary Guard Corps-Qods Force. According to OFAC, the sanctions follow similar designations of key revenue sources (covered by InfoBytes here and here). As a result, all property and interests in property belonging to the identified entities subject to U.S. jurisdiction are blocked, and “U.S. persons are generally prohibited from transacting with them.” Moreover, OFAC warned that “foreign financial institutions that knowingly facilitate significant transactions for, or persons that provide material or certain other support to, the persons designated today risk exposure to sanctions that could sever their access to the U.S. financial system or block their property and interests in property under U.S. jurisdiction.”
Foreign financial institutions should conduct enhanced due diligence when facilitating humanitarian trade with Iran
On February 27, the U.S. Treasury Department announced the finalization of terms to the Swiss Humanitarian Trade Arrangement (SHTA) between the U.S. and Swiss governments in order to increase the transparency of humanitarian trade with Iran and help safeguard against “the Iranian regime’s diversion of humanitarian trade for malign purposes.” According to Treasury, “the SHTA presents a voluntary option for facilitating payment for exports of agricultural commodities, food, medicine, and medical devices to Iran in a manner that ensures the utmost transparency. Under the SHTA, participating financial institutions commit to conducting enhanced due diligence to ensure that humanitarian goods reach the people of Iran and are not misused by the Iranian regime.” Foreign governments and foreign financial institutions interested in establishing humanitarian mechanisms consistent with guidance published last October (covered by InfoBytes here) are instructed to reach out to Treasury’s Office of Foreign Assets Control (OFAC) for additional information or to request evaluation of a proposed framework. Foreign governments and financial institutions are also reminded to carefully consider the due diligence and reporting expectations outlined in the guidance.
In conjunction with the finalization of the SHTA, OFAC issued General License (GL) 8, titled “Authorizing Certain Humanitarian Trade Transactions Involving the Central bank of Iran,” as well as related FAQs. GL 8 authorizes certain transactions and activities otherwise prohibited under the Global Terrorism Sanctions Regulations or the Iranian Transactions and Sanctions Regulations.
FATF calls for countermeasures on Iran; discusses global AML/CFT deficiencies
On February 21, the U.S. Treasury Department released a public statement issued by the Financial Action Task Force (FATF) following the conclusion of its plenary meeting held February 19-21, calling on its members and urging all jurisdictions to impose countermeasures on Iran for failing to address deficiencies in its anti-money laundering/combating the financing of terrorism (AML/CFT) regime. FATF provided specific examples of countermeasures within The Interpretive Note to Recommendation 19, which include, among other things, (i) “[p]rohibiting financial institutions from establishing branches or representative offices in” Iran; (ii) “[l]imiting business relationships or financial transactions with” Iran; and (iii) “[r]equiring financial institutions to review, amend, or if necessary, terminate correspondent relationships with [Iranian] banks.” According to Treasury, the “countermeasures should be developed and implemented to protect the international financial system from the ongoing money laundering, terrorist financing, and proliferation financing . . . risks emanating from Iran.”
Treasury also discussed recent FATF guidance on digital identity for customer identification and verification. According to FATF, the guidance “explains how digital ID systems can meet FATF customer due diligence requirements and will assist governments and financial institutions worldwide when applying a risk-based approach to using digital ID systems.”
FATF’s public statement also discussed progress made by the U.S. to strengthen its AML/CFT system, including Treasury’s customer due diligence rulemaking and beneficial ownership requirements that took effect in 2018. According to Treasury, the U.S. is also one of the first countries to voluntarily submit to an assessment of its compliance with new FATF standards regarding virtual assets.
Finally, Treasury reported that FATF is calling “on all countries to apply countermeasures on North Korea due to the ongoing money laundering, terrorist financing, and weapons of mass destruction proliferation financing risks to the international financial system.” On the same day as its public statement, Treasury released an updated list of jurisdictions under increased monitoring that are actively working with FATF to address strategic AML/CFT deficiencies.
Iranian company employee charged in $115 million international bank fraud scheme
On January 31, the U.S. Attorney’s Office for the Southern District of New York announced charges against an employee (defendant) of an Iranian company for bank fraud, conspiracy to commit bank fraud, and for making false statements to federal agents regarding financial transactions made through U.S. banks to benefit Iranian entities and individuals. According to the indictment, an agreement between the Iranian government and the Venezuelan government resulted in a construction contract for housing units in Venezuela where an Iranian company would construct the units and be paid with money funneled through U.S. banks by a Venezuelan state-owned company subsidiary. The defendant was purportedly part of a committee formed to guide the project. In coordination with other individuals, the defendant allegedly directed money from the Venezuelan company to the Iranian company through bank accounts—set up to hide the transactions from U.S. banks—in Switzerland. The indictment charges that, among other things, the defendant “knowingly and willfully” conspired with others to commit bank fraud against an FDIC-insured institution by directing the Venezuelan company to route $115 million in payments for the Iranian company to the Swiss bank account through correspondent U.S. banks in New York. Additionally, when the defendant was interviewed by federal agents, he “knowingly and willfully” concealed the scheme and made materially false statements about his knowledge of the applicability of sanctions against Iran. The indictment seeks forfeiture of any proceeds or property obtained by the defendant in the course of the alleged offenses.
OFAC sanctions network for purchasing Iranian petroleum products
On January 23, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it took action against four petroleum products companies (network) designated pursuant to Executive Order (E.O.) 13846 for making payments to “an entity instrumental in Iran’s petroleum and petrochemical industries, which helps to finance Iran’s Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF) and its terrorist proxies.” The Iranian entity is on the List of Specially Designated Nationals and Blocked Persons and its property is blocked in conformance with E.O. 13599. According to OFAC, the network transferred payments to the Iranian entity for petroleum exports and “worked to conceal the Iranian origin of these products.” Among other things, these sanctions prohibit foreign financial institutions from “knowingly facilitat[ing] transactions for, or persons that provide material or certain other support to,” the designated petroleum products broker. See the new Iran-related designations here.
OFAC clarifies wind-down period for Iran transactions
On January 16, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the issuance of Iran-related Frequently Asked Question (FAQ) 816, which addresses the question, “Is there a wind-down period for Executive Order [(E.O.)] 13902?” (previously covered in InfoBytes here). According to the FAQ, individuals and entities involved in activities that qualify as sanctionable under E.O. 13902, which include activities dealing with the mining, construction, manufacturing and textiles industries in Iran, should wind down those transactions within 90 days after the E.O. was issued. OFAC stresses that new engagements entered into with the specified Iranian sectors on or after January 10 will not be considered wind-down activities. These new engagements may be sanctionable during the wind-down period, even if the new engagements commence prior to the end of the 90-day wind-down period, which expires on April 9.
Trump administration's Executive Order 13902 authorizes Iranian industry sanctions
On January 10, the Trump administration issued new sanctions intended to deny the Iranian government revenues from the export of key economic products that may be used to fund its nuclear program. Specifically, newly-issued Executive Order 13902 authorizes the Secretary of the Treasury, in conjunction with the Secretary of State, to impose asset blocking sanctions on any person determined to operate in the construction, mining, manufacturing or textile sectors of the Iranian economy, or any additional sector as they may jointly determine. Additionally, EO 13902 authorizes the imposition of certain sanctions on any person determined to have engaged in, or any foreign financial institution determined to have knowingly facilitated, a significant transaction involving one of the aforementioned sectors of the Iranian economy.
Representatives urge financial regulators to strengthen cyber infrastructures
On January 7, Representatives Emanuel Cleaver II (D-MO) and Gregory Meeks D-NY) sent a letter to nine federal financial regulators urging them to strengthen their financial infrastructures against possible cyber-attacks in the wake of recent threats against the U.S. from Iran and its allies following the killing of Iranian official Qasem Soleimani. The letter also requests that the regulators coordinate with law enforcement and regulated entities to increase information sharing surrounding cyber threats, and “communicate a strategy to further mitigate existing cyber vulnerabilities within [the U.S.] financial infrastructure by March.” The letter was sent to the Federal Reserve Board, Treasury Department, SEC, FDIC, CFPB, Federal Housing Finance Agency, Commodity Futures Trading Commission, National Credit Union Administration, and the OCC.
As previously covered by InfoBytes, NYDFS separately issued an Industry Letter on January 4 warning regulated entities about the “heightened risk” of cyber-attacks by hackers affiliated with the Iranian government. The letter provides recommendations for ensuring quick responses to any suspected cyber incidents, and reminds entities they must inform NYDFS “as promptly as possible but in no event later than 72 hours’ after a material cybersecurity event.”
NYDFS encourages regulated entities to prepare for cyber attacks
On January 4, NYDFS issued an Industry Letter warning regulated entities about the “heightened risk” of cyberattacks by hackers affiliated with the Iranian government following the killing of Iranian official Qasem Soleimani, and strongly encouraging entities to undertake preparations to ensure quick responses to any suspected cyber incidents. Specifically, NYDFS recommends that regulated entities (i) patch/remediate all vulnerabilities (especially publicly disclosed vulnerabilities); (ii) ensure employees are adequately able to handle phishing attacks; (iii) “fully implement multi-factor authentication”; (iv) “review and update disaster recovery plans”; (v) and quickly respond to further alerts from the government or other reliable sources, even outside regular business hours. The letter notes that NYDFS’ cyber regulation 23 NYCRR 500.17 (previously covered by InfoBytes here), requires regulated entities to notify NYDFS “‘as promptly as possible but in no event later than 72 hours’ after a material cybersecurity event.”
Aircraft maintenance company issued OFAC violation
On December 12, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) issued a Finding of Violation to a now dissolved Texas-based aircraft maintenance company for alleged violations of the Global Terrorism Sanctions Regulations (GTSR). According to OFAC, in 2016, the company negotiated and entered into a memorandum of understanding (MOU) for aircraft maintenance with an Iranian commercial airline that was on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List) for providing financial, material, and technological support to the Islamic Revolutionary Guard Corps-Qods Force. Although the company was aware that the airline was on the SDN list, and in fact, had made the MOU contingent upon the airline being removed from the list, they incorrectly believed that Iran General License I (GL I) allowed them to negotiate and enter into the contingent contract. The GL I, however, excluded transactions and dealings with anyone, including the airline, whose property is blocked pursuant to Executive Order 13224. In deciding to issue a Finding of Violation, OFAC considered as mitigating factors that the company had not been issued a penalty or a Finding of Violation in at least five years prior to the alleged violations and that the company was a small company with financial problems that led to its bankruptcy and dissolution. OFAC also considered a number of aggravating factors including that the airline was a “high-profile entity identified on the SDN List,” that the company knew that the airline was on the SDN list, and that the company “engaged in a reckless violation of the law” by negotiating and entering an MOU with the airline. According to OFAC, had it not dissolved, the company would have been subject to “a strong civil monetary penalty.”