Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On October 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13848 against five Iranian entities for allegedly attempting to influence the U.S. electoral process. According to OFAC, these designations are intended to “counter efforts” from foreign actors that “spread disinformation online and execut[e] malign influence operations aimed at misleading U.S. voters.” Three of the entities, including the Islamic Revolutionary Guard Corps (IRGC) and the IRGC-Qods Force (IRGC-QF), are designated “for having directly or indirectly engaged in, sponsored, concealed, or otherwise been complicit in foreign interference in the 2020 U.S. presidential election.” Two other entities are designated for being owned or controlled by the IRGC-QF, which, along with the IRGC, has been designated under a number of authorities since 2007. As a result, all property and interests in property belonging to, or owned by, the designated persons subject to U.S. jurisdiction are blocked, and “any entities 50 percent or more owned by one or more designated persons are also blocked.”
The same day, OFAC also sanctioned an IRGC-QF general pursuant to E.O. 13224 for allegedly “exploit[ing] his position as the Iranian regime’s ambassador in Iraq to obfuscate financial transfers conducted for the benefit of the IRGC-QF.” According to OFAC, the designated individual, among other things, allegedly facilitated financial transfers benefiting the IRGC-QF, and helped “IRGC-QF obtain foreign currency in Iraq, in return for equivalent sums that the IRGC-QF in Iran has transferred to relevant entities.”
As a result of OFAC’s recent actions, all property and interests in property belonging to, or owned by, the designated persons subject to U.S. jurisdiction are blocked. U.S. persons are also “generally prohibited from engaging in transactions” with the designated individuals. OFAC further warned foreign financial institutions that knowingly facilitating significant transactions or providing significant support to the designated entities may subject them to sanctions and could terminate access to the U.S. financial system.
On October 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13224 against two members of Hizballah’s Central Council, which supports Hizballah’s activities by identifying and electing council members that assert control over policies and military initiatives. As a result of the sanctions, all property and interests in property of the individuals, “and of any entities that are owned, directly or indirectly, 50 percent or more by them, individually, or with other blocked persons, that are in the United States or in the possession or control of U.S. persons, are blocked and must be reported to OFAC.” OFAC noted that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated individuals, including “the making of any contribution of funds, goods, or services by, to, or for the benefit of any blocked person or the receipt of any contribution of funds, goods or services from any such person.” OFAC further warned that engaging in certain transactions with the designated individuals subjects persons to the risk of secondary sanctions pursuant to E.O. 13224 and the Hizballah Financial Sanctions Regulations, which implement the Hizballah International Financing Prevention Act of 2015. Furthermore, OFAC noted that it has the authority to “prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account by a foreign financial institution that knowingly facilitates a significant transaction for Hizballah or on behalf of a designated terrorist group, or a person acting on behalf of or at the direction of, or owned or controlled by, Hizballah.”
On October 15, the Financial Crimes Enforcement Network (FinCEN) issued Advisory FIN-2020-A008 outlining new financial and behavioral indicators, as well as updated typologies, to help financial institutions identify human trafficking. The advisory highlights four specific typologies human traffickers may use to evade detection and launder illicit proceeds: (i) front companies that may appear to have legitimate registrations and licenses; (ii) exploitative employment practices; (iii) funnel accounts used to transfer funds between geographic areas, often in amounts below the cash reporting threshold; and (iv) alternative payment methods, including payments by “credit cards, prepaid cards, mobile payment applications, and convertible virtual currency.” The advisory includes examples for financial institutions to monitor, such as multiple employees receiving salaries in the same account, or payments that are immediately withdrawn or transferred into another account. FinCEN also notes that human traffickers use third-party payment processors to wire funds in order to conceal the true originator or beneficiary. While the advisory includes a specific list of red flag indicators, FinCEN warns financial institutions to consider additional behaviors, both behavioral indicators and financial indicators when determining whether a transaction may be associated with human trafficking. Financial institutions reporting human trafficking in a suspicious activity report should reference the advisory in the appropriate fields to indicate a connection between the activities involved in the SAR and those described in the advisory.
On October 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated an al-Qa’ida facilitator based in Australia and the company he owns for “having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of” the terrorist organization, pursuant to Executive Order 13224. Specifically, OFAC alleges that the individual and his company are involved in gemstone dealings, which provide the ability to move funds internationally for the benefit of al-Qa’ida. As a result of the sanctions, all property and interests in property of the designated persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. OFAC further warned foreign financial institutions that knowingly facilitating significant transactions or providing significant financial services to the designated person or entity may subject them to U.S. correspondent account or payable-through sanctions.
OFAC reaches $4.1 million settlement with holding company to resolve Iranian Transactions and Sanctions Regulations violations
On October 20, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a more than $4.1 million settlement with a Nebraska-based multinational conglomerate holding company to resolve 144 apparent violations of the Iranian Transactions and Sanctions Regulations engaged in by its indirectly wholly owned Turkish subsidiary. According to OFAC’s web notice, the Turkish subsidiary, in violation of the company’s compliance policies, allegedly sold goods to two third-party Turkish distributors knowing that the goods “would be shipped to a distributor in Iran for resale to Iranian end-users, including several entities later identified as meeting the definition of the Government of Iran.” The Turkish subsidiary also purchased goods manufactured by other company subsidiaries, and allegedly took measures “to obfuscate its dealings with Iran” and conceal these activities from the company. Employees of certain other company subsidiaries also allegedly received communications revealing that these orders may have been intended for Iranian end users; however only one of these subsidiaries warned the Turkish subsidiary that such transactions were prohibited.
In arriving at the settlement amount, OFAC considered various aggravating factors, including that (i) the Turkish subsidiary’s management “willfully engaged” in prohibited transactions, and certain senior management “intentionally concealed its dealings with Iran”; (ii) certain company subsidiaries had knowledge, or reason to know, that some of the products sent to the Turkish subsidiary were intended for Iran; and (iii) the Turkish subsidiary “demonstrated a pattern of conduct by knowingly engaging in prohibited dealings for approximately three years.”
OFAC also considered various mitigating factors, such as (i) the company voluntarily self-disclosed the apparent violations, and cooperated with the investigation; (ii) the company and its subsidiaries and affiliates signed a tolling agreement; and (iii) the company has undertaken remedial measures, including enhancing its compliance procedures for foreign subsidiaries, to minimize the risk of similar violations from occurring in the future.
Global financial institution pays $2.9 billion to settle Malaysian FCPA conspiracy and bribery charges
On October 22, the DOJ announced that it entered into a deferred prosecution agreement with a global financial institution headquartered in New York (the company), in which the company agreed to pay a criminal fine of over $2.9 billion related to violations of the FCPA’s anti-bribery provisions. The company’s Malaysian subsidiary also pleaded guilty to one count of conspiracy to violate the anti-bribery provisions of the FCPA.
According to the DOJ, between 2009 and 2014, the company participated in a scheme to pay over $1.6 billion in bribes, directly and indirectly, to Malaysian and Abu Dhabi officials to obtain business, including a role in underwriting approximately $6.5 billion in three bond deals for a Malaysian sovereign wealth fund regarding energy development (previous InfoBytes coverage on the charges available here). The DOJ stated that the company admitted to engaging in the scheme through certain employees and agents, including (i) the company’s former Southeast Asia Chairman and managing director, who pleaded guilty in 2018 to conspiring to launder money and to violate the FCPA (covered by InfoBytes here); (ii) a former managing director and head of investment banking for the company’s Malaysian subsidiary, who was charged and subsequently extradited to the U.S. in 2019 and is scheduled to stand trial in March 2021 for conspiring to launder money and to violate the FCPA (covered by InfoBytes here); and (iii) a former executive who held leadership positions in Asia. The company admitted that their former employees and agents conspired with a Malaysian financier (who was indicted in 2018, covered by InfoBytes here) to bribe officials involved in the strategic development initiative by using funds diverted and misappropriated from bond offerings underwritten by the company. The employees and financer also retained a portion of the diverted funds for themselves. The company admitted that it did not take significant steps to ensure the Malaysian financier was not involved in the bond transactions even though they were aware his involvement posed “significant risk,” and the company ignored or nominally addressed the “significant red flags” raised during the due diligence process. The company received approximately $606 million in fees and revenue as a result of the scheme.
The company’s $2.9 billion criminal penalty and disgorgement includes $1.6 billion in payments with respect to separate resolutions with foreign authorities in the United Kingdom, Singapore, Malaysia, and other domestic authorities in the U.S., including $154 million to the Federal Reserve, over $400 million to the SEC, and $150 million to the New York Department of Financial Services.
On October 14, the DOJ announced it had entered into a plea agreement with a Brazil-based investment company that owns companies primarily involved in the meat and agricultural business, in which the company agreed to pay a criminal penalty of over $256 million related to violations of the FCPA’s anti-bribery provisions. According to the DOJ, between 2005 and 2017, to execute the bribery scheme in Brazil, the company “conspired with others to violate the FCPA by paying bribes to Brazilian government officials in order to ensure that Brazilian state-owned and state-controlled banks would enter into debt and equity financing transactions with [the company and company]-owned entities, as well as to obtain approval for a merger from a Brazilian state-owned and state-controlled pension fund.” Specifically, between 2005 and 2014, the company paid or promised more than $148 million in bribes to high-level Brazilian government officials, in exchange for receiving hundreds of millions of dollars in financing from a Brazilian state-owned and state-controlled bank. In another instance, the company paid more than $4.6 million in bribes to a high-ranking executive of a Brazilian state-controlled pension fund in exchange for the fund’s approval of a significant merger that benefited the company. The company also paid approximately $25 million in bribes to a high-level Brazilian government official in order to obtain hundreds of millions of dollars of financing from a different Brazilian state-owned and state-controlled bank. Company executives also “used New York-based bank accounts to facilitate the bribery scheme and to make corrupt payments, purchased and transferred a Manhattan apartment as a bribe, and met in the United States to discuss and further aspects of the illegal scheme.”
The announcement noted that the company did not voluntarily disclose the violations but still received partial credit and a 10 percent reduction off the U.S. Sentencing Guidelines fine range for its remediation and cooperation with the DOJ’s investigation. Under the terms of the plea agreement, the company will pay the U.S. approximately $128.2 million of the $256 million criminal penalty. The remaining portion will be offset by $128.2 million in penalties the company will pay pursuant to a resolution with the Brazilian authorities. The company also agreed to continue to cooperate with the DOJ in any ongoing or future criminal investigations, and will enhance its compliance program, and report on the implementation of its enhanced compliance program for a three-year period.
The SEC simultaneously announced a resolution in a related matter with the company, along with a majority-owned subsidiary and two Brazilian nationals who own the company and the subsidiary. According to the SEC, the Brazilian nationals engaged in a bribery scheme to facilitate the subsidiary’s acquisition of a U.S. food corporation. The SEC charged the two companies and individuals with violations of the books and records and internal accounting provisions of the FCPA. Under the terms of the cease and desist order, the subsidiary must pay approximately $27 million in disgorgement and the two Brazilian nationals are required to each pay civil penalties of $550,000. All parties also agreed to self-report on the status of certain remedial measures for a three-year period.
On October 9, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13851 against a Nicaraguan financial institution, as well as two government officials for supporting the Ortega regime, which “continue[s] to undermine Nicaragua’s democracy.” According to OFAC, the financial institution served as a tool for Ortega to “siphon money from  $2.4 billion in oil trusts and credit portfolios…in order to remain in power and pay a network of patronage.” As a result, all property and interests in property of the sanctioned individuals and entities, and any entities owned 50 percent or more by such persons subject to U.S. jurisdiction, are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from entering into transactions with the sanctioned persons.
On October 8, the U.S. Treasury Department announced that the Secretary of the Treasury, in consultation with the Secretary of State, sanctioned 18 major Iranian banks, consistent with E.O. 13902, which identified Iran’s financial sector “as an additional avenue that funds the Iranian government’s malign activities.” E.O. 13902 provides Treasury with the authority to sanction any Iranian financial institution. The sanctioned banks include 16 banks operating in Iran’s financial sector and one bank that is owned or controlled by a sanctioned Iranian bank. In addition, OFAC sanctioned an Iranian military-affiliated bank under Treasury’s counter-proliferation authority pursuant to E.O. 13382. “Today’s action to identify the financial sector and sanction eighteen major Iranian banks reflects our commitment to stop illicit access to U.S. dollars,” Treasury Secretary Steven T. Mnuchin stated. OFAC noted that the sanctions under E.O. 13902 do not affect existing authorizations and exceptions for humanitarian trade (covered by a Buckley Special Alert), “which remain in full force and effect for these seventeen banks.”
As a result, all property and interests in property of the designated entities that are in the U.S. or in the possession or control of U.S. persons must be blocked and reported to OFAC. U.S. persons are also generally prohibited from engaging in transactions with the designated entities. OFAC is providing a 45-day period for non-U.S. persons to wind down non-humanitarian transactions that may become subject to sanctions as a result of the designations. OFAC further warned that “financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities after a 45-day wind-down period may expose themselves to secondary sanctions or be subject to an enforcement action.”
Concurrent with the action, OFAC issued General License L, which outlines transactions and activities involving the sanctioned entities “that are authorized, exempt, or otherwise not prohibited under the Iranian Transactions and Sanctions Regulations.” Additional guidance is also provided in recently issued FAQs.
On October 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a more than $5.8 million settlement with a New York-incorporated travel assistance services company to resolve 2,593 apparent violations of the Cuban Assets Control Regulations (CACR). According to OFAC’s web notice, from roughly June 2010 to January 2015, the company formally codified an indirect payment process in its procedures manual, in which it “intentionally referred” Cuba-related payments to a Canadian affiliate to avoid “processing reimbursement payments directly to Cuban parties and to travelers while they were located in Cuba.” Reimbursements were then sent from the company to the Canadian affiliate for those payments. While the company had a sanctions compliance policy during the time of the apparent violations to screen for individuals or entities on OFAC’s List of Specially Designated Nationals and Blocked Persons, it allegedly failed to comply with screening requirements for countries and regions subject to OFAC prohibitions.
In arriving at the settlement amount, OFAC considered various aggravating factors, including that the company (i) knew it was illegal to make direct payments to Cuban service providers and therefore formalized the aforementioned referral process; (ii) provided “prohibited post-travel claim reimbursements directly to unauthorized Canadian subscribers who travelled to Cuba”; and (iii) knew of the conduct at issue because the indirect payment process was codified and approved by its CEO.
OFAC also considered various mitigating factors, including that (i) the CACR was later amended to authorize some of the apparent violations; (ii) the company enhanced its sanctions compliance program by, among other things, implementing a formal structure for compliance personnel and conducting sanctions training for all employees; (iii) the company voluntarily disclosed the violations and signed a tolling agreement, including multiple extensions; and (iv) the company terminated the conduct leading to the apparent violations and has undertaken remedial measures to minimize the risk of similar violations from occurring in the future.
- Thomas A. Sporkin to discuss "Managing internal investigations and advanced government defense" at the Securities Enforcement Forum
- Jeffrey P. Naimon to discuss "2021 - A new beginning/what's to come" at the QuestSoft Lending Compliance & Risk Management Virtual Conference
- H Joshua Kotin to discuss "Mortgage servicing in a recession: Early intervention, loss mitigation and more" at the NAFCU Virtual Regulatory Compliance Seminar
- Daniel R. Alonso to discuss "Independent monitoring in the United States" at the World Compliance Association Peru Chapter IV International Conference on Compliance and the Fight Against Corruption
- Jonice Gray Tucker to discuss "Cyber security, incident response, crisis management" at the Legal & Diversity Summit
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Pandemic fallout – Navigating practical operational challenges" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "BSA/AML - Covid impact and regulatory/guidance roundup" at an NAFCU webinar