Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On August 21, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and Treasury’s Financial Crimes Enforcement Network (FinCEN) announced coordinated actions related to the manufacturing, selling, or distribution of synthetic opioids or their precursor chemicals. OFAC identified two Chinese nationals, a trafficking organization, and a related entity as “significant foreign narcotics traffickers” pursuant to the Foreign Narcotics Kingpin Designation Act, for running “an international drug trafficking operation that manufactures and sells lethal narcotics, directly contributing to the crisis of opioid addiction, overdoses, and death in the United States.” OFAC notes that, in August 2018, the U.S. Attorney’s Office for the Northern District of Ohio unsealed an indictment, which charged one of the Chinese nationals and his father with operating a conspiracy that allegedly manufactured and shipped deadly fentanyl analogues, cathinones, and cannabinoids to at least 37 U.S. states. Additionally, in September 2017, the U.S. Attorney’s Office for the Southern District of Mississippi indicted another significant foreign narcotics trafficker on two counts of conspiracy to manufacture and distribute multiple controlled substances, including fentanyl, and seven counts of manufacturing and distributing the drugs in specific instances. As a result of the sanctions designation, “all property and interests in property of these individuals and entities that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.”
Additionally, FinCEN released an advisory alerting financial institutions to financial schemes related to the trafficking of fentanyl and other synthetic opioids. The advisory provides detailed explanations of the funding mechanisms associated with fentanyl trafficking patterns, including (i) purchases from a foreign source of supply made using money services businesses (MSBs), bank transfers, or online payment processors; (ii) purchases from a foreign source of supply made using convertible virtual currency (CVC); (iii) purchases from a U.S. source of supply made using a MSB, online payment processor, CVC, or person-to-person sales; and (iv) more general money laundering mechanisms associated with procurement and distribution. The advisory also provides a list of red flags financial institutions should be aware of that may assist in identifying suspected schemes related to illicit fentanyl trafficking. Lastly, the advisory reminds financial institutions of their regulatory obligations to combat illicit financing and anti-money laundering, such as due diligence obligations, customer identification, and suspicious activity reporting.
On August 16, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $345,315 settlement with a Maryland-based trade credit insurer for two alleged violations of the Foreign Narcotics Kingpin Sanctions Regulations. The settlement resolves potential civil liability for the company’s receipt of payment from the liquidation of assets belonging to a company that was added to the List of Specially Designated Nationals and Blocked Persons in 2016. According to OFAC, by accepting the assignment to collect debt owed by the designated company and receiving payment, the company violated sanctions regulations.
In arriving at the settlement amount, OFAC considered various mitigating factors, including (i) the company has not received a penalty or finding of a violation in the five years preceding the transactions at issue; (ii) the company voluntarily conducted a full internal review, cooperated with OFAC during the investigation, and undertook remedial efforts to minimize the risk of similar violations from occurring in the future; and (iii) the company agreed to implement certain compliance commitments to ensure the strength of its sanctions compliance program.
OFAC also considered various aggravating factors, including that the company did not voluntarily self-disclose the issue to OFAC and the company failed to undertake measures to confirm the assignment of debt and acceptance of payment was permitted under existing authorizations.
On August 13, Financial Crimes Enforcement Network (FinCEN) Director Kenneth Blanco delivered remarks at the 12th Annual Las Vegas Anti-Money Laundering Conference stressing the need for compliance within the gaming industry, particularly as new technologies emerge such as mobile gaming and the use of convertible virtual currencies (CVC) increases. With the U.S. Supreme Court issuing a decision in May holding that states can legalize sports gambling (previously covered by InfoBytes here), Blanco stated that casinos need to consider ways to integrate their sports betting programs—including mobile sports betting apps—into their existing anti-money laundering programs. These measures must include establishing and implementing procedures for detecting and reporting suspicious activities, Blanco noted, reminding the audience of FinCEN’s FAQs designed to assist financial institutions when reporting cyber indicators and cyber-enabled financial crime.
Blanco also discussed FinCEN’s work with respect to cybersecurity and virtual payments, noting, among other things, that both online and physical casinos that accept CVC need to consider how they review transactions to determine the source of the currency and recognize indicators of suspicious activity. Blanco referred casinos to consolidated guidance issued by FinCEN in May (previously covered by InfoBytes here), and expressed a concern that “CVC-related SAR filings by casinos have not been as robust as expected since the May CVC guidance and advisory were published.” He further stressed the importance of information-sharing between casinos, and highlighted that sharing SARs can contribute to the identification of suspicious transactions as well as Bank Secrecy Act compliance responsibilities.
On August 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that the “Iranian Human Rights Sanctions Regulations” has been renamed as the “Iranian Sector and Human Rights Abuses Sanctions Regulations.” The amended sanctions regulations implement Executive Order (E.O.) 13871 (previously covered by InfoBytes here), which authorizes the imposition of sanctions on persons determined to operate in Iran’s iron, steel, aluminum, and copper sectors. OFAC concurrently amended and published several new FAQs, including a discussion of the relevant 90-day wind-down period for affected transactions as well as sanction exceptions. The amendments take effect August 7.
Visit here for additional InfoBytes coverage of actions related to Iran.
On August 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a roughly $1.7 million settlement with a Washington-based truck manufacturer for 63 alleged violations of the Iranian Transactions and Sanctions Regulations. The settlement resolves potential civil liability for actions taken by a wholly-owned subsidiary of the company that allegedly sold or supplied trucks with a total transactional value of over $5.4 million to European customers, but knew or had reason to know the trucks were ultimately intended for buyers in Iran.
In arriving at the settlement amount, OFAC considered various mitigating factors, including that (i) neither the company nor the subsidiary have received a penalty or finding of a violation in the five years prior to the transactions at issue; (ii) the subsidiary had in place at the time of the alleged violations a trade sanctions compliance program with contractual prohibitions on dealers and service partners that were re-selling products in violation of U.S. trade sanctions; and (iii) the company and subsidiary voluntarily self-disclosed the issue to OFAC, cooperated with OFAC during the investigation, and undertook remedial efforts to minimize the risk of similar violations from occurring in the future.
OFAC also considered various aggravating factors, including that the subsidiary failed to exercise caution when alerted to warning signs regarding the potential sales, and that in each instance, a subsidiary employee was aware of the conduct leading to the alleged violations.
Visit here for additional InfoBytes coverage of actions related to Iran.
On August 5, President Trump issued Executive Order (E.O.) 13884 titled “Blocking Property of the Government of Venezuela,” which, among other things, prevents all property and interest in property of the Government of Venezuela existing within the U.S. or in the possession of a U.S. person from being transferred, paid, exported, withdrawn, or otherwise dealt in. E.O. 13884 is being issued in light of the actions of the Maduro regime, “as well as human rights abuses, including arbitrary or unlawful arrest and detention of Venezuelan citizens, interference with freedom of expression, including for members of the media, and ongoing attempts to undermine Interim President Juan Guaido and the Venezuelan National Assembly's exercise of legitimate authority in Venezuela.”
In connection with the issuance of the E.O, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued new and revised FAQs, as well as 12 amended general licenses (General Licenses 2A, 3F, 4C, 7C, 8C, 9E, 10A, 13C, 15B, 16B, 18A, 20A) and 13 new general licenses (General Licenses 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33) related to Venezuela.
Additionally, OFAC issued new guidance highlighting the U.S. government’s “commitment to the unfettered flow of humanitarian aid to the Venezuelan people.” OFAC notes that its regulations and general licenses allow U.S. persons to continue to provide humanitarian support to the Venezuelan people, including via transactions through the U.S. financial system for authorized activities. OFAC sanctions do not prohibit transactions involving the country or people of Venezuela, provided blocked persons or proscribed conduct are not involved.
For continuing InfoBytes coverage on Venezuela, including more information on blocked persons or actions, click here.
President Trump authorizes new sanctions on Russian sovereign debt; OFAC imposes prohibition on certain U.S. bank loans
On August 1, President Trump issued Executive Order (E.O.) 13883 titled “Administration of Proliferation Sanctions and Amendment of Executive Order 12851,” which authorizes sanctions on new issuances of Russian sovereign debt and directs the U.S. government to attempt to cut off international financing and forbids U.S. bank loans to governments subject to U.S. sanctions for using chemical or nuclear weapons. Among other things, E.O. 13883 allows the Secretary of the Treasury, in consultation with the Secretary of Defense, the authorization to (i) “oppose. . .the extension of any loan or financial or technical assistance to [a sanctioned] country by international financial institutions”; and (ii) “prohibit any U.S. bank from making any loan or providing any credit to the government of [a sanctioned] country, except for loans or credits for the purpose of purchasing food or other agricultural commodities or products.”
Following the issuance of E.O. 13883, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions on August 3 against the Russian Federation, which will “impos[e] a prohibition related to certain U.S. bank loans and will oppose multilateral development bank assistance to the Russian Federation.” According to OFAC, the sanctions are issued in response to Russia’s use of the “Novichok” nerve agent in the U.K. in March 2018. In order to implement the sanctions related to U.S. bank loans, OFAC issued the CBW Act Directive on August 2—scheduled to take effect August 26 following a required Congressional notification period—which “prohibits U.S. banks from participating in the primary market for non-ruble denominated bonds issued by the Russian sovereign and also prohibits U.S. banks from lending non-ruble denominated funds to the Russian sovereign.” OFAC also released a set of FAQs to provide guidance on the CBW Act Directive, including a discussion of actions undertaken by the U.S. government as well as OFAC’s measures for implementing sanctions related to U.S. bank loans.
For continuing InfoBytes coverage on Russia click here.
On July 31, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), pursuant to Executive Order (E.O.) 13876, designated Iran’s foreign minister for allegedly acting on behalf of, directly or indirectly, the Supreme Leader of the Islamic Republic of Iran. As previously covered by InfoBytes, in June, the President issued E.O. 13876, which, among other things, authorizes the Secretaries of the Treasury and State Departments to impose sanctions on a foreign financial institution if it is determined the institution has knowingly conducted or facilitated any significant financial transactions for or on behalf of a blocked person. OFAC noted that additional information also indicated the Iranian foreign minister had coordinated with the IRGC-Qods Force, which is designated pursuant to terrorism and human rights authorities.
As a result of the sanctions designation, “all property and interests in property of these targets that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” OFAC noted that persons who engage in transactions with designated individuals and entities may expose themselves to sanctions or be subject to enforcement action.
On July 31, Department of Treasury Under Secretary for Terrorism and Financial Intelligence (TFI) Sigal Mandelker delivered remarks at the Center for Strategic and International Studies in Washington, D.C. to discuss the use of sanctions in combating critical national security and illicit financial threats. After summarizing several achievements related to the exposure and disruption of global financial schemes, Mandelker discussed TFI’s collaboration with other Treasury agencies, such as the Office of Foreign Assets Control, the Financial Crimes Enforcement Network, the Office of Intelligence and Analysis, and the Office of Terrorist Financing and Financial Crimes, to create an organizational structure that “integrates unparalleled insight into the financing of emerging global threats with powerful economic authorities to counter them.” Mandelker noted that while sanctions can be very powerful tools to cut off both financial and material support to terrorist groups and regimes, a broader strategic approach is necessary, including, among other things, anti-money laundering measures, enforcement actions, foreign engagement, intelligence and analysis, and private-sector partnerships. She noted that one method employed by the agencies to maximize their impact in combating illicit financial threats is through the use of network sanctions, which recognize that “bad actors” rarely act alone, and instead frequently rely upon complicated structures using shell companies, business partners, and facilitators to disguise activities and launder money. “When we focus on these broader networks and their assets, we can more effectively block a bad actor’s ability to access their ill-gotten gains, making it more difficult for them to use the global marketplace or continue in their business arrangements,” Mandelker stated. Mandelker further commented that in 2019 alone, Treasury has “issued nearly $1.3 billion in civil monetary penalties and settlements for financial institutions and corporate actors related to violations of our sanctions programs.”
OFAC sanctions corruption network linked to Venezuela’s food subsidy program; DOJ charges two of same individuals for money laundering related to bribery
On July 25, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against two Colombian nationals responsible for “orchestrating a vast corruption network,” which has enabled former President Maduro and his regime “to significantly profit from food imports and distribution in Venezuela.” According to OFAC, the Colombian nationals created a network comprised of shell companies, business partners, and family members—all of whom have also been designated for their involvement in the network—that illicitly profited from their involvement in Venezuela’s food subsidy program as well as other contracts with the Venezuelan government. The sanctioned network—which also included Maduro’s three stepsons—allegedly “laundered hundreds of millions of dollars in corruption proceeds around the world.” As a result of the sanctions, “all property and interests in property of the individuals and entities designated today, and of any entities that are owned, directly or indirectly, 50 percent or more by those individuals or entities, 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 entities and individuals. OFAC also referred financial institutions to Financial Crimes Enforcement Network advisories FIN-2019-A002, FIN-2017-A006, and FIN-2018-A003 for further information concerning the efforts of Venezuelan government agencies and individuals to use the U.S. financial system and real estate market to launder corrupt proceeds, as well as human rights abuses connected to corrupt foreign political figures and their financial facilitators.
The same day, the DOJ announced charges, pursuant to an indictment filed in the U.S. District Court for the Southern District of Florida, against two of the same sanctioned Colombian nationals for money laundering and conspiracy to commit money laundering. The charges relate to the Colombian nationals’ alleged roles in laundering the proceeds of an illegal bribery scheme from bank accounts located in Venezuela to and through bank accounts located in the United States. The bribery scheme resulted in the transfer of approximately $350 million, and allegedly involved contracts to build low-income housing units and efforts to take advantage of Venezuela’s government-controlled exchange rates through the use of “false and fraudulent import documents for goods and materials.”
- Hank Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates and Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- H Joshua Kotin to discuss "Recent developments in fair lending and avoiding the pitfalls" at the Arkansas Community Bankers/Bankers Assurance 2019 Compliance Conference
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at the American Bar Association Business Law Section Annual Meeting
- Valerie L. Hletko to discuss "Banking on guns ‘n drugs: Social policy meets financial services" at the American Bar Association Business Law Section Annual Meeting
- Daniel P. Stipano to discuss "Navigating the conflicting federal and state laws for doing business with cannabis companies" at the American Bar Association Business Law Section Annual Meeting
- Tim Lange to discuss "Services and value" at the North American Collection Agency Regulatory Association Annual Conference
- Katherine L. Halliday to discuss "UDAP, UDAAP & the Map rule compliance basics" at the Mortgage Bankers Association Regulatory Compliance Conference
- Brandy A. Hood to discuss "How to ace your TRID exam" at the Mortgage Bankers Association Regulatory Compliance Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Melissa Klimkiewicz to discuss "Navigating FHA rules and regs" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jeffrey P. Naimon to discuss "Washington regulatory overview" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Kathryn L. Ryan to discuss "The state’s role in fintech: Providing an industry framework for innovation" at Lend360
- Jeffrey P. Naimon to discuss "Truth in lending" at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions" at the Institute of International Bankers Risk Management and Regulatory Examination/Compliance Seminar
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference