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On May 9, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 14059, against four individuals involved in the fentanyl trade, along with two related Mexico-based entities. According to OFAC, the sanctioned persons are part of a Sinaloa Cartel network responsible for trafficking a significant portion of fentanyl and other drugs into the United States. OFAC coordinated with the Mexican government, the FBI, the DEA, and Homeland Security to take this action. As a result of the sanctions, all property and interests in property belonging to the sanctioned individuals and entities subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons. Additionally, OFAC warned that “persons that engage in certain transactions with the individuals and entities designated today may themselves be exposed to sanctions or subject to an enforcement action.”
On April 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 14078, against four senior officials of Iran’s Islamic Revolutionary Guard Corps Intelligence Organization (IRGC-IO). The IRGC-IO was concurrently designated by the State Department for its involvement in the hostage-taking or wrongful detention of U.S. nationals in Iran. OFAC also implemented the State Department’s designation of Russia’s Federal Security Service as well as the IRGC-IO for their role in wrongfully detaining U.S. nationals abroad. 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. Additionally, “any entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked.” OFAC’s announcement further noted that its regulations “generally prohibit” U.S. persons from participating in transactions with designated persons unless exempt or otherwise authorized by a general or specific license. Financial institutions and persons that engage in certain transactions with the designated persons may themselves be exposed to sanctions or subject to enforcement.
On May 2, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced, pursuant to Executive Order 13224, a joint action with the Republic of Turkey to designate two financial facilitators of Syria-based terrorist groups. The terrorist groups have both been sanctioned by the U.S. and the United Nations. The action demonstrates OFAC’s continued cooperation with Turkey to restrict the financing of terrorist groups that perpetuate violence and instability throughout the region. According to the announcement, the Turkish Ministry of Treasury and Finance and the Turkish Ministry of Interior concurrently implemented an asset freeze against the sanctioned individuals. As a result of the sanctions, all property interests belonging to the sanctioned individuals and entities that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC, as well as “any entities that are owned, directly or indirectly, 50 percent or more by them, individually, or with other blocked persons.” U.S. persons are generally prohibited from engaging in any dealings involving the property interests of blocked or designated persons, and persons that engage in certain transactions with the designated individuals may themselves be exposed to sanctions. OFAC further stated that it “can prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account of a foreign financial institution that knowingly conducted or facilitated any significant transaction on behalf of a Specially Designated Global Terrorist.”
On April 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 14059, against seven individuals and 19 Mexican companies connected to timeshare fraud on behalf of the Cartel de Jalisco Nueva Generacion (CJNG). The CJNG—a Mexico-based organization responsible for trafficking a significant proportion of illicit fentanyl and other drugs that enter the U.S.—is also designated under E.O. 14059. OFAC explained that timeshare fraud often targets older U.S. citizens to scam victims of their life savings and is an important revenue stream for the group’s criminal enterprise. The designations build on sanctions imposed on several other companies in April (covered by InfoBytes here) and continue OFAC’s efforts to disrupt CJNG’s timeshare fraud network.
As a result of the sanctions, all property and interests in property of the designated persons located in the U.S. or held by U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, individually or in the aggregate, 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 an OFAC-issued general or specific license, or exempt. OFAC further warned that “U.S. persons may face civil or criminal penalties for violations of E.O. 14059 and the Kingpin Act.”
On April 25, FinCEN released its year-in-review for FY 2022. The annual summary provided insights into the agency’s efforts to support law enforcement and national security agencies, as well as statistics from Bank Secrecy Act (BSA) filings. FinCEN reported that BSA data was used to advance several law enforcement missions, including in 36.3 percent of active complex financial crimes investigations, 27.5 percent of active public corruption investigations, and 20.6 percent of active international terrorism investigations. Additionally, FinCEN noted that in FY 2022 there were over 7,600 Section 314(b)-registered financial institutions. Section 314(b) of the USA PATRIOT Act allows registered entities to share information about financial activity with one another to help entities of all sizes identify and report suspicious activity. FinCEN further reported that 92 percent of domestic law enforcement agencies that query BSA data “find the resulting financial intelligence valuable to the detection and deterrence of illicit activity.”
On May 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a roughly $7.6 million settlement with a Massachusetts-based online trading and settlement platform to resolve potential civil liability stemming from allegations that the platform allowed customers in sanctioned jurisdictions to engage in digital asset-related transactions. According to OFAC’s web notice, between January 2014 and November 2019, the platform allegedly permitted customers to make more than $15.3 million in trades, deposits, and withdrawals, despite having reason to know that the customers’ locations—based on both Know Your Customer (KYC) information and internet protocol address data—were in jurisdictions subject to comprehensive OFAC sanctions. OFAC noted that although the platform implemented a sanctions compliance program to screen new customers, it did not retroactively screen existing customers, thus allowing these customers to continue to conduct trading activity. While the platform made efforts to identify and restrict accounts with a nexus to certain sanctioned jurisdictions, compliance deficiencies resulted in the platform processing 65,942 online digital asset-related transactions for 232 customers apparently located predominantly in Crimea, but also in Cuba, Iran, Sudan, and Syria.
In arriving at the settlement amount, OFAC considered, among other things, that the platform failed to exercise due caution or care for its sanctions compliance obligations and had reason to know that certain customers were located in sanctioned jurisdictions. Additionally, the settlement amount reflects that the platform did not voluntarily disclose the apparent violations. OFAC also considered several mitigating factors, including that: (i) the platform was a small start-up when most of the apparent violations occurred; (ii) the platform has not received a penalty notice from OFAC in the preceding five years; (iii) the platform cooperated with OFAC during the investigation and undertook numerous remedial measures; and (iv) the volume of apparent violations represented a very small percentage of the total volume of transactions conducted on the platform annually.
Providing context for the settlement, OFAC said the “action highlights that online digital asset companies—like all financial service providers— are responsible for ensuring that they do not engage in transactions prohibited by OFAC sanctions, such as providing services to persons in comprehensively sanctioned jurisdictions. To mitigate such risks, online digital asset companies should develop a tailored, risk-based sanctions compliance program.”
On April 26, FinCEN announced its first enforcement action against a trust company, in which it assessed a $1.5 million civil money penalty against a South Dakota-chartered trust company for willful violations of the Bank Secrecy Act (BSA) and its implementing regulations. According to the consent order, the trust company admitted that it willfully failed to timely and accurately report hundreds of transactions to FinCEN involving suspicious activity by its customers, including transactions with connections to a trade-based money-laundering scheme and several securities fraud schemes. The agency cited the trust company’s “severely underdeveloped” process for identifying and reporting potentially suspicious activity as part of “an overall failure to build a culture of compliance.”
According to FinCEN acting Director Himamauli Das, the trust company “had virtually no process to identify and report suspicious transactions, resulting in it processing over $4 billion in international wires with essentially no controls.” FinCEN said that the trust company should have realized that a large volume of activity from high-risk customers played a role in the closure of numerous correspondent accounts it maintained at other financial institutions, and pointed out that the trust company only began closing accounts flagged during an audit after several forced closures of its own accounts by other financial institutions and after receiving law enforcement inquiries about the accounts referred by the audit. However, at the time, the trust company made no effort to file suspicious activity reports (SARs), FinCEN found, claiming that the trust company processed hundreds of suspicious transactions worth tens of millions of dollars for risky customers that, among other things, appeared to operate in unrelated business sectors. FinCEN added that “personnel with [anti-money laundering (AML)] responsibilities have acknowledged not fully understanding federal SAR filing requirements and that they may have missed important information about some of their riskiest clients as the result of maintaining other, non-AML responsibilities.”
The consent order requires the trust company to hire an independent consultant to review its AML program and transactions from all referenced accounts, as well as any other accounts the trust company maintained for customer referrals, and conduct a SAR lookback review. The trust company is also required to implement recommendations made by the independent consultant and file SARs for any flagged covered transactions. FinCEN recognized the close collaboration and assistance provided by the DOJ and the FBI on this matter.
On April 25, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $508 million settlement with one of the world’s largest tobacco companies to resolve potential civil liabilities stemming from allegations that the company sent more than $250 million in profits from a North Korean joint venture through U.S. financial institutions by relying on designated North Korean banks and several intermediaries. According to OFAC’s web notice, from 2007 to 2016, the London-headquartered company formed a conspiracy to export tobacco and related products to North Korea, and remitted approximately $250 million in payments from the North Korean joint venture. The payments were allegedly remitted through bank accounts controlled by sanctioned North Korean banks to the company’s Singaporean subsidiary via U.S. banks who cleared the transactions. By causing U.S. financial institutions to process wire transfers containing blocked property interests of sanctioned North Korean banks in order to export financial services and facilitate the export of tobacco, the company violated the Weapons of Mass Destruction Proliferators Sanctions Regulations and the North Korea Sanctions Regulations, OFAC said.
According to OFAC, the settlement is the largest ever reached with a non-financial institution and reflects the statutory maximum penalty due to OFAC’s determination that the company’s conduct was egregious and not voluntarily self-disclosed. In arriving at the settlement amount, OFAC determined, among other things, that the company and its subsidiaries willfully conspired to transfer hundreds of millions of dollars related to North Korea through U.S. financial institutions while being aware that U.S. sanctions regulations prohibited this conduct. The company and its subsidiaries also allegedly “relied on an opaque series of front companies and intermediaries” to conceal their North-Korea-related business, with management having actual knowledge about the alleged conspiracy from the beginning. OFAC also considered various mitigating factors, including that the company has not received a penalty notice from OFAC in the preceding five years, and that the company cooperated with OFAC and agreed to toll the statute of limitations.
Providing context for the settlement, OFAC said that this action demonstrates that “creating the illusion of distance between a firm and apparently violative conduct does not shield that firm from liability.” Moreover, “[s]enior management decisions to approve or otherwise support arrangements that obscure dealings with sanctioned countries and parties can be reflected throughout an organization, compounding sanctions risks and increasing the likelihood of committing potential violations.”
Concurrently, the DOJ announced that the company and one of its subsidiaries have agreed to pay combined penalties of more than $629 million to resolve bank fraud and sanctions violations charges stemming from the aforementioned conduct. According to the DOJ, the subsidiary pleaded guilty to a criminal information charging both entities with conspiracy to commit bank fraud and conspiracy to violate the International Emergency Economic Powers Act. The company entered into a deferred prosecution agreement related to these charges.
On April 24, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Orders 13553 and 13846, against four senior Iranian security officials of the Law Enforcement Forces of Iran and the Islamic Revolutionary Guard Corps for aiding the Iranian regime’s crackdown on peaceful demonstrations. OFAC stressed that it has now “imposed 11 rounds of sanctions actions targeting the Iranian regime and its security elements and officials that are involved in brutal crackdown on peaceful demonstrations since nationwide protests began in September 2022.” Concurrently, the State Department imposed visa restrictions on 11 additional Iranian government officials for their alleged involvement in suppressing protestors. As a result of the sanctions, all property and interests in property belonging to the sanctioned persons subject to U.S. jurisdiction 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.” OFAC further warned that “persons that engage in certain transactions with the persons designated today may themselves be exposed to sanctions or subject to an enforcement action,” and that, unless an exception applies, “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the persons designated today could be subject to U.S. sanctions.”
On April 24, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Orders 13722 and 13382, against three individuals for providing material support to the Democratic People’s Republic of Korea (DPRK) through several previously designated entities. According to OFAC, the DPRK uses illicit facilitation networks to access the international financial system, launder stolen virtual currency, and generate revenue to support the regime’s weapons of mass destruction and ballistic missile programs. “The United States and our partners are committed to safeguarding the international financial system and preventing its use in the DPRK’s destabilizing activities, especially in light of the DPRK’s three launches of intercontinental ballistic missiles (ICBMs) this year alone,” Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson said in the announcement. OFAC explained that the DPRK deploys IT workers to fraudulently obtain employment to generate revenue in virtual currency, and said that in 2022 alone, DPRK cyber actors were able to steal an estimated $1.7 billion in virtual currency through various hacks. The stolen virtual currency was converted into fiat currency using a network of over-the-counter virtual currency traders (including traders based in China) to avoid detection by financial institutions or authorities, OFAC said.
As a result of the sanctions, all property and interests in property belonging to the sanctioned entities subject to U.S. jurisdiction 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.” OFAC further warned that “persons that engage in certain transactions with the individuals or entities designated today may themselves be exposed to designation,” and that “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today could be subject to U.S. correspondent or payable-through account sanctions.”