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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.”
Chinese nationals sanctioned and charged with laundering over $100 million in cryptocurrency from hacked exchange
On March 2, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Orders 13694, 13757, and 13722 against two Chinese nationals for allegedly laundering over $100 million in stolen cryptocurrency connected to a North Korean state-sponsored cyber group that hacked cryptocurrency exchanges in 2018. According to OFAC, the two individuals “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, a malicious cyber-enabled activity” or in support of the North Korean cyber group, which was designated by OFAC last September (covered by InfoBytes here). OFAC stated that it closely coordinated its action with the U.S. Attorney’s Office for the District of Columbia and the Internal Revenue Service’s Criminal Investigation Division. As a result of the sanctions, “all property and interests in property of these individuals 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 noted that its regulations “generally prohibit all dealings by U.S. persons or within the United States (including transactions transiting the United States) that involve any property or interests in property of blocked or designated persons,” and warned foreign financial institutions that knowingly facilitating significant transactions or providing significant financial services to the designated individuals may subject them to U.S. correspondent account or payable-through sanctions.
On the same day, the DOJ unsealed a two-count indictment against the two individuals, charging them with money laundering conspiracy and operating an unlicensed money transmitting business. The indictment claims that the individuals converted virtual currency traceable to the hack of a cryptocurrency exchange into fiat currency or prepaid Apple iTunes gift cards through accounts in various exchanges linked to Chinese banks and then transferred the currency or gift cards to customers for a fee. According to the indictment, neither individual was registered as a money transmitting business with the Financial Crimes Enforcement Network, which is a federal felony offense. The complaint seeks forfeiture of 113 virtual currency accounts belonging to the individuals.
OFAC designates Hizballah-associated companies and officials as global terrorists
On February 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated three individuals and 12 entities—all based in Lebanon—as Specially Designated Global Terrorists (SDGTs). Pursuant to Executive Order 13224, as amended, OFAC designated two of the individuals as leaders or officials of a Hizballah-related foundation that was previously designated for supporting terrorism in 2007. The entities are also associated with the foundation. One of the entities controlled by the foundation and a number of its subsidiaries reportedly did business with a Lebanon-based bank, which had been designated as an SDGT in August, allowing Hizballah to avoid close examination of its transactions by Lebanese banking authorities.
OFAC reiterated that “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’s regulations generally prohibit all dealings by U.S. persons or within the United States (including transactions transiting the United States) that involve any property or interests in property of blocked or designated persons. In addition, 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.”
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.
Pharmaceutical company settles FCPA-related allegations with SEC
On February 28, an Ohio-based pharmaceutical company agreed to pay over $8.8 million to settle SEC claims that the company violated the books and records and internal accounting controls provisions of the FCPA. According to the SEC, the pharmaceutical company’s former Chinese subsidiary maintained and operated marketing accounts for a European dermocosmetic company, and was the exclusive product distributor for the company in China. The SEC alleged that the dermocosmetic company directed the day-to-day activities of former subsidiary employees who “used the marketing account funds to promote the dermocosmetic company's products” and “directed payments to government-employed healthcare professionals and to employees of state-owned retail companies who had influence over purchasing decisions.” The pharmaceutical company also allegedly received a percentage of profits from sales derived from the improper payments through a profit-sharing agreement.
While the pharmaceutical company “determined that other marketing accounts should be terminated because of their significant FCPA-related compliance risks,” the SEC alleged that the pharmaceutical company “inaccurately assessed the risks of the arrangements with the dermocosmetic company as minimal” and failed to apply its full internal accounting controls to these accounts. The SEC alleged that as a result, the former subsidiary routinely authorized and made payments from the marketing accounts without being able “to provide reasonable assurance that the transactions were executed in accordance with management’s general or specific authorization, and failed accurately to record on its books and records payments made from the accounts.”
In entering into the administrative order, the SEC considered the pharmaceutical company’s self-disclosure, cooperation, and remedial efforts. Without admitting or denying wrongdoing, the pharmaceutical company consented to a cease and desist order, and agreed to pay a $2.5 million civil money penalty and approximately $6.3 million in disgorgement and pre-judgment interest.
Court overturns foreign bribery conviction of former transportation and energy industry executive
On February 26, the U.S. District Court for the District of Connecticut acquitted a British national and former executive of a French multinational transportation and energy company who had been convicted by a jury of FCPA violations, citing the government’s failure to prove at trial that the defendant was an “agent” of a domestic concern. The court left intact the jury’s money laundering verdicts against the defendant.
At trial in November 2019, the jury found the defendant guilty of one count of conspiracy to violate the FCPA, and six counts of substantive FCPA violations, as well as several money laundering counts, for his alleged involvement in a scheme by the company’s U.S. subsidiary, a power generation equipment manufacturer, to bribe Indonesian officials to obtain a power plant construction contract. The defendant filed a Rule 29(a) motion for a judgment of acquittal on all of the counts, arguing as to the FCPA counts that the government “failed to prove that he was an agent of [the subsidiary], the relevant domestic concern,” as required pursuant to the U.S. Court of Appeals for the Second Circuit’s earlier decision in the matter (covered by InfoBytes here). The trial court agreed, ruling that the evidence adduced at trial did not established that the subsidiary exercised “control over [the defendant’s] actions sufficient to demonstrate agency.” The court also granted the defendant’s in-the-alternative request for a new trial on the FCPA counts, in the event that court’s acquittal is later disturbed on appeal.
OFAC settles with Swiss technology provider over sanctions violations
On February 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $7.8 million settlement with a Swiss provider of commercial telecommunications and information technology services to the civilian air transportation industry for 9,256 alleged violations of the Global Terrorism Sanctions Regulations. According to OFAC, between April 2013 and February 2018, the company allegedly provided commercial services and software subject to U.S. jurisdiction that may have benefitted certain airlines designated as specially designated global terrorists (SDGTs) pursuant to Executive Order 13224. These sanctioned airlines, OFAC noted, were member-owners in the company’s organization.
In arriving at the settlement amount, OFAC considered various mitigating factors, including (i) OFAC has not issued a violation against the company in the five years preceding the earliest transaction at issue; (ii) the company has undertaken remedial efforts to minimize the risk of similar violations from occurring in the future; (iii) the company cooperated with the investigation and executed multiple tolling agreements; and (iv) the company terminated the membership of the SGDT airlines.
OAC also considered various aggravating favors, including that (i) the company did not voluntarily self-disclose the alleged violations; (ii) the company had actual knowledge that it was providing services and software to SDGTs; (iii) the company’s actions “facilitated the operations of, or otherwise benefitted, airlines that were sanctioned for supporting terrorism”; and (iv) the company is “commercially sophisticated” with operations in every county in the world.
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.
OFAC releases FAQs for reporting, procedures and penalties regulations
On February 20, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) issued two new FAQs related to the Reporting, Procedures and Penalties Regulations (RPPR). The RPPR “set forth standard reporting and recordkeeping requirements and license application and other procedures relevant to the economic sanctions programs administered by OFAC.” As previously covered by InfoBytes, OFAC amended the RPPR last June to expand instructions and add “new requirements for parties filing reports on blocked property, unblocked property, or rejected transactions,” updating six sections of the regulations. The two new FAQs state that the June amendment is currently in effect and that all parties, including entities that are not U.S. financial institutions, must obey all of the RPPR requirements, which include submitting reports to OFAC “within 10 business days of [a] rejected transaction.” Information on submitting the reports can be found here.
The FAQs also address how much information must be included in a rejected transaction report. OFAC anticipates filers will include all required information “that is in the filer’s possession in a rejected transaction report, and generally does not expect reporters to seek further information from their counterparty.” However, OFAC does expect that, at a minimum, filers will include (i) the identity of the filer; (ii) the date of the rejected transaction; (iii) the authority under which the transaction was rejected; and (iv) all pertinent documentation acquired with the transaction.
Treasury sanctions Russian company for doing business with Venezuela
On February 18, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13850, as amended, against a Swiss-incorporated, Russian-controlled oil brokerage and its board chairman and president for operating in the oil sector of the Venezuelan economy. According to the press release, the company assisted Venezuela state-owned Petroleos de Venezuela, S.A., in brokering, selling, and transporting Venezuelan petroleum products.
In connection with the designations, OFAC issued Venezuela General License (GL) 36, titled “Authorizing Certain Activities Necessary to the Wind Down of Transactions Involving [company].” GL 36, which expires on May 20, authorizes certain transactions and activities otherwise prohibited under E.O.s 13850 and 13857 that are required in order to wind down business with the company. Concurrently, OFAC issued a new Venezuela-related frequently asked question regarding GL 36, addressing the significance of OFAC’s designation of the company, and whether the E.O. 13850 blocking sanctions on the company apply to its corporate parent and affiliates. In its press release, OFAC added that “all property and interests in property of [the company] and [its president] that are in the United States or in the possession or control of U.S. persons, and of any entities that are owned, directly or indirectly, 50 percent or more by the designated individual and entity, are blocked and must be reported to OFAC.”