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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.
OFAC issues Ukraine-/Russia-related FAQs
On December 20, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC), published a new Ukraine-/Russia-related FAQ. FAQ 815 explains that Section 7503 of the National Defense Authorization Act for Fiscal Year 2020, or the Protecting Europe’s Energy Security Act of 2019 became effective immediately upon the President signing it on December 20. This section—entitled “Imposition of sanctions with respect to provision of certain vessels for the construction of certain Russian energy export pipelines”—specifies that parties who have knowingly provided vessels engaged in deep sea pipe laying for the Nord Stream 2 or Turkstream pipelines must ensure that such vessels cease such activity as soon as safely possible in order to protect human life and “avoid any environmental or other significant damage.”
District Court voids OFAC fine of $2 million
On December 31, the U.S. District Court for the Northern District of Texas vacated a $2 million civil penalty imposed on a global petroleum company (company) by OFAC for the company’s purported violation of sanctions, ruling that the OFAC regulations did not provide “fair notice” to the company that its actions were prohibited. In May of 2014, OFAC issued sanctions regulations relating to Ukraine. Shortly afterwards, the company and a Russian oil company, with which it had a long-established business relationship, executed several contracts. Although the Russian company was not a blocked entity, its president, who signed the contracts, had been named a specially designated national (SDN). In July of 2014, OFAC issued a penalty notice with a $2 million penalty to the company, alleging that the contracts the company executed with the Russian company violated the Ukraine-related sanctions. The company immediately challenged the penalty notice and fine, asserting that at the time it entered into the subject transactions, the OFAC regulations on Ukraine were not clear, and it interpreted them to allow the transactions. The court agreed with the company, holding that the “text of the regulations does not provide fair notice of its interpretation” in accordance with the Due Process Clause, because “the text [of the regulation] does not ‘fairly address’ whether a U.S. entity receives a service from a SDN when that SDN performs a service enabling the U.S. person to contract with a non-blocked entity. Therefore, the court granted the company’s motion for summary judgment and vacated OFAC’s Penalty Notice.
OFAC issues amended Iran-related General License, FAQs
On December 19, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) issued amended Iran General License (No. K-1), which permits transactions “ordinarily incident and necessary to the maintenance or wind down of transactions” involving certain shipping entities blocked by Executive Order 13846. In conjunction with the amendment, OFAC amended three Iran-related FAQs (FAQ 804, 806, and 807), which discuss whether sanctions on certain shipping tankers apply to their corporate parent and affiliates, the types of activities considered “maintenance” in General License K-1, and the processing of transactions by U.S. financial institutions involving a specific shipping tanker under General License K-1.
SEC settles FCPA charges stemming from Malaysian development fund scheme
On December 16, the SEC announced a resolution with a former executive at a U.S. financial institution to settle allegations that he violated the anti-bribery, internal controls, and books and records provisions of the FCPA by using a third party intermediary to bribe government officials in Malaysia and Abu Dhabi. According to the administrative order, the bribes enabled the financial institution to obtain business from a Malaysian investment development fund, including underwriting several bond deals for which the financial institution allegedly earned roughly $600 million. The SEC further found that the former executive personally received more than $43 million in payments for his alleged role in facilitating the bribery scheme.
The former executive consented to the order without admitting or denying the factual basis, and consented to being permanently barred from the securities industry. He also agreed to pay disgorgement of $43.7 million, which will be offset and “deemed satisfied” by a forfeiture order in a previously instituted parallel DOJ criminal action where he pleaded guilty to FCPA and money laundering conspiracies. (Previous InfoBytes coverage here.)
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.”
OFAC settles with travel insurance companies
On December 9, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a settlement with a U.S.-based property and casualty company for 6,474 alleged violations of the Cuban Assets Control Regulations (CACR). According to OFAC, between August 2010 and January 2015, the company’s Canadian branch provided travel insurance policies to Canadian citizens traveling to Cuba, and continued to do so even though the company knew early on that that policies were being issued related to travel to Cuba but did not investigate it until 2014. In arriving at the settlement amount, OFAC considered various mitigating factors, including the fact that the company voluntarily self-disclosed the issue to OFAC, and that the company enhanced its OFAC compliance. OFAC also considered various aggravating factors, including that the company had knowledge of the violations as early as 2010, and that the travel policies “provided economic benefit to Cuba.”
Also on December 9, OFAC announced another settlement, this time with a Swiss worldwide insurance and reinsurance company, which formerly was a subsidiary of a U.S. company. The settlement resolves potential civil liability for 20,291 alleged violations of the CACR between January 2010 and December 2014 for issuing insurance policies for Cuba-related travel, because the policies, though global in scope, did not include an exclusionary clause “for risks that would violate U.S. sanctions law.” OFAC considered a number of mitigating factors in determining the settlement amount, including the fact that the company voluntarily self-disclosed the alleged violations and represented that it conducted a risk assessment of its offices and developed compliance policies and procedures. Additionally, OFAC considered several aggravating factors, including that the company issued global policies that did not contain exclusionary clauses, the activity resulted from a pattern or practice spanning several years, and the company is a large and commercially sophisticated financial institution.
OFAC designates Lebanon and DRC-based Hizballah money launderers
On December 13, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224 against two Lebanon- and Democratic Republic of the Congo (DRC)-based money launderers and their affiliated companies for allegedly generating tens of millions of dollars for Hizballah, its financiers, and their activities. According to OFAC, the sanctions are part of Treasury’s continued prioritization to disrupt “the full range of Hizballah’s illicit financial activity,” which has, to date, designated 80 Hizballah-affiliated persons since 2017. As a result of the sanctions, “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 notes that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated persons, and states that persons who engage in certain transaction with the designated individuals and entities “may themselves be exposed to sanctions or subject to an enforcement action.” The designated persons are also subject to secondary sanctions pursuant to the Hizballah Financial Sanctions Regulations, which implement the Hizballah International Financing Prevention Act of 2015, and allow OFAC 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 a terrorist group like Hizballah, or a person acting on behalf of or at the direction of, or owned or controlled by, [a Specially Designated Global Terrorist] such as Hizballah.”
OFAC also issued three new counter terrorism-related FAQs, which provide additional guidance related to the designated persons.
OFAC publishes new Venezuela-related FAQs
On December 9, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) published two new Venezuela-related FAQs. FAQ 808 stipulates that a specific license from OFAC is not “ordinarily required” when initiating or continuing U.S. legal proceedings against persons designated or blocked pursuant to OFAC’s Venezuela sanctions programs. Specific licenses are also not required for a U.S. court or court personnel to hear such a case. However, a specific license from OFAC is required in order to enter into a settlement agreement or to enforce a lien, judgment, or other order “through execution, garnishment, or other judicial process purporting to transfer or otherwise alter or affect property or interests in property blocked pursuant to the Venezuela Sanctions Regulations.” OFAC also provides a list of measures where a specific license is required. Additionally, FAQ 809 clarifies when a specific license is required to conduct an auction or other type of sale involving shares of a Venezuelan government entity whose property and interests in property are blocked pursuant to the Venezuela Sanctions Regulations. Additionally, OFAC “urges caution in proceeding with any step in furtherance of measures which might alter or affect blocked property or interests in blocked property.”
Visit here for additional InfoBytes coverage of actions related to Venezuela.
OFAC announces sanctions against Russia-based organization for malware attacks on financial institutions
On December 5, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13694 against a Russia-based cybercriminal organization for allegedly developing and distributing malware that infected financial institutions and resulted in more than $100 million in theft. OFAC’s action targets 17 individuals and seven entities and is “intended to disrupt the massive phishing campaigns orchestrated by [the organization],” Treasury Secretary Steven T. Mnuchin stated. According to OFAC, the organization used the malware to infect computers and harvest login credentials from roughly 300 banks and financial institutions in over 40 countries, resulting in millions of dollars of damage to U.S. and international financial institutions and their customers. As a result of the sanctions, all property and interests in property of these persons subject to U.S. jurisdiction are blocked, along with “any entities 50 percent or more owned by one or more designated persons.” OFAC noted that its regulations “generally prohibit” U.S. persons from participating in transactions with designated persons, and warned that “foreign persons may be subject to secondary sanctions for knowingly facilitating a significant transaction or transactions with these designated persons.”
In a concurrent action announced the same day, the DOJ unsealed criminal charges—including those related to international computer hacking and bank fraud schemes—against two of the organization’s members. In addition, Treasury’s Financial Crimes Enforcement Network and the Cybersecurity and Infrastructure Security Agency released a report providing a technical analysis of the malware and related variants, emphasizing that because the malware continues to target the financial services sector, financial institutions should review and incorporate the report’s techniques, tactics, and procedures into existing network defense capabilities and planning.