InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Special Alert: OFAC encourages humanitarian aid, promises consideration of Covid-19 compliance challenges
The Department of the Treasury’s Office of Foreign Assets Control recently took two actions to address the impact of Covid-19. First, OFAC issued a fact sheet that consolidates existing authorizations and guidance permitting humanitarian, agricultural, and medical aid to six jurisdictions subject to sanctions. Second, OFAC encouraged companies facing compliance challenges due to Covid-19 to shift resources to higher-risk areas, noting that it would take this move into consideration if it leads to a violation during the pandemic. Companies facing compliance challenges may wish to consider such a shift, while documenting their risk-based rationale for doing so.
Humanitarian fact sheet
Last week, OFAC issued a fact sheet regarding the provision of Covid-19-related assistance under its Iran, Cuba, North Korea, Syria, Ukraine/Russia, and Venezuela sanctions regimes. The fact sheet made no changes to existing laws and guidance, but consolidated existing licenses, exemptions, authorizations, and related FAQs relevant to humanitarian aid and medical equipment for these regimes. The fact sheet should prove to be a valuable resource for financial institutions and other organizations confronting a wave of transactions to provide personal protective equipment to sanctions-targeted jurisdictions wracked by Covid-19, while complying with OFAC regulations.
OFAC guidance addresses Covid-19 humanitarian assistance and trade
On April 16, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published a Fact Sheet providing guidance to ensure humanitarian-related trade and assistance reaches at-risk populations through legitimate and transparent channels during the global Covid-19 pandemic. Specifically, the Fact Sheet highlights the most pertinent exemptions, exceptions, and authorizations for humanitarian assistance and trade under the Iran, Venezuela, North Korea, Syria, Cuba, and Ukraine/Russia-related sanctions programs. OFAC notes, however, that under certain sanctions program, entities may be required to obtain separate authorization from other U.S. government agencies. The Fact Sheet also provides guidance for persons seeking to export personal protective equipment from the U.S. Additional questions regarding the scope or applicability of any humanitarian-related authorizations can be directed to OFAC’s Sanction Compliance and Evaluation Division.
Venezuela’s state-owned airline subject to OFAC sanctions
On February 7, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it identified a previously blocked state-owned Venezuelan airline and its fleet of aircraft pursuant to Executive Order (E.O.) 13884. The entities—subject to sanctions under E.O. 13884, which blocks property of the Venezuelan government—have been added to OFAC’s Specially Designated Nationals (SDN) List. According to OFAC’s press release, the commercial airline and its fleet have been used by Venezuela’s illegitimate government “to promote its own political agenda, including shuttling regime officials to countries such as North Korea, Cuba, and Iran.” OFAC observed that Venezuelan citizens may still travel by air on a number of other airlines that provide domestic service as well as service to and from Venezuela. OFAC also reiterated that its “regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of blocked persons.”
New York to expand access to safe and affordable financial services
On January 4, the New York governor unveiled a proposal to expand access to safe and affordable financial services as part of the 2020 State of the State agenda. Included is a proposal to create the “Excelsior Banking Network” (Network), which is intended to “expand financial inclusion and access to affordable bank accounts and credit products” by providing $25 million in seed funding for the state’s Community Development Financial Institutions (CDFI) Fund. The Network—formed through a collaborative initiative between CDFIs, NYDFS, and other state agencies—will, among other things, engage in outreach and financial literacy education to the unbanked and expand available microcredit. “CDFIs are local financial service providers with locations throughout New York State, and often are the sole provider of banking and other financial services in low-income communities that are not served by traditional banks and financial institutions,” the announcement stated. Funding will be leveraged by participating CDFIs through targeted investments in underserved communities.
The governor also proposed the creation of a statewide Office of Financial Inclusion and Empowerment (Office), which is intended to meet the financial services needs of low- and middle-income New York consumers. The Office will be based at NYDFS, and “will maintain a centralized list of financial services counseling providers—across housing, student loan, debt, and general financial literacy—throughout the [s]tate and coordinate state and local services aimed at expanding access to credit and enhancing financial empowerment.” According to the announcement, the Office will also “incubate new programs to expand access to safe and affordable banking services, credit and financial education; coordinate public-private partnerships; and foster provision of high-quality, low-cost financial products statewide.”
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 identifies Venezuelan oil tankers as blocked property
On December 3, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced additions to the Specially Designated Nationals List (SDN List) pursuant to Executive Order 13884, which blocks the property of the Venezuelan government. OFAC identified six tankers of Venezuela’s state-owned oil company as property of the Venezuelan Government and therefore as blocked property, after all the vessels recently transported petroleum to Cuba. A seventh tanker also was identified as a blocked property, pursuant to Executive Order 13850 for operating in the oil sector of the Venezuelan economy, after delivering Venezuelan petroleum to Cuba. According to the press release, the vessel’s name had been changed to circumvent sanctions as it moved Venezuelan oil to Cuba. The SDN List was updated to link the new name of the vessel to its former name. OFAC reiterated that its “regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of blocked or designated persons.”
OFAC settles with multinational corporation for Cuban sanctions violations
On October 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a settlement of more than $2.7 million with a multinational corporation, on behalf of three subsidiaries, to resolve potential civil liability for 289 alleged violations of the Cuban Assets Control Regulations (CACR). The settlement resolves allegations that between December 2010 and February 2014, the subsidiaries accepted payments on 289 occasions from an entity identified on OFAC’s List of Specially Designated Nationals and Blocked Persons “for goods and services provided to a Canadian customer.” OFAC alleged that although the subsidiaries negotiated and entered into contracts with the Canadian customer—and invoices were sent to the customer—the designated entity was approved as a third-party payer and paid more than 65 percent of the total transactions. OFAC asserted that the subsidiaries failed to undertake sufficient diligence into the activities of the Canadian customer, and noted that the sanctions screening software used by the subsidiaries was set to screen for only one version of the designated entity’s name.
In arriving at the settlement amount, OFAC considered various mitigating factors including that (i) OFAC has not issued a violation against the subsidiaries in the five years preceding the earliest date of the transactions at issue; (ii) the corporation identified the alleged violations by testing and auditing its compliance program, and implemented several remedial measures in response to the alleged violations, which included improvements to its compliance program; and (iii) the corporation entered into, and agreed to extend, multiple statute of limitations tolling agreements.
OFAC also considered various aggravating factors, including that (i) the subsidiaries “failed to take proper or reasonable care with respect to their U.S. economic sanctions obligations”; (ii) the subsidiaries’ actions allowed a large volume of high-value transactions to be conducted with the designated entity, causing “substantial harm” to the CACR objectives; and (iii) the corporation’s submissions to OFAC “leave substantial uncertainty about the totality of the benefits conferred” to the designated entity through the Canadian customer.
SEC announces several FCPA-related bribery settlements
At the end of September, the SEC announced three settlements resolving claims related to alleged violations of the FCPA.
On September 27, a UK-based bank holding company agreed to pay over $6 million to settle alleged charges that it violated the FCPA by hiring relatives of government officials and other clients in an attempt to secure business in the Asia Pacific-region. According to the SEC, the bank hired more than 100 people connected to foreign government officials or other clients through the bank’s unofficial intern “work experience program,” or as part of its formal internship program, graduate program, or for permanent positions. Employees then created false books and records that concealed the practices and circumvented internal controls in place to prevent the activities. In the administrative order, the SEC ultimately charged violations of the books and records and internal controls provisions of the FCPA. Without admitting or denying wrongdoing, the bank agreed to pay a $1.5 million civil money penalty (CMP) and more than $4.8 million in disgorgement and interest.
In a second administrative order announced the same day, a Canadian fuel technology company agreed to pay over $4.1 million to settle FCPA bribery charges connected to a Chinese government official. The SEC alleged that the company and its former CEO transferred shares of stock in a Chinese joint venture to a Chinese private equity fund, in which the official had a financial stake, in an attempt to secure business and obtain a $3.5 million dividend payment. The SEC noted that the company concealed the identity of the private equity fund in its books and records, as well as in its public filings, by “falsely identifying a different entity as the counterparty to the transaction,” and that the CEO circumvented and falsely certified the sufficiency of the company’s internal accounting controls put in place to prevent such actions. Without admitting or denying wrongdoing, the company and the CEO consented to a cease and desist order covering violations of the anti-bribery, books and records, and internal controls provisions of the FCPA, and agreed to pay a $1.5 million CMP and $120,000 CMP, respectively, and more than $2.5 million in disgorgement and interest.
On September 26, a Wisconsin-based marketing provider agreed to pay nearly $10 million to settle FCPA charges related to bribery schemes in Peru and China. The alleged misconduct included the company’s Peruvian subsidiary paying or promising bribes to Peruvian government officials from at least 2011 to January 2016 in an attempt to secure sales contracts and avoid penalties, while also creating false records to conceal certain transactions with a sanctioned Cuban telecommunications company. The SEC stated that the company’s China-based subsidiary also made improper payments to employees of state owned entities and private customers through sham sales agents. According to the administrative order, the company violated the anti-bribery provisions of the FCPA as well as the books and records and internal controls provisions, including by failing to ensure that its internal accounting controls were sufficient to prevent the alleged bribery schemes in Peru and China. Without admitting or denying wrongdoing, the company consented to a cease and desist order, agreed to pay a $2 million CMP and over $7.8 million in disgorgement and interest, and will, for a one-year period, self-report on its compliance program.
OFAC sanctions additional entities and vessels operating in Venezuela’s oil sector
On September 24, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13850 against four entities for their alleged involvement in the transportation of oil from Venezuela to Cuba. According to OFAC, the entities’ actions offer support to the Maduro regime and “enable its repressive security and intelligence apparatus.” In addition, OFAC identified four vessels as blocked property owned by the identified entities. As a result of the sanctions, “all property and interests in property of these entities, and of any entities that are owned, directly or indirectly, 50 percent or more by the designated 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 notes that its regulations “generally prohibit” U.S. persons from participating in transactions with blocked or designated persons.
Additionally, the announcement notes that OFAC is delisting two entities in recognition of their actions to ensure that their vessels are not complicit in supporting the Maduro regime. As a result of the delisting, all property and interest of the entities are now unblocked and lawful transactions involving U.S. persons are no longer prohibited.
Since OFAC’s designation of Venezuela’s state-owned oil company last January, the department has sanctioned several entities and individuals connected to Venezuela’s oil sector. Continuing InfoBytes coverage on these actions can be found here.
OFAC strengthens Cuba sanctions, revokes “U-turn” authorization
On September 6, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) announced amendments effective October 9 to the Cuban Assets Control Regulations (CACR), which implement changes in accordance with President Trump’s 2017 National Security Presidential Memorandum “Strengthening the Policy of the United States Towards Cuba.” Key elements of the changes include:
- Lowering the value of permitted remittances to Cuba. Family remittances will be capped at $1,000 U.S. dollars per quarter that a single remitter can send to an individual Cuban national. Remittances to close family members of prohibited Cuban officials and members of the Cuban Communist Party will be forbidden. While the amendments rescind the authorization for donative remittances, they add a new provision authorizing remittances to certain individuals and independent non-governmental organizations in Cuba “to support the operation of economic activity . . . independent of government control.”
- “U-turn” transactions. The amended sanctions revoke what is commonly referred to as the Cuban “U-turn” authorization. Effective next month, financial institutions subject to U.S. jurisdiction will no longer be authorized to process Cuba-related payments that originate and terminate outside the United States. However, financial institutions subject to U.S. jurisdiction will be permitted to reject such transactions.
An updated list of FAQs related to the CACR has also been published, as well as guidance on recent changes to the sanctions.
The changes will have the greatest impact on U.S. banks offering foreign correspondent banking services and foreign banks utilizing those services, increasing compliance risks for both. They also shut a significant window to the U.S. financial system that foreign persons conducting international trade with Cuba previously enjoyed.