InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OFAC Penalizes Credit Card Issuer for Violations of Cuban Assets Control Regulations
On November 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it had reached a $204,277 settlement with a U.S. financial institution for alleged violations of the Cuban Assets Control Regulations (CACR). The settlement involves actions taken by an international credit card company which, at the time of the apparent violations, was a wholly owned subsidiary of an entity that was itself 50 percent owned by the U.S. financial institution. According to the announcement, between 2009 and 2014, credit cards that the company issued to over 100 corporate customers were used to make purchases in Cuba or otherwise involved Cuba. OFAC asserts that the company failed to implement controls to prevent this even though it had policies and procedures in place to review transactions for compliance with CACR.
In determining the settlement amount, OFAC considered that (i) employees within the company had reason to know of the conduct that led to the alleged violations; (ii) none of the entities involved appeared to appreciate the risk that the credit cards might be used in Cuba; (iii) at the time they occurred, the actions resulted in harm to the US sanctions program objectives; (iv) the U.S. financial institution is a large and sophisticated financial entity; and (v) during the investigation, the entities provided “verifiably inaccurate or incomplete, including material omissions.” OFAC also considered the fact that the entities voluntarily self-disclosed the alleged violations and the U.S. financial institution took “swift and appropriate remedial action” upon discovery.
OFAC recently announced updates to CACR, covered by InfoBytes here.
OFAC Announces Cuban Assets Control Regulations Updates; Releases New FAQs
On November 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced amendments to the Cuban Assets Control Regulations to implement changes related to certain financial transaction restrictions and economic activities. In accordance with the National Security Presidential Memorandum issued by President Trump on June 16, the amendments will, among other things, prohibit “persons subject to U.S. jurisdictions” from engaging in financial transactions with entities and subentities identified on the State Department’s Cuba Restricted List. This effort is intended to “channel economic activities away from the Cuban military, intelligence, and security services, while maintaining opportunities for Americans to engage in authorized travel to Cuba and support the private, small business sector in Cuba.” The amendments will take effect November 9. OFAC also released updated FAQs and a fact sheet to answer questions related to the amended regulations.
Refer here, here, and here for InfoBytes coverage on OFAC settlements of alleged violations of the Cuban Assets Control Regulations.
OFAC Settles with International Insurance Group over Charges of Violating Sanctions Programs
On June 26, the Treasury’s Office of Foreign Asset Control (OFAC) reached a settlement with an international financial services and insurance company based in New York for alleged violations of OFAC sanctions programs. OFAC claimed that the company “issued policies and insurance certificates, and/or processed claims and other insurance-related transactions that conferred economic benefit to sanctioned countries or persons and undermined the policy objectives of several U.S. economic sanctions programs.” Specifically, OFAC maintained the company violated the following sanctions programs: (i) Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (ITSR); (ii) Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. Part 544 (WMDPSR); (iii) Sudanese Sanctions Regulations, 31 C.F.R. Part 538 (SSR); and (iv) Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR). The settlement requires the company to pay $148,698 to settle the claims, which the company voluntarily self-disclosed to OFAC.
For others to avoid these issues, OFAC suggested that “the best and most reliable approach for insuring global risks without violating U.S. sanctions law is to insert in global insurance policies an explicit exclusion for risks that would violate U.S. sanctions laws.”
OFAC Updates: New Sanction Designations and Additions to Specially Designated Nationals List
Recently, OFAC announced implementation of sanctions against several entities and individuals designated for, among others, materially assisting, sponsoring, or providing financial support to certain foreign entities. In addition, OFAC updated its list of Specially Designed Nations (SDN) and announced a settlement agreement with a Canadian-based motor vehicle finance company.
North Korea Suppliers of Weapons Proliferation Programs. On June 1, OFAC announced it was taking action against six entities and three individuals in response to their involvement in North Korea’s continued efforts to develop weapons of mass destruction (WMD). The announcement targets the country’s military, nuclear, and WMD programs, in addition to its overseas financial operations. The sanctions prohibit any U.S. individual from dealing with the designees, and further states that “any property or interests in property of the designated persons in the possession or control of U.S. persons or within the United States must be blocked.” John E. Smith, the Director of OFAC, stated, “Treasury is working with our allies to counter networks that enable North Korea’s destabilizing activities, and we urge our partners to take parallel steps to cut off their funding sources.” These sanctions are in addition to those imposed earlier in April on eleven North Koreans and one associated entity (see previous InfoBytes coverage here).
Iraq-Based Chemical Weapons Developers. On June 12, OFAC announced, for the first time, designations against individuals involved in the development of ISIS’ chemical weapons. The sanctions were pursuant to Executive Order 13224, which “provides a means by which to disrupt the financial support network for terrorists and terrorist organizations by authorizing the U.S. government to designate and block the assets of foreign individuals and entities that commit, or pose a significant risk of committing, acts of terrorism.” The property and interests in property of the two individuals identified in the designations, subject to U.S. jurisdiction, are blocked, and “U.S. persons are generally prohibited from engaging in transactions with them.”
Settlement Agreement with Motor Vehicle Finance Company. On June 8, OFAC announced it had reached a settlement with a motor vehicle finance company as a result of transactions by its Canadian based subsidiary. The enforcement action claims the majority-owned subsidiary, which “specializes in various forms of financing in the [U.S.] for purchasers, lessees, and authorized independent [auto] dealers,”—between 2011 and 2014—allegedly violated 13 Cuban Assets Control Regulations by leasing vehicles to the Cuban Embassy in violation of OFAC’s Blocked Persons and SDN list, which prohibited transactions with Cuban government entities. The company voluntarily self-disclosed the alleged violations and agreed to remit $87,255 to settle its potential civil liability.
Foreign Narcotics Kingpin Sanctions. On May 24 and 25, OFAC made additions to the SDN list, which designates individuals and companies who are prohibited from dealing with the U.S. and whose assets are blocked. Transactions are prohibited if they involve transferring, paying, exporting, or otherwise dealing in the property or interest in property of an entity or individual on the SDN list. Additions to the list were made under the Foreign Narcotics Kingpin Sanctions Regulations against several Mexican and Colombian individuals and entities.
OFAC Settles with Canadian Bank for Apparent Violations of Cuban Assets Control Regulations and Iran Sanctions
On January 13, Treasury’s Office of Foreign Asset Control (OFAC) announced a $516,105 settlement agreement with a Canadian-based bank and its online-brokerage subsidiaries in connection with accounts held and transactions processed on behalf of certain Specially Designated Nationals and Blocked Persons located in Cuba, Iran and other locations in the Middle East. OFAC also identified general “shortcomings in the bank’s OFAC compliance policies, procedures, and programs” including the bank’s failure to screen for any potential nexus to an OFAC-sanctioned country or entity prior to processing related transactions through the U.S. financial system and occurring due to shortcomings in the banks policies and procedures. The settlement agreement does, however, note that the Apparent Violations constituted a non-egregious case, that the Bank voluntarily self-disclosed the Apparent Violations, and that the applicable total base penalty amount for the apparent violations was $955,750—well above the $516,105 amount OFAC assessed.
Notably, in the agreement’s concluding paragraph, OFAC highlights, as a general matter, the risks associated with both “subsidiaries in high-risk industries–such as securities firms” and, in particular “online payment platforms when the financial institution is unable to restrict access for individuals and entities located in comprehensively sanctioned countries.”
OFAC Amends Cuban Assets Controls Regulations
OFAC took an additional step toward further implementation of President Obama’s new policy direction toward Cuba on October 17, with the publication of a final rule amending the Cuban Assets Control Regulations, 31 CFR Part 515 (CACR). Of those most relevant to financial institutions, OFAC updated the CACR by, among other things, amending paragraphs (c) and (f) of section 515.584, which relates to certain financial transactions involving Cuba. Section 515.584(c), as outlined in OFAC’s set of updated FAQs, “authorizes all transactions incident to the processing and payment of credit and debit card transactions for third-country nationals traveling to, from, or within Cuba.” FAQ number 49 further explains that “[a]ny person subject to U.S. jurisdiction, including U.S. financial institutions and their foreign branches, may conduct transactions authorized by [section 515.584(c)].” Section 515.584(f), as explained by FAQ 73, permits: Any banking institution …that is a person subject to U.S. jurisdiction is authorized to provide financing for exports or reexports of items, other than agricultural commodities, authorized pursuant to § 515.533, including issuing, advising, negotiating, paying, or confirming letters of credit (including letters of credit issued by a financial institution that is a national of Cuba), accepting collateral for issuing or confirming letters of credit, and processing documentary collections. OFAC’s amendments to the CACR are effective immediately.
OFAC Updates Cuba-Related FAQs
On July 25, OFAC updated its list of frequently asked questions related to Cuba to clarify requirements applicable to persons subject to U.S. jurisdiction that are providing carrier or travel services to Cuba pursuant to 31 C.F.R. § 515.572. According to new FAQ 38, where such a person is providing travel or carrier services to a customer traveling to or from Cuba under a specific license, OFAC will consider the collection and retention of the traveler’s specific license number to be equivalent to collecting and retaining a physical or electronic copy of the specific license, as required by § 515.572(b)(1). The carrier or travel services provider must maintain a record of the specific license number or a copy of the license for at least five years. Revised FAQ 39 reiterates that authorized carrier or travel service providers must also retain a certification from each customer traveling to or from Cuba indicating the provision of the Cuban Assets Control Regulations that authorizes travel and the names and addresses of the individual travelers for at least five years from the date of the transaction.
OFAC Updates Cuba-Related FAQs
On July 8, OFAC updated its list of frequently asked questions related to Cuba to add two new FAQs regarding the use of U.S. dollars in certain transactions. New FAQ number 43 clarifies that persons subject to U.S. jurisdiction may use the U.S. dollar to conduct transactions in Cuba or with Cuban nationals if the activity is authorized by or exempt from the Cuban Assets Control Regulations (CACR). FAQ 43 further clarifies that under 31 CFR § 515.584(d), commonly known as the “U-turn” general license, U.S. banking institutions are authorized to process transactions originating and terminating outside the United States provided that neither the originator nor the beneficiary is a person subject to U.S. jurisdiction. This means that transactions related to third-country commerce involving Cuba or Cuban nationals may be processed in U.S. dollars through the U.S. financial system via financial institutions located in the United States that serve as intermediary banks. New FAQ 50 relates to correspondent accounts. Pursuant to a general license in the CACR, U.S. depository institutions are permitted to maintain correspondent accounts at financial institutions that are nationals of Cuba, provided such accounts are used only for transactions that are authorized or exempt under the CACR. FAQ 50 explains that such accounts may be maintained in U.S. dollars, and that transactions necessary to establish and maintain such accounts – including processing funds transfers in U.S. dollars - are authorized. Finally, FAQ 50 notes that financial institutions that are nationals of Cuba remain prohibited from opening correspondent accounts at a U.S. financial institution.
OFAC Updates Cuba-Related Frequently Asked Questions
On April 21, OFAC updated its list of frequently asked questions related to Cuba. The updated document includes eight new FAQs clarifying (i) that Section 515.584(d) of the Cuban Assets Control Regulations (CACR) permits authorized U-turn transactions to originate or terminate at foreign branches and subsidiaries of U.S. banking institutions; (ii) due diligence expectations for banks processing an authorized U-turn transaction from a sanctions compliance perspective; (iii) that the importation into the United States of goods previously exported to Cuba for servicing requires a specific license; (iv) requirements regarding the export and reexportation of mixed-origin goods to Cuba; (v) that persons subject to U.S. jurisdiction may provide insurance-related services to persons subject to U.S. jurisdiction and engaging in authorized activity in Cuba; (vi) OFAC license requirements for insurance-related services; (vii) that educational grants, scholarships, or awards may be given to a Cuban state-owned entity; and (viii) the circumstances under which a person subject to U.S. jurisdiction is authorized to purchase or lease real property in Cuba.
OFAC Updates Cuban Assets Control Regulations
On March 15, OFAC issued a final rule updating the Cuban Assets Control Regulations (CACR), 31 C.F.R. Part 515. The amendments advance policy changes announced by the Obama administration in 2014 by further facilitating travel to Cuba for authorized purposes, expanding the range of authorized financial transactions, and authorizing business and physical presence in Cuba. Regarding financial transactions, the final rule (i) amends section 515.584(d) to authorize certain U-turn payments through the U.S. financial system; (ii) adds new section 515.584(g) to allow U.S. banking institutions to process U.S. dollar monetary instruments presented indirectly by Cuban financial institutions; and (iii) adds new section 515.584(h) to “authorize banking institutions to open and maintain accounts solely in the name of a Cuban national located in Cuba for the purposes only of receiving payments in the United States in connection with transactions authorized pursuant to or exempt from the prohibitions of this part and remitting such payments to Cuba.”
OFAC’s amendments to the CACR were published in the Federal Register on March 16, 2016 and are effective immediately. OFAC simultaneously released a revised set of FAQs and a fact sheet regarding the changes set forth in the CACR.