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FinCEN proposes measure against Latvian bank for alleged money laundering schemes, blocks U.S. accounts
On February 13, the Financial Crimes Enforcement Network (FinCEN) issued a finding and notice of proposed rulemaking (NPRM), pursuant to Section 311 of the USA PATRIOT Act, seeking to prohibit the opening or maintaining of correspondent accounts in the United States for, or on behalf of, a Latvian-based bank. The NPRM is being issued based on findings that the bank has “institutionalized money laundering as a pillar of [its] business practices.” According to the NPRM, the bank’s management (i) “permits the bank and its employees to orchestrate and engage in money laundering schemes”; (ii) “solicits the high-risk shell company activity that enables the bank and its customers to launder funds”; (iii) “maintains inadequate controls over high-risk shell company accounts”; and (iv) “seeks to obstruct enforcement of Latvian anti-money laundering and combating the financing of terrorism (AML/CFT) rules in order to protect these business practices.” Specifically, Secretary of the Treasury Steven T. Mnuchin asserted that the bank’s failure to implement effective AML/CFT and sanctions policies and procedures has become a conduit for widespread illicit activity, “including activity linked to North Korea’s weapons program and corruption connected to Russia and Ukraine.” The measures set forth under the NPRM are designed to protect the U.S. financial system from money laundering and terrorist financing threats. Comments are due 60 days after publication in the Federal Register.
OFAC further expands sanctions in connection with Ukrainian conflict
On January 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced its decision to sanction an additional 21 individuals and nine entities, pursuant to four executive orders (see Executive Orders 13660, 13661, 13662, and 13685), in connection with the United States’ support of Ukraine’s “sovereignty and territorial integrity” and opposition to Russia’s occupation of Crimea. Among other things, the financial sanctions target Russian government officials, Russian business executives, and Ukrainian separatist leaders involved with Russia’s occupation as part of efforts to hold responsible individuals accountable. Also sanctioned are nine technology, construction, and shipping firms supporting Russia’s occupation. As part of the announcement, Treasury Secretary Steven Mnuchin stated that “[t]he U.S. government is committed to maintaining the sovereignty and territorial integrity of Ukraine and to targeting those who attempt to undermine the Minsk agreements.” He further indicated that “[t]hose who provide goods, services, or material support to individuals and entities sanctioned by the United States for their activities in Ukraine are engaging in behavior that could expose them to U.S. sanctions.” All property, or interests in property, held by the sanctioned individuals and entities within U.S. jurisdiction will be blocked, and transactions between the sanctioned individuals and entities and Americans are also “generally prohibited.”
Visit here for additional InfoBytes coverage on Russian and Ukrainian sanctions.
OFAC Issues License and Guidance on Amended Ukrainian/Russian Sanctions
On November 28, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) released General License 1B to address amendments made to Directives 1 and 2 (Directives) of its Ukrainian/Russian-related Sectoral Sanctions. The amendments were made in accordance with the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA). (See previous InfoBytes coverage on Directives here.) The Directives prohibit U.S. persons from dealings in certain equity and debt of persons determined by OFAC to be part of the Russian financial and energy sectors. According to a Treasury press release, General License 1B addresses the decrease in the maturity dates of debt transactions prohibited by Directive 1 from 30 days to 14 days, and the decrease in the maturity dates of debt transactions prohibited by Directive 2 from 90 days to 60 days. General License 1B authorizes transactions by U.S. persons, wherever located, and transactions within the United States that involve derivative products whose value is linked to an underlying asset that constitutes prohibited debt issued by person subject to Directives 1, 2 or 3 of the Sectoral Sanctions, including those issued on or after November 28 that have the reduced maturity dates targeted by CAATSA. OFAC also released updated FAQs to answer questions related to the Ukrainian-/Russian-related amended directives.
OFAC Amends Sanctions on Russia’s Financial and Energy Sectors
On September 29, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) amended Directive 1 and Directive 2 of its Ukrainian-/Russian-related Sectoral Sanctions, as required by the Countering America’s Adversaries Through Sanctions Act of 2017 (H.R. 3364), which was signed into law by President Trump in August. (See previous InfoBytes summary here.) As amended, Directive 1 prohibits U.S. persons from all dealings in equity issued on or after July 16, 2014, of persons determined by OFAC to be part of the Russian financial services sector. Directive 1 also prohibits U.S. persons from dealing in the following debt of such persons: (i) debt of over 90 days maturity issued on or after July 16, 2014, but prior to September 12, 2014; (ii) debt of over 30 days maturity issued on or after September 12, 2014, but before November 28, 2017; and (iii) debt of over 14 days maturity issued on or after November 28, 2017. As amended, Directive 2 prohibits U.S. persons from all dealings in the following debt of persons identified by OFAC to be part of the Russian energy sector: (i) all debt of over 90 days maturity issued on or after July 16, , but before November 28, 2017; and (ii) all debt of over 60 days maturity issued on or after November 28, 2017. OFAC also released updated FAQs to answer questions related to the amended directives.
Three Companies Announce the Close of FCPA Investigations
During the week of July 24, 2017, three different companies announced the closure of DOJ and/or SEC FCPA investigations.
In a Form 10-Q filed with the SEC on July 25, 2017, an American multinational technology company disclosed that the DOJ and SEC had each informed the company in June 2017 of the closure of their respective investigations into “alleged illegal activity by a former Poland employee in connection with sales to the Polish government.” The company initially informed the SEC in 2012 that the Polish Central Anti-Corruption Bureau was looking into the matter, and the DOJ followed up with its own investigation in April of 2013. The DOJ expanded the investigation from Poland to Argentina, Bangladesh, and Ukraine. The 2012 issues came on the heels of a 2011 settlement in which the company paid the SEC $10 million to settle separate FCPA allegations for alleged cash payments to Chinese and Korean officials.
A South African alternative payment systems provider made a similar announcement on July 27, stating that the DOJ had written a letter to the company closing its investigation of alleged FCPA and disclosure violations. According to the announcement, the DOJ, along with the SEC and South African authorities, began looking into a 2012 contract award process involving a subsidiary of the company after an unsuccessful bidder for the same contract “refer[ed] unsubstantiated South African press articles to the DOJ.” The SEC was the first to bow out of the investigation, closing its inquiry through a letter in 2015, followed six months later by the South African government. The company is traded on NASDAQ’s Global Select Market, providing a jurisdictional hook into a case otherwise about payments made by a South African company in South Africa to South African citizens who were South African government employees. Our additional coverage of this matter can be viewed here.
In a Form 10-Q filed on July 25, 2017, a mining company also announced the end of a DOJ investigation into alleged violations of the FCPA “relating to certain business activities of [the company] and its affiliates and contractors in countries outside the U.S.” According to the announcement, the Colorado company had already received a similar declination from the SEC earlier this year. Our additional coverage of this matter can be viewed here.
The DOJ simultaneously reportedly confirmed to the Wall Street Journal that the agency was still actively enforcing the FCPA. The Journal cited an anonymous source at the DOJ for assurances that “though there haven’t been any new corporate FCPA cases since mid-January, there is no letup in U.S. enforcement efforts.”
President Trump Signs Into Law New Sanctions Against North Korea, Iran, and Russia
On August 2, President Trump signed into law a bipartisan bill placing new sanctions on Iran, Russia, and North Korea. The House passed the sanctions by a vote of 419-3, while the Senate cleared it 98-2. The Countering America's Adversaries Through Sanctions Act (H.R. 3364) is comprised of three bills:
- Korean Interdiction and Modernization of Sanctions Act. The sanctions modify and increase President Trump’s authority to impose sanctions on persons in violation of certain United Nations Security Council resolutions regarding North Korea. Specifically, U.S. financial institutions shall not “knowingly, directly or indirectly,” facilitate or maintain correspondent accounts with North Korean or other foreign financial institutions that provide services to North Korea, or execute a transfer of funds or property “that materially contributes to any violation of an applicable United National Security Council resolution.” A foreign government that provides to or receives from North Korea a defense article or service is prohibited from receiving certain types of U.S. foreign assistance. The sanctions concern: (i) shipping and cargo restrictions; (ii) cooperation between North Korea and Iran pertaining to the countries’ weapon programs; (iii) forced labor and trafficking victims, including goods produced by forced labor; and (iv) foreign persons that employ North Korean forced laborers. Furthermore, the Secretary of State is directed to submit a determination regarding whether North Korea meets the criteria for designation as a state sponsor of terrorism no later than 90 days after the Act has been enacted.
- Countering Iran's Destabilizing Activities Act of 2017. The sanctions—intended to deter Iranian activities and threats affecting the U.S. and key allies—include: (i) assessments of Iran’s conventional force capabilities such as its ballistic missile or weapons of mass destruction programs; (ii) prohibitions on the sale or transfer of military equipment and sanctions against Iran’s Islamic Revolutionary Guard Corps and any affiliated foreign persons; (iii) programs to be undertaken by the U.S. and other foreign governments to counter destabilizing activities; and (iv) prohibitions on any activity that provides “financial, material, technological, or other support for goods or services in support” of the identified programs or persons. The sanctions also block any property or interests in property of any designated person “if such property and interests in property are in the [U.S.], come within the [U.S.], or are or come within the possession or control of a [U.S.] person.” The law allows President Trump to impose sanctions against persons committing human rights violations against Iranian citizens, and also grants him the ability to “temporarily waive the imposition or continuation of sanctions under specified circumstances.”
- Countering Russian Influence in Europe and Eurasia Act of 2017. Under the new sanctions, notwithstanding sanctions passed under President Obama’s administration, Congress will review President Trump’s proposed actions to terminate or waive sanctions with respect to Russia and determine whether the actions will or will not “significantly alter [U.S.] foreign policy with regard to the Russian federation.” Additionally, the President may, at his discretion, waive specified cyber- and Ukraine-related sanctions if submitted to the appropriate congressional committees and “is in the vital national security interests of the [U.S.].” The sanctions concern the following: (i) cybersecurity; (ii) crude oil projects; (iii) Russian and foreign financial institutions; (iv) corruption; (v) human rights abuses; (vi) evasion of sanctions; (vii) transactions with Russian intelligence or defense sectors; (viii) pipeline developments; (ix) privatization of state-owned assets by the Russian federation; and (v) arms and related material transfers to Syria. The sanctions further detail financial transaction loan and credit restrictions between U.S. and international financial institutions and sanctioned persons—including directives related to financing new debt—and place prohibitions on sanctioned financial institutions. Among other things, the sanctions direct the development of a national strategy for combating the financing of terrorism and other types of illicit financing.
OFAC Assesses $2 Million Penalty Against International Oil and Gas Company for Violations of Ukraine-Related Sanctions
On July 20, the Treasury’s Office of Foreign Asset Control (OFAC) announced a $2 million civil money penalty assessed against an international oil and gas company, including two of its U.S. subsidiaries, for alleged violations of OFAC’s Ukraine-Related sanctions regulations. OFAC claims that, in May 2014, the company impermissibly dealt in services of a senior official of the Government of the Russian Federation who had been placed on the List of Specially Designated Nationals and Blocked Persons (SDNs) by signing eight legal documents related to oil and gas projects in Russia with the individual. Although the company claimed that it believed such actions were permissible, OFAC noted that the “plain language of the Ukraine-Related Sanctions” clearly indicates otherwise. In particular, OFAC stated that the sanctions blocked “any property and interests in property, and prohibited any dealing in any property and interests in property, of a person so designated.” In addition, the sanctions expressly forbid U.S. persons from “any contribution or provision of funds, goods, or services from any such person,” and, according to OFAC, do not differentiate between an individual’s “personal” and “professional” capacity—a distinction the company tried to make.
Thus, concluded OFAC, information available at the time of the alleged violations “clearly put [the company] on notice that OFAC would consider executing documents with an SDN to violate the prohibitions in the Ukraine-Related Sanctions Regulations.” The $2 million penalty was the largest that OFAC could impose under statute. OFAC imposed the penalty based on the following factors: (i) the company did not voluntarily self-disclose the violations; (ii) the company demonstrated reckless disregard for U.S. sanctions requirements by disregarding clear warning signs; (iii) the company’s senior-most executives knew of the official’s status as an SDN when it executed the legal documents; (iv) the company caused significant harm to the sanctions program by dealing with a senior official of the Russian Federation; and (v) the company is a sophisticated and experienced oil company that has global operations and routinely deals in goods, services and technology subject to U.S. economic sanctions and export controls.
OFAC Sanctions Russian Individuals and Companies in Connection with Ukrainian Conflict
On December 20, Treasury’s Office of Foreign Asset Control (OFAC) announced its decision to sanction seven individuals and eight entities in connection with Russia’s occupation of Crimea and the conflict in Ukraine. OFAC also identified 26 subsidiaries of Russian banks as subject to sanctions already in place on their parent companies. Among other things, the sanctions prohibit U.S. residents, citizens, and financial institutions from participating in various financial dealings with the companies. As explained by John E. Smith, acting director of Treasury’s sanctions enforcement office, the sanctions were introduced “in response to Russia's unlawful occupation of Crimea and continued aggression in Ukraine” in order to “maintain pressure on Russia by sustaining the costs of its occupation of Crimea and disrupting the activities of those who support the violence and instability in Ukraine.” Concurrent with today’s announcement, OFAC also issued a Russia/Ukraine-related General License 11, which authorizes certain transactions “necessary to requesting, contracting for, paying for, receiving, or utilizing a project design review or permit from FAU Glavgosekspertiza Rossii’s office(s) in the Russian Federation.”
Israeli Multinational Pharmaceutical Company Settles FCPA Violations with SEC and DOJ for $519 Million
On December 22, an Israeli multinational pharmaceutical company announced an agreement with the SEC and DOJ to resolve FCPA violations stemming from conduct in Ukraine, Mexico, and Russia, with a $519 million settlement and a deferred prosecution agreement. The company will pay more than $236 million in disgorgement and interest to the SEC, the second largest FCPA-related corporate disgorgement to date. As part of its agreement with the DOJ, the company will pay a $283 million criminal fine and enter into a three-year deferred prosecution agreement under the supervision of an independent compliance monitor.
Prior Scorecard coverage of the company's investigation can be found here.
Israel-Based Pharmaceutical Company Sets Aside $520 Million for Potential FCPA Settlement
An Israel-based pharmaceutical company, stated in its Form 6-K filed with the SEC on November 15, 2016, that it has set aside approximately $520 million for a potential settlement of FCPA matters being investigated by the SEC and DOJ. The company explained that the reserve relates to conduct that occurred between 2007 and 2013 in Russia, Mexico, and the Ukraine, and that it was discovered in the course of the investigation that began in early 2012 with the issuance of an SEC subpoena to the company, as well as a concurrent internal investigation of its worldwide business practices.
Should the pharmaceutical company enter into a settlement, it will top the growing list of pharmaceutical companies that have been subject to multimillion dollar penalties for conduct in violation of the FCPA, including the following:
- A $5.5 million settlement in 2016 of allegations relating to bribery of Chinese and Russian doctors;
- A $20 million settlement in 2016 of allegations relating to bribery of Chinese health care professionals;
- A $25 million settlement in 2016 of allegations relating to bribery of Chinese doctors;
- A $14 million settlement in 2015 of allegations relating to bribery of healthcare professionals at state-owned hospitals in China;
- A$29 million settlement in 2012 of allegations relating to bribery of government employed physicians in Russia, Brazil, China and Poland; and
- A $70 million settlement in 2011 of allegations relating to conspiracy and bribery of doctors employed by state-controlled health care systems in Greece.