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OFAC expands Russian sanctions
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) recently announced several actions targeting Russia’s attempts to circumvent or evade sanctions and implemented other economic measures to degrade the country’s capacity to wage its war against Ukraine. In coordination with the G7 and other international partners, OFAC implemented several new commitments to cut Russia off from revenue streams and key inputs needed to equip its military. The sanctions target 22 individuals and 104 entities with touchpoints in more than 20 countries or jurisdictions with involvement in the technology, energy, and financial services sectors. OFAC also expanded sanctions authorities to target new sectors of Russia’s economy and sever the country’s access to several new categories of services. Additional sanctions-related measures include the designation or identification as blocked property of nearly 200 individuals, entities, vessels, and aircraft by the State Department. Concurrently, the Commerce Department significantly expanded the territorial reach and categories covered by its export controls and added 71 entities to its Entity List to prevent Russia from accessing goods needed for its war.
OFAC noted that it also expanded its Russia-related sanctions authorities through the issuance of a determination that identifies the architecture, engineering, construction, manufacturing, and transportation sectors of the Russian economy pursuant to Executive Order (E.O.) 14024. The determination complements existing sanctions authorities and allows for additional economic costs to be imposed on Russia and for sanctions to be imposed on any person determined to operate of have operated in any of the sectors. OFAC issued a second determination pursuant to E.O. 14071 (effective June 18) to prohibit the “exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of architecture services or engineering services to any person located in the Russian Federation.” (See new OFAC FAQs and general licenses here.)
Additionally, OFAC amended Directive 4 under E.O. 14024 “to require U.S. persons to report to OFAC any property in their possession or control in which the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation has an interest.”
Earlier in the month, OFAC also announced sanctions against a Russian ransomware actor for being complicit in cyberattacks against U.S. law enforcement, businesses, and critical infrastructure. OFAC commented that analysis conducted by FinCEN found that “75 percent of ransomware-related incidents reported between July and December 2021 were linked to Russia, its proxies, or persons acting on its behalf.”
As a result of the sanctions, all property and interests in property of the designated persons that are in the U.S. or in the possession or control of U.S. persons must be blocked and reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” OFAC’s announcement further noted that its regulations “generally prohibit” U.S. persons from participating in transactions with designated persons unless exempt or otherwise authorized by a general or specific license.
OFAC announces new Sudan E.O., issues and amends several sanctions general licenses and FAQs
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) recently announced several sanctions-related actions, including President Biden’s new Executive Order (E.O.) Imposing Sanctions on Certain Persons Destabilizing Sudan and Undermining the Goal of a Democratic Transition. The E.O. expands the scope of a 2006 Executive Order following the determination that recent events in Sudan “constitute[] an unusual and extraordinary threat to the national security and foreign policy of the United States.” The E.O. outlines specific prohibitions and provides that all property and interests in property that are in the U.S. or that later come in the U.S., or that are in the possession or control of any of the identified U.S. persons must be blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in. Concurrently, OFAC issued a new FAQ clarifying which sanctions authorities are applicable to Sudan and the Sudanese government.
OFAC also issued Venezuela-related General License (GL) 42, which authorizes certain transactions related to the negotiation of settlement agreements with the IV Venezuelan National Assembly and certain other entities. The authorized transactions must relate to debt owed by the Venezuelan government, Petróleos de Venezuela, S.A., or any entity owned, directly or indirectly, 50 percent or more. GL 42 does not authorizes transactions involving the Venezuelan National Constituent Assembly convened by Nicolas Maduro or the National Assembly seated on January 5, 2021. OFAC also released three new related FAQs and one amended FAQ.
Additionally, OFAC released cyber-related GL 1C, which authorizes certain transactions with Russia’s Federal Security Service that would normally be prohibited by the Weapons of Mass Destruction Proliferators Sanctions Regulations, and issued three amended cyber-related FAQs. A few days later, OFAC issued Russia-related GL 8G, which authorizes certain transactions related to energy that would otherwise be prohibited by E.O. 14024, involving certain entities, including Russia’s central bank. OFAC clarified that GL 8G does not authorize prohibited transactions related to (i) certain sovereign debt of the Russian Federation; (ii) the “opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity subject to Directive 2 under E.O. 14024, Prohibitions Related to Correspondent or Payable-Through Accounts and Processing of Transactions Involving Certain Foreign Financial Institutions”; and (iii) or “[a]ny debit to an account on the books of a U.S. financial institution of the Central Bank of the Russian Federation,” among others.
Agencies release statement on LIBOR sunset; CFPB amends Reg Z to reflect transition
On April 26, the CFPB joined the Federal Reserve Board, FDIC, NCUA, and OCC in issuing a joint statement on the completion of the LIBOR transition. (See also FDIC FIL-20-2023 and OCC Bulletin 2023-13.) According to the statement, the use of USD LIBOR panels will end on June 30. The agencies reiterated their expectations that financial institutions with USD LIBOR exposure must “complete their transition of remaining LIBOR contracts as soon as practicable.” Failure to adequately prepare for LIBOR’s discontinuance may undermine financial stability and institutions’ safety and soundness and could create litigation, operational, and consumer protection risks, the agencies stressed, emphasizing that institutions are expected to take all necessary steps to ensure an orderly transition. Examiners will monitor banks’ efforts throughout 2023 to ensure contracts have been transitioned away from LIBOR in a manner that complies with applicable legal requirements. The agencies also reminded institutions that safe-and-sound practices include conducting appropriate due diligence to ensure that replacement alternative rate selections are appropriate for an institution’s products, risk profile, risk management capabilities, customer and funding needs, and operational capabilities. Institutions should also “understand how their chosen reference rate is constructed and be aware of any fragilities associated with that rate and the markets that underlie it,” the agencies advised. Both banks and nonbanks should continue efforts to adequately prepare for LIBOR’s sunset, the Bureau said in its announcement, noting that the agency will continue to help institutions transition affected consumers in an orderly manner.
The Bureau also issued an interim final rule on April 28 amending Regulation Z, which implements TILA, to update various provisions related to the LIBOR transition. The interim final rule updates the Bureau’s 2021 LIBOR Transition Rule (covered by InfoBytes here) to reflect the enactment of the Adjustable Interest Rate Act of 2021 and its implementing regulation promulgated by the Federal Reserve Board (covered by InfoBytes here). Among other things, the interim final rule further addresses LIBOR’s sunset on June 30, by incorporating references to the SOFR-based replacement—the Fed-selected benchmark replacement for the 12-month LIBOR index—into Regulation Z. The interim final rule also (i) makes conforming changes to terminology used to identify LIBOR replacement indices; and (ii) provides an example of a 12-month LIBOR tenor replacement index that meets certain standards within Regulation Z. The Bureau also released a Fast Facts summary of the interim final rule and updated the LIBOR Transition FAQs.
The interim final rule is effective May 15. Comments are due 30 days after publication in the Federal Register.
FinCEN renews and expands real estate GTOs
On April 21, FinCEN updated its Geographic Targeting Orders (GTOs). The GTOs require U.S. title insurance companies to identify the natural persons behind shell companies that pay “all cash” (i.e., the transaction does not involve external financing) for residential real estate in certain counties within the following major metropolitan areas: Boston; Chicago; Dallas-Fort Worth; Houston; Laredo; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; Seattle; the District of Columbia, Northern Virginia, and Maryland (DMV) area; as well as the City and County of Baltimore, the County of Fairfield, Connecticut, and the Hawaiian islands of Honolulu, Maui, Hawaii, and Kauai. FinCEN also expanded the geographic coverage of the GTOs to additional counties in both Connecticut and Colorado, after the agency—in conjunction with law enforcement partners—identified the regions as presenting greater risks for illicit finance activity through non-financed purchases of residential real estate. The purchase price required to trigger the reporting requirements in the relevant areas remains set at $300,000, with the exception of the City and County of Baltimore, which is set at $50,000. The renewed GTOs take effect April 25 and end October 21, 2023.
FinCEN FAQs regarding the GTOs are available here.
OFAC sanctions target Russian financial facilitators
On April 12, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), in coordination with the United Kingdom, announced sanctions targeting Russian financial facilitators to curb the country’s access to the international financial system. The sanctions, issued pursuant to Executive Order 14024, target 25 individuals and 29 entities with touchpoints in 20 jurisdictions, and include the facilitation network of one of Russia’s wealthiest billionaires who is subject to sanctions in multiple jurisdictions, OFAC said. The designations also serve to reinforce existing measures and further disrupt Russia’s ability to import critical technologies for use in its war against Ukraine. Concurrently, the State Department designated several entities operating in Russia’s defense sector, as well as entities supporting Russia’s war efforts against Ukraine and entities associated with the country’s energy exports. (See also State Department’s fact sheet here.) The Commerce Department also added 28 entities to its entity list. “Today’s action underscores our dedication to implementing the G7 commitment to impose severe costs on third-country actors who support Russia’s war,” Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson said in the announcement.
As a result of the sanctions, all property and interests in property belonging to the sanctioned persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless authorized by a general or specific OFAC license, or otherwise exempt.
In conjunction with the sanctions, OFAC issued several Russia-related general licenses (see GLs 62, 63, 64, and 65), revoked GL 15, and published new FAQ 1122.
FinCEN releases beneficial ownership reporting guidance
On March 24, FinCEN released its first set of guidance materials to aid the public and small businesses in reporting beneficial ownership information (i.e., individuals who directly or indirectly own or control a company). As previously covered by InfoBytes, last September, FinCEN published a final rule establishing beneficial ownership information requirements, as required by the Corporate Transparency Act. The final rule, which becomes effective January 1, 2024, will require most corporations, limited liability companies, and other entities created in or registered to do business in the United States, to report information about their beneficial owners to FinCEN. Reporting companies created or registered before January 1, 2024, will have until January 1, 2025, to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports. The guidance materials include FAQs, information on key filing dates, and informational videos. Additional guidance will be published in the coming months, including a Small Entity Compliance Guide, FinCEN said in the announcement.
Fed issues Bank Term Funding Program FAQs
On March 13, the Federal Reserve Board issued FAQs on its Bank Term Funding Program, which launched March 12, to provide additional funding to eligible depository institutions in order to meet depositors’ needs. The program will serve as an additional source of liquidity against high-quality securities, and will eliminate the need for an institution to quickly sell those securities in times of stress. Loans of up to one year in length will be made available to “banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral.” The Fed said in its announcement that it “is closely monitoring conditions across the financial system and is prepared to use its full range of tools to support households and businesses, and will take additional steps as appropriate.”
OFAC issues more Russian sanctions and metals and mining determination
On February 24, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced significant measures targeting the metals and mining sector of the Russian Federation economy under Executive Order 14024. OFAC also imposed sanctions on 22 individuals and 83 entities to further isolate Russia from the international economy and hinder the country’s access to capital, materials, technology, and military support sustaining its war against Ukraine. (See also OFAC’s fact sheet on sanctions measures taken during the past year.) According to OFAC, the designations target “over 30 third-country individuals and companies connected to Russia’s sanctions evasion efforts, including those related to arms trafficking and illicit finance.” The agency added that “[w]hile Russian banks representing over 80 percent of total Russian banking sector assets are already subject to U.S and international sanctions,” it is now “designating over a dozen financial institutions in Russia, including one of the top-ten largest banks by asset value.” OFAC explained that sanctioned actors are known to turn to smaller banks and wealth-management firms to evade sanctions and access the international financial system. As a result, several wealth management-related entities and associated individuals playing key roles in Russia’s financial services sector have been sanctioned. OFAC also issued a determination (effective February 24), in consultation with the Department of State, allowing for sanctions to be imposed on any individual or entity determined to operate or have operated in the metals and mining sector of the Russian Federation economy.
As a result of the sanctions, all property and interests in property belonging to the sanctioned persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons unless authorized by an OFAC-issued general or specific license, or exempt.
The announcement further noted that additional measures have been taken by the Departments of State and Commerce, as well as the Office of the U.S. Trade Representative, in coordination with allies and G7 partners.
In conjunction with the sanctions, OFAC issued several Russia-related general licenses (see GLs 8F, 13D, 60, and 61), as well as five associated frequently asked questions.
OFAC FAQ clarifies Russia-related investment prohibitions
On February 8, OFAC published Russia-related FAQ 1113 to clarify whether new investment prohibitions in Executive Order (E.O.) 14066, E.O. 14068, or E.O. 14071 prohibit U.S. persons, including U.S. financial institutions, from transferring securities issued by non-blocked Russian entities from a decedent’s estate to a beneficiary. OFAC explained that securities may be transferred “provided such transfers (i) are part of the ordinary course administration of the decedent’s estate, (ii) do not involve an exchange for value, and (iii) have no other sanctions nexus (including the involvement of blocked persons).” OFAC noted, however, that blocked securities in a decedent’s estate must remain blocked and that transferring blocked securities would require a specific license from OFAC.
FinCEN prohibits engagement with virtual currency exchange connected to Russian finance
On January 18, the Financial Crimes Enforcement Network (FinCEN) issued its first order pursuant to section 9714(a) of the Combating Russian Money Laundering Act to identify a Hong Kong-registered global virtual currency exchange operating outside of the U.S. as a “primary money laundering concern” in connection with Russian illicit finance. FinCEN announced that the virtual currency exchange offers exchange and peer-to-peer services and “plays a critical role in laundering Convertible Virtual Currency (CVC) by facilitating illicit transactions for ransomware actors operating in Russia.” A FinCEN investigation revealed that the virtual currency exchange facilitated deposits and funds transfers to Russia-affiliated ransomware groups or affiliates, as well as transactions with Russia-connected darknet markets, one of which is currently sanctioned and subject to enforcement actions that have shuttered its operations. The investigation also found that the virtual currency exchange failed to meaningfully implement steps to identify and disrupt the illicit use and abuse of its services, and lacked adequate policies, procedures, or internal controls to combat money laundering and illicit finance.
Recognizing that the virtual currency exchange “poses a global threat by allowing Russian cybercriminals and ransomware actors to launder the proceeds of their theft,” FinCEN acting Director Himamauli Das emphasized that “[a]s criminals and criminal facilitators evolve, so too does our ability to disrupt these networks.” He warned that FinCEN will continue to leverage the full range of its authorities to prohibit these institutions from gaining access to and using the U.S. financial system to support Russian illicit finance. Effective February 1, covered financial institutions are prohibited from engaging in the transmittal of funds from or to the virtual currency exchange, or from or to any account or CVC address administered by or on behalf of the virtual currency exchange. Frequently asked questions on the action are available here.
Concurrently, the DOJ announced that the founder and majority owner of the virtual currency exchange was arrested for his alleged involvement in the transmission of illicit funds. Charged with conducting an unlicensed money transmitting business and processing more than $700 million of illicit funds, the DOJ said the individual allegedly “knowingly allowed [the virtual currency exchange] to become a perceived safe haven for funds used for and resulting from a variety of criminal activities,” and was aware that the virtual currency exchange’s accounts “were rife with illicit activity and that many of its users were registered under others’ identities.” While the virtual currency exchange claimed it did not accept users from the U.S., it allegedly conducted substantial business with U.S.-based customers and advised users that they could transfer funds from U.S. financial institutions.
Deputy Secretary of the Treasury Wally Adeyemo issued a statement following the announcement, noting that the action “is a unique step that has only been taken a handful of times in Treasury’s history for some of the most egregious money laundering cases, and is the first of its kind specifically under new authorities to combat Russian illicit finance.” He reiterated that the action “sends a clear message that we are prepared to take action against any financial institution—including virtual asset service providers—with lax controls against money laundering, terrorist financing, or other illicit finance.”