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NYDFS and Fed order bank to pay fines for BSA/AML non-compliance
On January 19, the Federal Reserve Board and NYDFS each issued separate enforcement actions against one of the largest banks in the world for alleged compliance deficiencies and violations under BSA/AML. The Fed issued its cease and desist order and ordered the bank to pay a civil money penalty of $2.4 million. The NYDFS also issued a similar consent order with a monetary penalty of $30 million.
According to the Fed’s order, an investigation into the bank’s practices determined that the New York branch lacked any formal policies or training on confidential supervisory information (CSI). Additionally, the order required the bank to submit a written plan to enhance internal compliance controls to the Fed, including designation of a CSI officer, among other requirements. According to NYDFS’s order, the bank previously entered into a 2018 cease and desist order with the Fed to address “significant deficiencies” in its compliance with BSA/AML requirements and OFAC regulations. NYDFS conducted an examination in 2022 and found that deficiencies cited in the 2018 order persisted for several more years. A subsequent examination in 2023 found that the bank had made significant efforts toward enhancing its compliance programs and successfully remediated prior deficiencies. Per this most recent order, NYDFS found that the bank’s BSA/AML program was not in compliance for several years; the bank failed to maintain appropriate accounting records; and the bank failed to submit a report after discovering the occurrence of “embezzlement, misapplication, larceny, forgery, fraud, [or] dishonesty[.]” The consent order stipulated several remediation requirements, including a status report to NYDFS on the bank’s BSA/AML compliance.
NYDFS orders digital currency trading company to pay $8 million
On January 12, NYDFS announced that it had entered into a consent order with a digital currency trading company after an investigation that found the company responsible for compliance failures that violated NYDFS’s virtual currency and cybersecurity regulations, leaving the company vulnerable to illicit activity and cybersecurity threats.
NYDFS found that the company failed to meet its compliance obligations due to (i) deficiencies in the company’s AML program; (ii) failure to file compliant suspicious activity reports; (iii) failure to conduct required OFAC screening; and (iv) failure to maintain an adequate cybersecurity program. In connection with the settlement, the company will surrender its BitLicense, the license required to be held by any company conducting virtual currency business in New York state and pay an $8 million penalty.
OFAC sanctions Mexico-based human smuggling organization
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) recently announced sanctions pursuant to Executive Order 13581 against a human smuggling organization, and several individuals and entities in its support network. OFAC claimed the Mexico-based organization, Hernandez Salas transnational criminal organization (TCO), earns billions of dollars per year smuggling and creating false documentation for migrants. The leader of the TCO has been sanctioned, among four other supporters. OFAC reported that the individuals are currently incarcerated in Mexico and awaiting extradition to the U.S. for trial before a federal grand jury. Also sanctioned are two Mexican hotels that have taken part in the TCO’s smuggling operations. OFAC noted that the sanctions were pursued in close collaboration with Mexico’s Financial Intelligence Unit.
As a result of the sanctions, all property and interests in property belonging to the sanctioned persons subject to U.S. jurisdiction 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 also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons.
OFAC sanctions Burma Ministry of Defense and supporting financial institutions
On June 21, pursuant to Executive Order 14014, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against Burma’s Ministry of Defense and two regime-controlled financial institutions. In announcing the sanctions, OFAC explained that the Burmese military, which overthrew the country’s democratic government in February 2021, has increased its reliance on air strikes in civilian populated areas, resulting in the death of more than 3,600 civilians and displacing nearly than 1.5 million people, and that Burma’s Ministry of Defense has imported goods from sanctioned entities in Russia to support the Burmese military. OFAC detailed that the two sanctioned financial institutions, which primarily function as foreign currency exchanges, “enable Burma’s Ministry of Defense and other sanctioned military entities to purchase arms and other materials from foreign sources.” 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 if otherwise exempt.
In conjunction with the sanctions, OFAC issued a Burma-related special license (See General License 5).
OFAC sanctions DPRK missile development procurers
On June 15, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Orders (E.O.) 13382 and 13810, against two individuals involved in the procurement of equipment and materials that support the Democratic People’s Republic of Korea’s (DPRK) ballistic missile program. According to OFAC, the missile program relies on foreign-sourced ballistic missile-related components that it cannot produce domestically. One of the sanctioned persons has collaborated with a number of individuals to purchase and procure items including those known to be used in the production of DPRK ballistic missiles. The individual’s wife is the second sanctioned individual listed as “being a North Korean person, including a North Korean person that has engaged in commercial activity that generates revenue for the Government of North Korea or the Workers’ Party of Korea.”
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, are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked. OFAC further mentioned, “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today could be subject to U.S. correspondent or payable-through account sanctions.”
OFAC sanctions Russians for election influence
On June 23, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 14024, against two individuals for attempting to conduct “global malign influence operations,” including efforts to influence a U.S. local election. According to OFAC, the designated individuals are Russian Federal Security Service officers who operate as part of a mission that provokes anti-government and anti-democratic positions designed to undermine faith in democratic principles, weaken U.S. diplomatic connections, and exploits societal divisions in an effort to expand Russia’s influence. OFAC said one of the individuals directed more than six U.S. co-conspirators, including two who ran in local U.S. elections, to report on the activities of political groups. OFAC designated the two individuals “for having acted or purported to act for or on behalf of, directly or indirectly, the Government of the Russian Federation.” The designated individuals were also recently indicted by the DOJ as well as by the U.S. Attorney’s Office for the Middle District of Florida. In a parallel action announced the same day, the EU released its Eleventh Package of sanctions against Russia. The Eleventh Package added, among other things, over 100 individuals and entities subject to asset freezes, a new anti-circumvention tool to restrict the trade of sanctioned goods, and 87 new entities to the list of those directly supporting Russia’s military and industrial complex in the war against Ukraine.
As a result of these 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, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific OFAC license. Additionally, OFAC warned that financial institutions and other persons that engage in certain transactions or activities with the sanctioned persons may themselves be exposed to sanctions or be subject to an enforcement action.
OFAC settles with international financial institution
On June 20, the U.S Treasury Department’s Office of Foreign Assets Control (OFAC) announced a settlement with a Latvia-based bank—a subsidiary of an international financial institution headquartered in Sweden—to resolve potential civil liability stemming from OFAC’s Crimea sanctions. According to OFAC’s web notice, in 2015 and 2016, a shipping industry client of the Latvia-based subsidiary bank made 386 transactions totaling over $3 million through its e-banking platform from a Crimea-based IP address to persons in Crimea, which were processed through U.S. correspondent banks. OFAC alleges that in 2016, the client attempted to make a payment to a U.S. correspondent bank from a Crimea-based IP address, but after the payments were rejected and the bank was reassured by the client that the transactions did not involve Crimea, the bank rerouted the payment through a different U.S. correspondent bank. OFAC alleges that the bank had client onboarding information that the client had a physical presence in Crimea, so the bank had reason to know that the transactions in fact involved Crimea. OFAC also accused the bank of not integrating the client’s IP data into its sanctions screening processes.
In arriving at the $3.4 million settlement amount, OFAC considered, among other things, that the bank willfully violated U.S. sanctions by not self-disclosing the violations, which is required as a third party. According to the OCC, the bank failed to exercise due caution or care in neglecting to account for the client’s presence in Crimea, and instead solely relied on the client’s reassurances when it possessed contradictory information. OFAC also claimed that the bank had many customers in Crimea, and therefore had reason to know the origin of the payments it was processing. OFAC also considered several mitigating factors, including that: (i) the bank has not received a penalty notice from OFAC in the preceding five years; (ii) the bank and the financial institution took remedial action; and (iii) the bank and the financial institution cooperated with OFAC’s requests for information.
OFAC said that this action “demonstrates the importance of implementing and maintaining effective, risk-based sanctions compliance controls, especially for sophisticated financial institutions operating in proximity to high-risk regions.” OFAC added that this case also demonstrates the importance of undertaking reasonable efforts to investigate red flags. Finally, OFAC noted that this matter underscores the importance of remaining vigilant against efforts by entities based in Crimea, Russia, and other high-risk countries seeking to evade sanctions and elude compliance controls.
OFAC clarifies impact of sanctions on humanitarian assistance and trade
On June 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued a Fact Sheet for “Provision of Humanitarian Assistance and Trade to Combat COVID-19.” The Fact Sheet, among other things, highlights Treasury’s humanitarian-related or other general licenses (GL) issued to support people impacted by Covid-19 across Iran, Venezuela, North Korea, Syria, Cuba, and Russia. Relatedly, OFAC issued Iran-related GL N-2, Venezuela-related GL 39B, and Syria-related GL 21B to authorize transactions and activities related to the prevention, diagnosis, or treatment of Covid-19, as well as several amended FAQs.
OFAC sanctions network supporting Iran’s missile and military programs
On June 6, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions, pursuant to Executive Order 13382, against seven individuals and six entities in Iran, China, and Hong Kong for supporting Iran’s ballistic missile program. These sanctions build on OFAC’s March 30, 2022, designations against other supporters of the Iran-based missile program (covered by InfoBytes here) in an effort to target weapons of mass destruction proliferators and their supporters. OFAC explained that the designated individuals and entities have done business with and supported the procurement of critical parts and technology for Iran’s ballistic missile development.
As a result of the sanctions, all property and interests in property belonging to the sanctioned individuals and entities 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. Persons that engage in certain transactions with the designated individuals or entities may themselves be exposed to sanctions, and “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today pursuant to E.O. 13382 could be subject to U.S. sanctions.”
OFAC sanctions entities connected to Mexican cartel
On June 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 14059, against three individuals and one entity connected to the Cartel de Jalisco Nueva Generación (CJNG). The CJNG is a Mexico-based organization responsible for a significant proportion of fentanyl and other drugs trafficked into the U.S. OFAC explained that two individuals are senior members of CJNG who engaged in trafficking firearms into the U.S. and fuel theft in Mexico. These sanctions follow similar actions taken earlier this year against other Mexican arms dealers working in collaboration with the CJNG (covered by InfoBytes here). Additionally, one individual and her currency exchange house (responsible for laundering over $6 million between 2020 and 2022) have been identified for laundering money on behalf of the CJNG, OFAC stated.
As a result of the sanctions, all property and interests in property of the designated persons located in the U.S. or held by U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, individually or in the aggregate, 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 an exemption. OFAC further warned that “U.S. persons may face civil or criminal penalties for violations of E.O. 14059 and the Kingpin Act.”