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FATF discusses terror finance risks, virtual currency regulation, and global AML/CFT deficiencies
On October 18, the U.S. Treasury Department released a public statement issued by the Financial Action Task Force (FATF) following the conclusion of its plenary meeting held October 16-18. Topics discussed by attendees included Iranian terrorist financial risks, guidance related to “stablecoins” and virtual assets, and reports related to anti-money laundering/countering the financing of terrorism (AML/CFT). Specifically, the FATF discussed the re-imposition of countermeasures on Iran as well as enhanced due diligence strategies due to the country’s AML/CFT deficiencies. As previously covered by InfoBytes, the FATF issued a public statement last June that called upon members and urged all jurisdictions to require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran. Assistant Secretary for Terrorist Financing and Financial Crimes Marshall Billingslea issued a statement in Treasury’s press release that “countries will be called upon to impose further financial restrictions to protect the international financial system if Iran hasn’t ratified and fully implemented the key treaties related to fighting money laundering and terrorist financing.”
The FATF also issued a public statement to clarify that standards adopted last June (InfoBytes coverage here) apply to “stablecoins” and their service providers. Additionally, the FATF adopted changes to its methodology on how it will assess whether countries are complying with the relevant requirements. Specifically, the FATF noted in the plenary meeting outcomes that “assessments will specifically look at how well countries have implemented these measures. Countries that have already undergone their mutual evaluation must report back during their follow-up process on the actions they have taken in this area.”
Additionally, the FATF (i) provided an updated report on measures for combating ISIL and Al-Qaeda financing; (ii) called upon all countries to apply countermeasures on North Korea due to ongoing AML/CFT and weapons of mass destruction proliferation financing risks to the international financial system; and (iii) noted it will publish reports by year end related to AML/CFT and counter-proliferation financing legal frameworks for both Russia and Turkey, along with a review of implementation measures undertaken by the countries.
DOJ charges Turkish bank in Iran sanctions violation scheme
On October 15, the DOJ announced charges against a Turkish bank alleging fraud, money laundering, and sanctions offenses related to the bank’s alleged participation in a scheme to evade U.S. sanctions on Iran. According to the indictment, the bank used money service businesses and front companies to evade U.S. sanctions against Iran and “avoid prohibitions against Iran’s access to the U.S. financial system.” The bank allegedly lied to U.S. regulators and foreign banks about its participation in the fraudulent transactions. The concealed funds, the DOJ claimed, “were used to make international payments on behalf of the Government of Iran and Iranian banks, including transfers in U.S. dollars that passed through the U.S. financial system in violation of U.S. sanctions laws.” Additionally, the DOJ asserted that the conduct—which allowed Iran access to “billions of dollars’ worth of Iranian oil revenue”—was protected by high ranking government officials in Iran and Turkey, some of whom received millions of dollars in bribes to promote and protect the scheme from U.S. scrutiny.
OFAC sanctions Iran’s central bank and national development fund
On September 20, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224 against Iran’s central bank, the country’s national development fund, and an Iran-based company for providing financial support to the Islamic Revolutionary Guards Corps, its Qods Force (IRGC-QF), and Hizballah, the regime’s terrorist proxy. OFAC designated the bank for purportedly providing billions of dollars to these entities, and alleged that the national development fund “has been a major source of foreign currency and funding” for both the IRGC-QF and Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL). Sanctions were brought against the Iran-based company for concealing financial transfers for MODAFL’s military purchases, including those originating from the national development fund. As a result of the sanctions, “all property and interests in property of these entities that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” OFAC noted that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated persons, and warned foreign financial institutions that if they knowingly facilitate significant transactions for any of the designated entities, they may be subject to U.S. correspondent account or payable-through account sanctions.
District Court dismisses suit claiming banks evading Iran sanctions
On September 16, the U.S. District Court for the Eastern District of New York dismissed an action alleging 10 financial institutions (defendants) conspired to evade U.S. sanctions on financial and business dealings with Iran, resulting in the direct and indirect material support for terrorism. According to the opinion, the plaintiffs—a group of veterans who served in Iraq from 2004 to 2011 and were injured or killed by terrorist attacks during that time—alleged that the defendants conspired with the Government of Iran, and multiple state-affiliated and private Iranian entities that work with the Islamic Revolutionary Guard Corps’s (IRGC) and Hezbollah’s terrorist activities, to evade U.S. sanctions and conduct illicit trade-finance transactions, which helped to facilitate Iran’s provision of material support to terrorist activities. The defendants moved to dismiss the action and, in July 2018, a magistrate judge issued a Report and Recommendation (R&R) recommending that the motions be denied in their entirety.
On review, the district court declined to adopt the R&R and granted the defendants’ motion to dismiss. The court noted that the plaintiffs’ allegations indicate that Iran conspired to provide material support to the terrorist organizations, but failed to establish that the defendants “agreed to provide illegal financial services to Iranian financial and commercial entities . . . with the intent that those services would ultimately benefit a terrorist organization.” Moreover, the court reasoned that “it is up to Congress, and not the judiciary, to authorize terrorism victims to recover damages for their injuries from financial institutions that conspire with state sponsors of terrorism like Iran to evade U.S. sanctions under circumstances such as those presented in this case.”
OFAC sanctions Iranian petroleum shipping network
On September 4, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13224 against a complex shipping network “that is directed by and financially supports the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF) and its terrorist proxy Hizballah.” According to OFAC, the IRGC-QF managed to obfuscate its involvement in moving hundreds of millions of dollars’ worth of Iranian oil over the past year through the use of the sanctioned shipping network for the benefit of illicit actors. The sanctioned shipping network includes 16 entities and 10 individuals, as well as 11 vessels identified as “as property in which blocked persons have an interest.”
As a result of the sanctions, “all property and interests in property of these entities that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” OFAC noted that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated persons, and warned foreign financial institutions that if they knowingly facilitate significant financial transactions for any of the designated entities, they may be subject to U.S. correspondent account or payable-through account sanctions. Additionally, OFAC issued a reminder that “the purchase, acquisition, sale, transport, or marketing of petroleum or petroleum products from Iran is sanctionable pursuant to E.O. 13846,” and released a new shipping advisory warning the maritime community of these types of schemes and the sanctions risks associated with blocked persons.
OFAC sanctions bank connected to Hizballah; identifies several individuals as facilitators for HAMAS
On August 29, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224 (E.O. 13224) against a Lebanon-based financial institution, along with three of its subsidiaries, for allegedly facilitating banking activities for Hizballah. OFAC designated the financial institution as a Specially Designated Global Terrorist “for assisting in, sponsoring, or providing financial, material, or technological support for, or financial or other services to or in support of, Hizballah.” As a result of the sanctions, “all property and interests in property of these targets that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” OFAC noted that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated persons. The designated entities are also subject to secondary sanctions pursuant to the Hizballah Financial Sanctions Regulations, which implement the Hizballah International Financing Prevention Act of 2015, and allow OFAC the authority to “prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account by a foreign financial institution that knowingly facilitates a significant transaction for Hizballah, or a person acting on behalf of or at the direction of, or owned or controlled by, Hizballah.”
The same day, OFAC also designated several financial facilitators pursuant to E.O. 13224 for allegedly acting as intermediaries between Iran’s Islamic Revolutionary Guard Corps-Qods Force and HAMAS’s operational arm. According to OFAC, the Lebanon and Gaza-based financial facilitators are responsible for moving tens of millions of dollars from Iran through Hizballah to HAMAS, funding violence against people in Gaza. As a result, all property and interests in property of the sanctioned targets subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from entering into transactions with designated persons. Furthermore, “persons that engage in certain transactions with the individuals designated today may themselves be exposed to sanctions or subject to an enforcement action.”
OFAC sanctions procurement networks supporting Iran’s missile programs
On August 28, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC), pursuant to Executive Order (E.O.) 13382, designated two Iranian networks involved in the procurement of materials for persons related to the Islamic Revolutionary Guard Corps, the Iranian regime’s missile program, and Iran’s Ministry of Defense and Armed Forces Logistics. According to OFAC, one of the identified networks utilized a Hong Kong-front company to evade U.S. and international sanctions in order to “facilitate tens of millions of dollars’ worth of proliferation activities targeting U.S. technology and electronic components.” As a result of the sanctions, “all property and interests in property of these individuals that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” OFAC noted that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated individuals, and warned foreign financial institutions that if they knowingly facilitate significant transactions for any of the designated individuals, they may be subject to U.S. correspondent account or payable-through account sanctions.
OFAC amends sanctions regulations targeting Iran’s metal sector
On August 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that the “Iranian Human Rights Sanctions Regulations” has been renamed as the “Iranian Sector and Human Rights Abuses Sanctions Regulations.” The amended sanctions regulations implement Executive Order (E.O.) 13871 (previously covered by InfoBytes here), which authorizes the imposition of sanctions on persons determined to operate in Iran’s iron, steel, aluminum, and copper sectors. OFAC concurrently amended and published several new FAQs, including a discussion of the relevant 90-day wind-down period for affected transactions as well as sanction exceptions. The amendments take effect August 7.
Visit here for additional InfoBytes coverage of actions related to Iran.
OFAC fines truck manufacturer for Iranian sanctions violations
On August 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a roughly $1.7 million settlement with a Washington-based truck manufacturer for 63 alleged violations of the Iranian Transactions and Sanctions Regulations. The settlement resolves potential civil liability for actions taken by a wholly-owned subsidiary of the company that allegedly sold or supplied trucks with a total transactional value of over $5.4 million to European customers, but knew or had reason to know the trucks were ultimately intended for buyers in Iran.
In arriving at the settlement amount, OFAC considered various mitigating factors, including that (i) neither the company nor the subsidiary have received a penalty or finding of a violation in the five years prior to the transactions at issue; (ii) the subsidiary had in place at the time of the alleged violations a trade sanctions compliance program with contractual prohibitions on dealers and service partners that were re-selling products in violation of U.S. trade sanctions; and (iii) the company and subsidiary voluntarily self-disclosed the issue to OFAC, cooperated with OFAC during the investigation, and undertook remedial efforts to minimize the risk of similar violations from occurring in the future.
OFAC also considered various aggravating factors, including that the subsidiary failed to exercise caution when alerted to warning signs regarding the potential sales, and that in each instance, a subsidiary employee was aware of the conduct leading to the alleged violations.
Visit here for additional InfoBytes coverage of actions related to Iran.
OFAC sanctions Iran’s foreign minister
On July 31, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC), pursuant to Executive Order (E.O.) 13876, designated Iran’s foreign minister for allegedly acting on behalf of, directly or indirectly, the Supreme Leader of the Islamic Republic of Iran. As previously covered by InfoBytes, in June, the President issued E.O. 13876, which, among other things, authorizes the Secretaries of the Treasury and State Departments to impose sanctions on a foreign financial institution if it is determined the institution has knowingly conducted or facilitated any significant financial transactions for or on behalf of a blocked person. OFAC noted that additional information also indicated the Iranian foreign minister had coordinated with the IRGC-Qods Force, which is designated pursuant to terrorism and human rights authorities.
As a result of the sanctions designation, “all property and interests in property of these targets that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” OFAC noted that persons who engage in transactions with designated individuals and entities may expose themselves to sanctions or be subject to enforcement action.