InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OFAC sanctions IRGC-connected entities
On March 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13224, as amended, as well as E.O. 13382, against an Iran-based procurement agent and his network of companies that supported the Islamic Revolutionary Guard Corps Research and Self Sufficiency Jihad Organization (IRGC), the IRGC unit responsible for the research and development of ballistic missiles, as well as Iran’s Parchin Chemical Industries (PCI), an element of Iran’s Defense Industries Organization. Additionally, OFAC sanctioned an Iranian intermediary involved in the procurement of parts used to develop missile propellant on behalf of PCI.
According to OFAC, the sanctions follow Iran’s missile attack on March 13 in Erbil, Iraq and an Iranian-enabled Houthi missile attack against a Saudi Aramco facility on March 25, in addition to other missile attacks by Iranian proxies against Saudi Arabia and the United Arab Emirates. 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, and “any entities that are owned, directly or indirectly, 50 percent or more” by the targeted persons are blocked and must be reported to OFAC. U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons.
FATF updates statements concerning jurisdictions with AML/CFT/CPF deficiencies
On March 10, the Financial Crimes Enforcement Network (FinCEN) announced updates to the Financial Action Task Force (FATF) statements concerning jurisdictions with strategic anti-money laundering, countering the financing of terrorism, and combating weapons of mass destruction proliferation financing (AML/CFT/CPF) deficiencies. Specifically, to ensure compliance with international standards, FAFT updated the following two statements: (i) Jurisdictions under Increased Monitoring, which identifies jurisdictions with strategic deficiencies in their AML/CFT/CPF regimes that have committed to, or are actively working with, FATF to address those deficiencies in accordance with an agreed upon timeline and; (ii) High-Risk Jurisdictions subject to a Call for Action, which identifies jurisdictions with significant strategic deficiencies in their AML/CFT/CPF regimes and instructs FATF members to apply enhanced due diligence, and in the most serious cases, apply counter-measures to protect the international financial system from such risks. Among other things, through the announcement, FinCEN reminded covered financial institutions of their obligations to comply with due diligence obligations for foreign financial institutions (in addition to their general obligations) to ensure their due diligence programs “include appropriate, specific, risk-based, and, where necessary, enhanced policies, procedures, and controls that are reasonably designed to detect and report known or suspected money laundering activity conducted through or involving any correspondent account established, maintained, administered, or managed in the United States.” Money service businesses are also required to establish appropriate policies to address money laundering and terrorism financing risks posed by their relationships with foreign agents or foreign counterparties. FinCEN further instructed financial institutions to comply with U.S. prohibitions against the opening or maintaining of any correspondent accounts, whether directly or indirectly, for North Korean or Iranian financial institutions, which are already prohibited under existing U.S. sanctions and FinCEN regulations. As previously covered by InfoBytes, FinCEN last announced updates to the FATF statements in October.
OFAC reaches $5.2 million settlement with Hong Kong company for apparent Iranian sanctions violations
On January 11, the U.S. Treasury Department’s Office of Foreign Assets Control announced a $5.2 million settlement with a Hong Kong, China-based company for allegedly processing certain transactions related to goods of Iranian origin through U.S. financial institutions in violation of the Iranian Transactions and Sanctions Regulations (ITSR). According to OFAC’s web notice, from August 2016 through May 2018, certain company employees violated company-wide policies and procedures by causing the company to purchase Iranian-origin goods from a supplier in Thailand for resale to buyers in China. Under the terms of the trading arrangement, the company made 60 separate U.S. dollar payments from its bank in Hong Kong to the Thai supplier’s banks in Thailand, transferring a total of $75.6 million. Each of these payments were allegedly “processed and settled through multiple U.S. financial institutions, including the U.S. correspondent banks of the Hong Kong and Thai banks.” Due to the noncompliant employees’ misconduct, the funds transfer instructions omitted references to Iran. As a result, U.S. financial institutions were unable to flag the transfers as violating the ITSR, which would have “caused them to reject and report each of these U.S. dollar denominated funds transfers.”
In calculating the settlement amount, OFAC considered the following aggravating factors: (i) the noncompliant employees omitted Iranian country of origin references from all relevant transactional documents over a period of two years, despite knowing and having been advised repeatedly that this conduct violated the ITSR and company policy; (ii) the noncompliant employees “had actual knowledge about the [supplier’s] relation to Iran”; (iii) the company’s actions conferred significant economic benefits to Iran, specifically with respect to Iran’s petrochemical sector; and (iv) the company “is a sophisticated offshore trading and cross-border trade financing company with ready access to experience and expertise in international trade, investment, financing, and sanctions compliance.”
OFAC also considered various mitigating factors, including that (i) the company repeatedly reminded noncompliant employees not to make U.S. dollar payments in connection with Iran-related business transactions; (ii) senior management and compliance personnel were unaware of the violations due to the concealment of the information internally; (iii) the company has not received a penalty notice from OFAC in the preceding five years; and (iv) the company voluntarily self-disclosed the apparent violations, cooperated with OFAC’s investigation, and has undertaken significant remedial measures to ensure sanctions compliance.
OFAC reaches $133,860 settlement in Iranian sanctions matter
On December 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $133,860 settlement against an individual for allegedly facilitating four payments on behalf of an Iranian company using a personal bank account in the U.S., in violation of the Iranian Transactions and Sanctions Regulations (ITSR), 31. C.F.R. part 560. According to OFAC’s web notice, between February 2016 and March 2016, the individual accepted $133,860 in the U.S., which went to a personal bank account, on behalf of an Iran-based company selling Iranian-origin cement to another company for a project in a third country.
In arriving at the settlement amount, OFAC considered various aggravating factors, including, among other things, that the individual: (i) willfully was in violation of or recklessly ignored U.S. sanctions on Iran when receiving payments on behalf of an Iranian company; (ii) was aware of, and actively participated in, the violations; and (iii) “harmed the objectives of the ITSR by enabling the evasion of sanctions by an Iranian company.” OFAC also considered various mitigating factors, including that the individual did not receive a penalty notice, finding of violation, or cautionary letter from OFAC in the past five years, and is a natural person with a limited ability to pay.
OFAC sanctions Iranians for attempting to influence 2020 U.S. presidential election
On November 18, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13848 against six Iranian individuals and one Iranian entity for allegedly attempting to influence the 2020 U.S. presidential election. According to OFAC, “state-sponsored Iranian cyber actors executed an online operation to intimidate and influence American voters, and to undermine voter confidence and sow discord” by obtaining or attempting to obtain U.S. voter information, sending threatening and intimidating emails to voters, crafting and disseminating “disinformation pertaining to the election and election security,” and illicitly accessing “content management accounts of several online U.S. media entities, which resulted in their ability to edit and create fraudulent content.” As a result, all property and interests in property of the sanctioned persons subject to U.S. jurisdiction are blocked, as well as any entities owned 50 percent or more by such persons. U.S. persons are also generally prohibited from entering into transactions with the sanctioned persons. Additionally, OFAC warned that “financial institutions and other persons that engage in certain transactions or activities with the sanctioned entity and individuals may expose themselves to sanctions or be subject to an enforcement action.”
The sanctions are part of a collective effort with the U.S. Department of State and the FBI. Concurrent with the designations, the DOJ unsealed an indictment against two of the sanctioned individuals. The DOJ charged the Iranian nationals with (i) conspiracy to commit computer fraud and abuse, voter intimidation, and transmission of interstate threats, (ii) voter intimidation, and (iii) transmission of interstate threats. One of the individuals was additionally charged with unauthorized computer intrusion and computer fraud.
FATF updates statements concerning jurisdictions with AML/CFT/CPF deficiencies
On October 26, the Financial Crimes Enforcement Network (FinCEN) announced updates to the Financial Action Task Force (FATF) statements concerning jurisdictions with strategic anti-money laundering, countering the financing of terrorism, and combating weapons of mass destruction proliferation financing (AML/CFT/CPF) deficiencies. Specifically, to ensure compliance with international standards, the FAFT updated the following two statements: (i) Jurisdictions under Increased Monitoring, which identifies jurisdictions with strategic deficiencies in their AML/CFT/CPF regimes that have committed to, or are actively working with, the FATF to address those deficiencies in accordance with an agreed upon timeline and; (ii) High-Risk Jurisdictions Subject to a Call for Action, which identifies jurisdictions with significant strategic deficiencies in their AML/CFT/CPF regimes and instructs FATF members to apply enhanced due diligence, and in the most serious cases, apply counter-measures to protect the international financial system from such risks. Notably, Jordan, Mali, and Turkey have been added to the Jurisdictions under Increased Monitoring, while Botswana and Mauritius have been removed from the list. Among other things, through the announcement, FinCEN further instructed financial institutions to comply with U.S. prohibitions against the opening or maintaining of any correspondent accounts, whether directly or indirectly, for North Korean or Iranian financial institutions, which are already prohibited under existing U.S. sanctions and FinCEN regulations. As previously covered by InfoBytes, FinCEN last announced updates to the FATF statements in July.
2nd Circuit: Turkish bank not immune from sanctions
On October 22, the U.S. Court of Appeals for the Second Circuit upheld a district court’s ruling against a Turkish state-owned commercial bank (defendant) denying its bid for immunity based on its characterization of an “instrumentality” of a foreign service, which is not entitled to immunity from criminal prosecution at common law. The U.S. government alleged that the bank converted Iranian oil money into gold and hid the transactions as purchases of goods to avoid conflicting sanctions against Iran. The district court denied the defendant’s motion to dismiss and partially concluded that the defendant was not immune from prosecution because the Foreign Sovereign Immunities Act (FSIA) confers immunity on foreign services only in civil proceedings. Furthermore, the district court concluded that, “even assuming arguendo that FSIA did confer immunity to foreign sovereigns in criminal proceedings, [the defendant’s] conduct would fall within FSIA’s commercial activity exception.” Additionally, the district court rejected the defendant’s “contention that it was entitled to immunity from prosecution under the common law, noting that [the defendant] failed to cite any support for its claim on this basis.” The district court found that the defendant’s characterization of its activities as sovereign in nature “conflates the act with its purpose,” finding that the lender's alleged money laundering was the type of activity regularly carried out by private businesses. The fact that the defendant is majority-owned by the Turkish Government is irrelevant under FSIA even if it is related to Turkey’s foreign policy because “literally any bank can violate sanctions.”
On appeal, the 2nd Circuit noted that it was unnecessary to resolve a question presented in the case—if foreign governments can assert immunity against criminal, as well as civil, charges—since money laundering would qualify as a commercial activity exception. The appellate court noted that, “[t]he gravamen of the Indictment is not that [the bank] is the Turkish Government’s repository for Iranian oil and natural gas proceeds in Turkey,” but that “it is [the bank’s] participation in money laundering and other fraudulent schemes designed to evade U.S. sanctions that is the ‘core action.’” And, “because those core acts constitute ‘an activity that could be, and in fact regularly is, performed by private-sector businesses,’ those acts are commercial, not sovereign, in nature.” The opinion also notes that “[e]ven assuming the FSIA applies in criminal cases—an issue that we need not, and do not, decide today—the commercial activity exception to FSIA would nevertheless apply to [the defendant’s] charged offense conduct.” The appellate court agreed with the district court, concluding that the bank must face criminal charges in the U.S. for allegedly assisting Iran evade economic sanctions by laundering approximately $20 billion in Iranian oil and gas revenues.
District Court: News reports cannot reverse dismissal of sanctions suit
On October 13, the U.S. District Court for the Southern District of New York denied a relator’s motion seeking indicative relief, ruling that post-ruling news reports were insufficient to reverse the dismissal of a qui tam suit accusing a UK-based bank and related entities (collectively, “defendants”) of violating U.S. sanctions against Iran. In 2020, the court dismissed the complaint after finding that the government “had articulated multiple valid purposes served by dismissal, and that relator had not carried its burden to show that a dismissal would be ‘fraudulent, arbitrary or capricious, or illegal.’” The relator’s appeal to the U.S. Court of Appeals for the Second Circuit is pending. At the district court, the relator moved for indicative relief based on the premise that if the court had jurisdiction, it would have vacated the dismissal based on disclosures in post-dismissal media reports.
According to the opinion, the defendants entered into a deferred prosecution agreement (DPA) with the DOJ in 2012 following a multi-year, multi-agency investigation concerning allegations that defendants deceptively facilitated U.S. dollar transactions by Iranian clients between 2001 and 2007 in violation of U.S. sanctions and various New York and federal banking regulations. The defendants admitted to the violations and paid hundreds of millions of dollars in fines and penalties. The relator subsequently filed a qui tam action alleging the defendants misled the government in negotiating the DPA. A government investigation found no support for the allegations. In 2019, the DOJ entered a new DPA with defendants. The relator amended its complaint alleging improper conduct related to the 2019 DPA, which the court dismissed.
The relator then filed the instant motion to reopen the case, arguing that news reports published in 2020 showed that the defendants engaged in transactions with sanctioned Iranian entities after 2007, which was contrary to the government’s representations when it moved to dismiss the case. The relator claimed that the government incorrectly asserted that it closely examined records before seeking dismissal and failed to honestly conclude that the allegations were meritless. In denying the relator’s motion, the court explained that the relator failed to show that the news reports would be admissible or were important enough to change the outcome of the earlier motion to dismiss. The court held that news reports are inadmissible and further concluded that none of the suspicious activity reports discussed in the news reports contradicted the government’s representations in its motion to dismiss.
OFAC updates Iran, Venezuela FAQs
On September 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the publication of a new Iran-related FAQ. FAQ 932 clarifies that “transactions ordinarily incident to travel to or from Iran by U.S. persons are within an exemption under the Iranian Transactions and Sanctions Regulations (ITSR), 31 C.F.R. part 560, and therefore generally are not prohibited.” OFAC also noted that U.S. persons could be prohibited from engaging in transactions associated with persons blocked by sanctions programs or authorities outside the scope of the ITSR.
The same week, on October 1, OFAC announced the publication of a new Venezuela-related FAQ. FAQ 933 clarifies that authorizations in paragraph (a) of Venezuela-related General Licenses 7C and 20B, respectively, have not expired.
OFAC reaches settlement with Texas technology company
On September 9, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a roughly $190,000 settlement with a Texas-based company for allegedly knowingly exporting goods, technology, and services in violation of the Iranian Transactions and Sanctions Regulations. According to OFAC’s web notice, between December 2013 and May 2018, the company exported 49 products from the U.S. to two third-country distributors with prior knowledge, or reason to know, that its products were intended specifically for a reseller in Iran. The Iranian reseller then sold three of the exported products to an entity on OFAC’s SDN List, at the time of the relevant exports. On at least three occasions, the company also allegedly provided support, software updates, reseller training, or other services in support of sales to customers located in Iran.
In arriving at the settlement amount, OFAC considered various aggravating factors, including, among other things, that the company: (i) demonstrated reckless disregard for U.S. sanctions regulations by authorizing distribution and support of its goods; (ii) possessed knowledge of the conduct; and (iii) “caused harm to U.S. sanctions objectives by facilitating access to the bank’s products and support services by resellers and users in Iran.”
OFAC also considered various mitigating factors, including, among other things, that the: (i) “volume and total amount of payments underlying the Apparent Violations was not significant compared to [the company’s] overall revenue”; (ii) the company demonstrated remedial actions, including establishing export controls and sanctions compliance policies and procedures; and (iii) the company cooperated with OFAC’s investigation.