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FAFT restricts Russia’s membership privileges, takes action against corruption and virtual asset misuse
On June 17, the U.S. Treasury Department announced that the Financial Action Task Force (FATF) concluded another plenary meeting, in which it, among other things, took steps to restrict Russia’s FATF membership privileges. During the meeting, FATF again criticized Russia’s war against Ukraine and issued a statement, stressing that “Russian actions run counter to the FATF core principles aiming to promote security, safety, and the integrity of the global financial system. They also represent a gross violation of the commitment to international cooperation and mutual respect upon which FATF Members have agreed to implement and support the FATF standards.” Treasury Secretary Janet Yellen also stated that she “welcome[s] the serious steps the FATF took to restrict Russia’s presence in its community.” FATF members agreed that Russia can no longer hold any leadership or advisory roles, nor take part in decision making on any standard-setting, peer-review processes, governance, or membership matters. Russia is also prohibited from providing assessors, reviewers, or other experts for FATF peer-review processes. FATF stated it “will monitor the situation and consider at each of its Plenary meetings whether grounds exist for modifying these restrictions.”
FATF also produced policy recommendations for combatting corruption and countering corrupt actors or illicit funds. FATF stated it will continue to fight the abuse of shell companies, trusts, or other legal arrangements employed by bad actors, and intends to seek input on guidance to implement recommendations related to the collection and verification of beneficial ownership information for companies or other legal entities. FATF members will release a white paper for public consultation on important issues concerning “the misuse of trusts and other legal arrangements to facilitate illicit finance,” and will published guidance on ways governments and firms can mitigate money laundering risks within the real estate sector.
Additionally, FATF adopted a report on virtual assets during the meeting, calling “for accelerated compliance by the public and private sectors with the FATF standards, particularly the ‘travel rule,’ for virtual assets and virtual asset service providers.” The travel rule requires virtual asset service providers to collect or send information on the identities of the originator and beneficiary of virtual asset transfers. However, FATF noted that, despite some progress, not all countries have introduced the travel rule, creating significant vulnerabilities for criminal misuse and underscoring the need for universal implementation and enforcement of the travel rule. FATF also approved a new project related to ransomware finance and related money laundering, with an objective of raising global awareness and understanding of how payments for ransomware are made and how these proceeds are often laundered.
OFAC sanctions Nicaraguan persons
On June 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13851 against a state-owned Nicaraguan mining company and a high-ranking official for allegedly engaging in actions or policies that are used to “oppress the people of Nicaragua" and engaging "in activities that pose a threat to the security of the hemisphere.” According to OFAC, the company regulates gold mining through the issuance of land concessions to domestic and foreign companies, which feature several joint ventures with private firms. Furthermore, high-ranking members of the government regime have benefitted greatly from Nicaragua’s increase in gold exports, due in large part to the designated mining company. This oppressive regime has engaged in election rigging, OFAC said, and has deepened its relationship with Russia in its war against Ukraine, while using gold revenue to support its activities. As a result, all property and interests in property of the sanctioned individuals and entities, and any entities that own, directly or indirectly, 50 percent or more of such persons 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 the sanctioned persons.
OFAC sanctions members of Russian extremist group
On June 15, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224, as amended, against two key supporters of a Russian extremist group. The U.S. State Department previously designated the extremist group as a Specially Designated Global Terrorist (SDGT) organization in 2020 for having provided training for acts of terrorism. Concurrent with OFAC’s action, the State Department is also designating an individual for posing a significant risk of committing acts of terrorism. According to Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson, the extremist group “has sought to raise and move funds using the international financial system with the intent of building a global network of violent groups that foster extremist views and subvert democratic processes.”
As a result of the sanctions, all property and interests in property belonging to the sanctioned individuals in the U.S. are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by them, individually, or with other blocked persons, 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 U.S. persons are prohibited from participating in transactions with the sanctioned persons unless authorized by an OFAC general or specific license or are otherwise exempt.
OFAC further warned that engaging in certain transactions with the designated individuals entails risk of secondary sanctions, and cautioned that it can also “prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account of a foreign financial institution that either knowingly conducted or facilitated any significant transactions on behalf of a SDGT, or that, among other things, knowingly facilitates a significant transaction for [the extremist group] or certain persons designated for their connection to [the extremist group].”
OFAC issues Russia-related general licenses and FAQs
On June 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Russia-related General License (GL) 8C, which authorizes (with certain enumerated exceptions) transactions related to energy. According to the GL, all transactions prohibited by Executive Order (E.O.) 14024 involving entities that are related to energy are authorized, through December 5, 2022, under certain circumstances. OFAC also published amended FAQs, which provide further information on GL 8C, and clarify Russian sanction information under E.O. 14024, among other things.
OFAC clarifies certain Russia-related prohibitions
On June 9, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the publication of new Russia-related FAQs. Among other things, the FAQs provide information on the previously issued Determination Pursuant To Section 1(a)(ii) of E.O. 14071, which prohibits “the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in the Russian Federation” unless licensed or otherwise authorized by OFAC (covered by InfoBytes here). Specifically, FAQ 1063 explains that “[t]he prohibitions imposed by the determination do not distinguish between new and existing trusts and companies.” Additionally, FAQ 1067 provides that “[t]he determination does not prohibit U.S. persons from exporting, reexporting, selling, or supplying, directly or indirectly, software to the Russian Federation.”
OFAC sanctions additional networks used by Russian elites, issues new Russia-related General Licenses
On June 2, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced additional sanctions pursuant to Executive Orders (E.O.) 14024, 13685, and 13661, against key networks used by Russian elites, including President Putin, that target “a Kremlin-aligned yacht brokerage, several prominent Russian government officials, and a close Putin associate and money-manager [] who is a custodian of President Putin’s offshore wealth.” OFAC’s announcement also identified “yachts and aircraft in which sanctioned Russian elites maintain interests.” The designations were taken in tandem with the Department of State (which imposed sanctions on five Russian oligarchs and elites) as well as the Department of Commerce (which added 71 new parties located in Russia and Belarus to its Entity List, thus “further restricting the Russian military’s ability to obtain technologies and other items it needs to sustain aggression and project power”).
As a result of the sanctions, all property and interests in property belonging to the sanctioned persons in the U.S. 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.” OFAC noted that U.S. persons are prohibited from participating in transactions with the sanctioned persons unless authorized by a general or specific license.
On the same day, OFAC issued several new Russia-related general licenses (GL): (i) GL 25B authorizes transactions related to telecommunications and certain internet-based communications that are otherwise prohibited by Russian Harmful Foreign Activities Sanctions Regulations; (ii) GL 36 and GL 37 authorize the wind down of transactions normally prohibited by E.O. 14024 involving an identified public joint stock company and a gold mining company respectively; and (iii) GL 38 authorizes transactions related to pension payments to U.S. persons that are normally prohibited by E.O. 14024 “provided that the only involvement of blocked persons is the processing of funds by financial institutions blocked pursuant to E.O. 14024.” Additionally, OFAC issued several new and amended Russia-related frequently asked questions.
OFAC issues new Russia-related general license, will not renew general license concerning debt or equity dealings with certain Russian financial institutions
On May 25, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Russia-related General License (GL) 13A, “Authorizing Certain Administrative Transactions Prohibited by Directive 4 under Executive Order 14024.” Specifically, GL 13A permits U.S. persons, or entities owned or controlled, directly or indirectly, by a U.S. person “to pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, or certifications” for certain transactions normally prohibited by Directive 4, “provided such transactions are ordinarily incident and necessary to the day-to-day operations in the Russian Federation of such U.S. persons or entities.” GL 13A expires September 30 at 12:01 am EDT.
The day before, OFAC announced that provisions of GL 9C, issued pursuant to the Russian Harmful Foreign Activities Sanctions Regulations (RuHSR), will not be renewed. As previously covered by InfoBytes, GL 9C was issued last month to authorize transactions “ordinarily incident and necessary to dealings in debt or equity” issued before February 24, 2022 involving certain Russian financial institutions that would otherwise be prohibited by the RuHSR. GL 9C expires on May 25 at 12:01 am EDT.
FDIC highlights operational risks in 2022 Risk Review
On May 20, the FDIC released its 2022 Risk Review, summarizing emerging risks in the U.S. banking system observed during 2021 in four broad categories: credit risk, market risk, operational risk, and climate-related financial risk. According to the FDIC, the current risk review expands upon coverage in prior reports by examining operational risks to banks resulting from cyber threats, illicit finance, and climate-related financial risks. Monitoring these risks is among the agency’s top priorities, the FDIC said, explaining that the number of ransomware attacks in the banking industry increased in 2021, and that the “number and sophistication of cyber attacks also increased with remote work and greater use of digital banking tools.” Additionally, “threats from illicit activities continue to pose risk management challenges to banks.” The FDIC noted that the banking environment improved in 2021 as the economy recovered but stated that recovery was uneven across industries and regions. While “[f]inancial market conditions were generally supportive of the economy and banking industry in 2021,” they began to deteriorate in early 2022 with the onset of the Russian invasion of Ukraine, the FDIC said.
Treasury says foreign financial institutions risk sanctions if they provide material support to Russia
On May 13, Deputy Secretary of the Treasury Wally Adeyemo warned representatives from several foreign financial institutions about the risks of aiding Russia in evading sanctions imposed by the U.S. and its allies following the country’s invasion of Ukraine. Adeyemo emphasized that institutions may face “sanctions exposure for providing material support to a sanctioned entity,” and stressed that the U.S. Treasury Department’s Office of Foreign Assets Control “expects all financial institutions to do their own due diligence to ensure they are not transacting with a sanctioned person.”
DOJ seizes $300 million yacht as part of Task Force KleptoCapture; OFAC issues Russia-related general licenses and updated FAQs
On May 5, the DOJ executed a seizure warrant freezing a $300 million yacht owned by a sanctioned Russian oligarch, following a determination that the yacht is subject to forfeiture based on probable cause of violations of U.S. law, including the International Emergency Economic Powers Act, money laundering and conspiracy. The Russian oligarch was designated in 2018 by the U.S. Treasury Department’s Office of Foreign Assets Control pursuant to the Countering America’s Adversaries Through Sanctions Act and Executive Order (E.O.) 13582 (covered by InfoBytes here). According to the DOJ’s announcement, the sanctioned oligarch owned the yacht after his designation and “caused U.S. dollar transactions to be routed through U.S. financial institutions for the support and maintenance of the [yacht].” The seizure was coordinated through the DOJ’s Task Force KleptoCapture, which is “an interagency law enforcement task force dedicated to enforcing the sweeping sanctions, export controls, and economic countermeasures that the United States, along with its foreign allies and partners, have imposed in response to Russia’s unprovoked military invasion of Ukraine” (covered by InfoBytes here.)
The same day OFAC also issued several Russia-related general licenses (GL), including GL 7A, which authorizes “transactions ordinarily incident and necessary to the receipt of, and payment of charges for, services rendered in connection with overflights of the Russian Federation or emergency landings in the Russian Federation by aircraft registered in the United States or owned or controlled by, or chartered to, U.S. persons that are prohibited by the Russian Harmful Foreign Activities Sanctions Regulations”; GL 26A, which authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving Joint Stock Company SB Sberbank Kazakhstan or Sberbank Europe AG, or any entity that Sberbank subsidiaries owns, through July 12, provided certain criteria are met; GL 31, which authorizes certain transactions related to patents, trademarks, copyrights, or other forms of intellectual property protections in the U.S. or Russia that would otherwise be prohibited; and GL 32, which authorizes the wind down of transactions involving Amsterdam Trade Bank NV that would ordinarily be prohibited by E.O. 14024 through July 12. Additionally, OFAC issued one new and one amended Russia-related frequently asked questions.