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Financial Services Law Insights and Observations

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  • Broker-dealer settles with SEC for failing to files SARs

    Securities

    On May 12, the SEC announced a settlement with a broker-dealer for allegedly violating the Securities and Exchange Act by failing to consistently implement its anti-money laundering (AML) program and file Suspicious Activity Reports (SARs) despite knowing individuals were attempting to gain unauthorized access to retirement accounts. According to the SEC’s order, from September 2015 through October 2018, the broker-dealer allegedly knew that individuals were attempting to gain access, or had gained access, to plan participants’ retirement accounts through the use of improperly obtained personal identifying information. The SEC alleged that, despite this knowledge, the broker-dealer failed to file approximately 130 SARs in cases where it had detected the suspicious activity and, in the roughly 297 SARs that it did file, failed to include certain required information linked to the bad actors, such as URL addresses, IP addresses, and other electronic identifying information. The order requires the broker-dealer, who has neither admitted nor denied the SEC’s allegations, to cease and desist from future violations and pay a $1.5 million penalty. The SEC acknowledged the broker-dealer’s significant cooperation in the investigation and subsequent remedial efforts.

    Securities Enforcement SARs Financial Crimes Anti-Money Laundering Securities Exchange Act

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  • OFAC sanctions Mexican cartel members and facilitator

    Financial Crimes

    On May 12, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to the Foreign Narcotics Kingpin Designation Act against a commander and his organization responsible for facilitating drug trafficking between Mexico and the U.S. OFAC also designated six other individuals and one entity as Specially Designated Narcotics Traffickers pursuant to the Kingpin Act for their connections to the organization. Director of OFAC Andrea Gacki noted that the sanctioned organization “help[s] fuel our nation’s opioid epidemic” and that “Treasury and our U.S. government partners, including the Drug Enforcement Administration, will continue to use every available resource to dismantle these criminal networks.” As a result of the sanctions, all property belonging to the sanctioned persons subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from engaging in any dealings involving the property of blocked or designated persons.

    These sanctions against the drug trafficking cartel are the most recent efforts taken by OFAC pursuant to the Kingpin Act (covered in InfoBytes, here and here).

    Financial Crimes OFAC Department of Treasury SDN List Of Interest to Non-US Persons Mexico Sanctions OFAC Designations Department of Justice Drug Enforcement Administration Department of Homeland Security

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  • OFAC sanctions Mexican cartel members and facilitator

    Financial Crimes

    On May 12, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to the Foreign Narcotics Kingpin Designation Act against a commander and his organization responsible for facilitating drug trafficking between Mexico and the U.S. OFAC also designated six other individuals and one entity as Specially Designated Narcotics Traffickers pursuant to the Kingpin Act for their connections to the organization. Director of OFAC Andrea Gacki noted that the sanctioned organization “help[s] fuel our nation’s opioid epidemic” and that “Treasury and our U.S. government partners, including the Drug Enforcement Administration, will continue to use every available resource to dismantle these criminal networks.” As a result of the sanctions, all property belonging to the sanctioned persons subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from engaging in any dealings involving the property of blocked or designated persons.

    These sanctions against the drug trafficking cartel are the most recent efforts taken by OFAC pursuant to the Kingpin Act (covered in InfoBytes, here and here).

    Financial Crimes OFAC Department of Treasury SDN List Of Interest to Non-US Persons Mexico Sanctions OFAC Designations Department of Justice Drug Enforcement Administration Department of Homeland Security

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  • OFAC sanctions Hizballah finance official and Lebanese shadow bankers

    Financial Crimes

    On May 11, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224 against seven individuals in connection with Hizballah and its financial firm, which is used by Hizballah to direct the terrorist organization’s financial involvements and to access the international financial system. According to OFAC, one of the sanctioned individuals, who serves as the Chief of Hizballah’s Central Finance Unit, has “acted or purported to act for or on behalf of, directly or indirectly, Hizballah.” The other sanctioned individuals have “acted or purported to act for or on behalf of, directly or indirectly, [the financial firm].” As a result of the sanctions, all property and interests in property belonging to the sanctioned persons, and “any entities that are owned, directly or indirectly, 50 percent or more” by them that are subject to U.S. jurisdiction are blocked and must be reported to OFAC. OFAC notes that its regulations generally prohibit U.S. persons from participating in transactions with these persons, which include “any property or interests in property of designated or otherwise blocked persons.”

    Financial Crimes OFAC Department of Treasury Sanctions OFAC Designations SDN List Of Interest to Non-US Persons Lebanon

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  • OFAC says prohibitions no longer apply to previously sanctioned Chinese military company

    Financial Crimes

    On May 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published FAQ 893 clarifying that prohibitions under Executive Order (E.O.) 13959, “Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies,” do not apply to a previously listed company. Specifically, OFAC explained that following a May 5 court order preliminarily enjoining the implementation of E.O. 13959 against the company, the E.O.’s prohibitions will not apply pending further order of the court.

    Financial Crimes Department of Treasury OFAC Of Interest to Non-US Persons Sanctions OFAC Designations China

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  • DOJ files criminal charges against individual who operated bitcoin money laundering service

    Federal Issues

    On April 28, the DOJ announced the arrest of a dual Russian-Swedish national on criminal charges related to his alleged operation of a bitcoin money laundering service on the darknet. The DOJ referred to the individual’s money-laundering service as the “longest-running cryptocurrency ‘mixer,’” stating that it moved over 1.2 million bitcoin valued at approximately $335 million at the time of transactions over the course of 10 years. According to the DOJ, the majority of the cryptocurrency came from darknet marketplaces tied to illegal narcotics, computer fraud, and abuse activities. The individual is charged with (i) money laundering; (ii) operating an unlicensed money transmitting business; and (iii) money transmission without obtaining a license in the District of Columbia.

    Federal Issues Financial Crimes DOJ Cryptocurrency Fintech Anti-Money Laundering Of Interest to Non-US Persons Money Service / Money Transmitters

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  • Senators urge FinCEN to implement beneficial ownership database

    Financial Crimes

    On May 5, Senators Sheldon Whitehouse (D-RI), Ron Wyden (D-OR), Chuck Grassley (R-IA), and Marco Rubio (R-FL) sent a letter to FinCEN’s Policy Division urging the implementation of a new company ownership database as a result of sweeping new anti-money laundering legislation. As previously covered in Infobytes, FinCen issued an advanced notice of proposed rulemaking (ANPRM) in March seeking comments on a range of issues related to the implementation of the beneficial ownership information requirements under the Corporate Transparency Act (CTA), which is included within the Anti-Money Laundering Act of 2021, enacted in January as part of the National Defense Authorization Act for Fiscal Year 2021. The Senators stress that “FinCEN should ensure that authorized users, including law enforcement and national security officials, and financial institutions with customer consent, have early, timely, and full access to beneficial ownership information.” The letter also notes that the passing of the CTA “represents perhaps the most important anti-money laundering reform of the past decade. Despite the legislative success, this achievement can only be realized if the system works in practice.” The letter requests FinCEN to promptly execute a straightforward, efficient, and effective system.

    Financial Crimes U.S. Senate FinCEN Anti-Money Laundering Act of 2020 Beneficial Ownership Agency Rule-Making & Guidance

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  • FinCEN renews GTOs covering 12 metropolitan areas

    Financial Crimes

    On April 29, the Financial Crimes Enforcement Network (FinCEN) reissued the renewal of 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 the 12 major metropolitan areas covered by the orders. The renewed GTOs are identical to the November 2020 GTOs (covered by InfoBytes here). The purchase amount threshold for the beneficial ownership reporting requirement remains set at $300,000 for residential real estate purchased in the covered areas. The GTOs do not require reporting for purchases made by legal entities that are U.S. publicly-traded companies.

    The renewed GTOs take effect May 5 and end October 31, and cover certain counties within the following areas: Boston, Chicago, Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles, Miami, New York City, San Antonio, San Diego, San Francisco, and Seattle.

    FinCEN FAQs regarding GTOs are available here.

    Financial Crimes FinCEN GTO Of Interest to Non-US Persons Beneficial Ownership

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  • OFAC reaches $2.1 million settlement with German software company

    Financial Crimes

    On April 29, OFAC announced a more than $2.1 million settlement with a Germany-based software company for 190 apparent violations of the Iranian Transactions and Sanctions Regulations. According to OFAC’s website notice, between June 2013 and January 2018, the company “authorized 13 sales of [company] software licenses, 169 sales of related maintenance services and updates, and eight sales of cloud-based subscription services.” Third-party resellers, which the company allegedly referred to as “pass-through entities” in Turkey, the United Arab Emirates (UAE), Germany, and Malaysia, sold the software licenses and related maintenances services and updates, OFAC noted.

    In arriving at the settlement amount, OFAC considered various aggravating factors, including that the company (i) demonstrated reckless disregard and failed to exercise sufficient caution or care for U.S. economics sanctions by failing to act on audit findings regarding sanction risk or warnings from compliance, and by ignoring whistleblower complaints; (ii) failed to have an adequate compliance program for a company of its size; (iii) had information to conclude that the software and cloud services were being utilized by entities and end-users in Iran and were supported from the US; and (iv) “is a sophisticated software company with significant international operations and has numerous foreign subsidiaries.”

    OFAC also considered various mitigating factors, including that the company (i) cooperated with OFAC’s investigation; (ii) has undertaken remedial measures, including terminating the users connected to the third-country entities, the partners who participated in the sales to Iranian companies, and five employees who were found to have “knowingly engaged in the sale of. . . products to Iran”; (iii) has prohibited downloads of software, support, and maintenance from embargoed countries; (iv) implemented a risk-based export control framework for partners that requires a stringent review of proposed sales by a third-party auditor; (v) created an upgraded compliance program; and (vi) hired new employees responsible for export control and trade sanctions compliance.

    Separately, the DOJ announced that the company agreed to pay a $8 million fine and entered into a Non-Prosecution Agreement as a result of its voluntary disclosure to the DOJ and “extensive cooperation and strong remediation.” Pursuant to the agreement, the company “will disgorge $5.14 million of ill-gotten gain.”

     

    Financial Crimes OFAC Department of Treasury Enforcement Sanctions Iran OFAC Designations Of Interest to Non-US Persons Department of Justice Settlement

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  • OFAC settles with global payments company

    Financial Crimes

    On April 29, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a nearly $35,000 settlement between a Texas-based global payments company for 359 apparent violations of multiple sanctions programs. According to OFAC’s website notice, between March 2013 and April 2016, “the company provided money transfer services to the Department of Justice’s Federal Bureau of Prisons (BOP), which allowed inmates to send and receive funds into and out of their personal commissary accounts[]” without screening, or without sufficiently screening, the inmates against the SDN List.

    In arriving at the settlement amount, OFAC considered various aggravating factors, including that the company (i) “knew that there could be incarcerated blocked persons that would be receiving payments into their commissary accounts, but did not screen the beneficiaries of the transactions against the SDN List because of an erroneous misunderstanding of itsobligations;” and (ii) is a large and commercially sophisticated international financial institution.

    OFAC also considered various mitigating factors, including, among other factors, that the company (i) cooperated with OFAC’s investigation; and (ii) self-disclosed the apparent violations and had already undertaken remedial measures, including retiring its screening system and launching a new system, implementing screening for all BOP-related transactions, implementing additional training to its agent network, and increasing its compliance department staffing.

    Financial Crimes OFAC Department of Treasury Enforcement Sanctions OFAC Designations Of Interest to Non-US Persons Settlement

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