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On June 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a final rule amending the Global Terrorism Sanctions Regulations. Specifically, the final rule “authorizes the Secretary of the Treasury to prohibit the opening, and prohibit or impose strict conditions on the maintaining, in the United States, of a correspondent account or payable-through account of any foreign financial institution that the Secretary of the Treasury, in consultation with the Secretary of State, has determined, on or after September 24, 2001 (the effective date of amended E.O. 13224), has knowingly conducted or facilitated any significant transaction on behalf of any person whose property and interests in property are blocked pursuant to amended E.O. 13224.” The final rule is effective July 1.
On June 28, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Orders (E.O.) 14024 and 14065 against 70 entities—many of which, according to OFAC, “are critical to the Russian Federation’s defense industrial base, including State Corporation Rostec, the cornerstone of Russia’s defense, industrial, technology, and manufacturing sector.” Twenty-nine Russian individuals were also designated. “We once again reaffirm our commitment to working alongside our partners and allies to impose additional severe sanctions in response to Russia’s war against Ukraine,” Treasury Secretary Janet L. Yellen said. OFAC’s designations occurred in tandem with actions taken by the U.S. State Department, which include sanctions against an additional 45 entities and 29 individuals as well as visa restrictions against “officials believed to have threatened or violated Ukraine’s sovereignty, territorial integrity, or political independence.” Additionally, OFAC immediately prohibited the importation of Russian gold into the U.S. (unless licensed or otherwise authorized by OFAC). As a result of the sanctions, all property and interests in property belonging to the designated 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.
A joint alert issued by FinCEN and the U.S. Department of Commerce’s Bureau of Industry and Security also urged financial institutions to remain vigilant against Russian and Belarusian export control evasion and to take a “risk-based approach” for identifying potentially suspicious activity, such as end-use certificates, export documents, or letters of credit-based trade financing. “Financial institutions and the private sector continue to play a key role in disrupting Russia’s efforts to acquire critical goods and technology to support its war-making efforts,” OFAC stated in its announcement.
On the same day, OFAC issued several new Russia-related general licenses (GL): (i) GL 39 authorizes the wind down of transactions ordinarily incident and necessary involving State Corporation Rostec that are normally prohibited by E.O. 14024; (ii) GL 40 authorizes “all transactions ordinarily incident and necessary to the provision, exportation, or reexportation of goods, technology, or services to ensure the safety of civil aviation involving one or more of” certain blocked entities; (iii) GL 41 authorizes certain transactions related to agricultural equipment that are normally prohibited by the Russian Harmful Foreign Activities Sanctions Regulations; (iv) GL 42 authorizes certain transactions with the Federal Security Services; and (v) GL 43 authorizes the divestment or transfer of debt or equity of, and wind down of derivative contracts involving the Public Joint Stock Company Severstal or Nord Gold PLC.
OFAC also published a Determination Pursuant to Section 1(a)(i) of Executive Order 14068 concerning prohibitions related to the importation of Russian gold and issued one new and one amended frequently asked question.
The Russian Elites, Proxies, and Oligarchs (REPO) Task Force also issued a joint statement summarizing actions taken by REPO members against sanctioned Russians. The efforts have led to more than $30 billion worth of sanctioned Russians’ assets being blocked or frozen and has heavily restricted sanctioned Russians’ access to the international financial system.
On June 22, FinCEN issued a statement providing clarity to banks on the application of a risk-based approach to conducting customer due diligence (CDD) on independent Automated Teller Machine (ATM) owners or operators, consistent with FinCEN’s 2016 CDD Rule. As previously covered by InfoBytes, FinCEN issued a final rule imposing standardized CDD requirements for banks, broker-dealers, mutual funds, futures commission’s merchants, and brokers in commodities in May 2016. The rule established that covered institutions must identify any natural person that owns, directly or indirectly, 25 percent or more of a legal entity customer or that exercises control over the entity. The rule also established ongoing monitoring for reporting suspicious transactions and, on a risk basis, updating customer information. The recently released statement explained that the level of money laundering and terrorism financing risk varies with these customers, and that they do not automatically present a higher level of risk. FinCEN pointed to certain customer information that may be useful for banks in making determinations on the risk profile of independent ATM owner or operator customers, including, among other things: (i) organizational structure and management; (ii) operating policies, procedures, and internal controls; (iii) currency servicing arrangements; (iv) source of funds if a bank account is not used to replenish the ATM; and (v) description of expected and actual ATM activity levels.
On June 23, FinCEN announced that the Financial Action Task Force (FATF) issued public statements updating its lists of jurisdictions with strategic deficiencies in anti-money laundering (AML), countering the financing of terrorism (CFT), and countering the financing of proliferation of weapons of mass destructions (CPF). FATF’s statements include (i) Jurisdictions under Increased Monitoring, “which publicly 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 publicly identifies jurisdictions with significant strategic deficiencies in their AML/CFT/CPF regimes and calls on all FATF members to apply enhanced due diligence, and, in the most serious cases, apply counter-measures to protect the international financial system from the money laundering, terrorist financing, and proliferation financing risks emanating from the identified countries.” FinCEN’s announcement also informs members that FATF removed Malta from its list of Jurisdictions under Increased Monitoring and added Gibraltar, and that its list of High-Risk Jurisdictions Subject to a Call for Action continues to subject Iran and the Democratic People’s Republic of Korea to the FATF’s countermeasures.
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.
On June 16, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against a network of Iranian petrochemical producers, as well as front companies in the People’s Republic of China (PRC) and the United Arab Emirates (UAE), for supporting two entities connected to the sale of Iranian petrochemicals abroad. According to OFAC, the designated network "helps effectuate international transactions and evade sanctions, supporting the sale of Iranian petrochemical products to customers in the PRC and the rest of East Asia.” 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 “any foreign financial institution that knowingly facilitates a significant transaction for any of the individuals or entities designated today could be subject to U.S. sanctions.”
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.
On June 15, FinCEN issued an advisory alerting financial institutions about the increase of elder financial exploitation (EFE). EFE involves the illegal or improper use of an older adult’s funds, among other things, and is often perpetrated either through theft or scams. According to the advisory, financial institutions filed 72,000 suspicious activity reports in 2021 related to EFE—an increase of 10,000 reports from 2020. The advisory provides updated typologies since FinCEN issued its first advisory on the issue in 2011, and highlights behavioral and financial red flags to aid financial institutions with identifying, preventing, and reporting suspected EFE. The announcement also refers to the risk-based approach to compliance under the Bank Secrecy Act, which provides that “[f]inancial institutions should perform additional due diligence where appropriate and remain alert to any suspicious activity that could indicate that their customers are perpetrators, facilitators, or victims of EFE.”
On June 8, the OCC issued a notice in the Federal Register seeking comments concerning its information collection titled, ‘‘Bank Secrecy Act/Money Laundering Risk Assessment,’’ also known as the Money Laundering Risk (MLR) System. According to the notice, the MLR System “enhances the ability of examiners and bank management to identify and evaluate Bank Secrecy Act/Money Laundering and Office of Foreign Asset Control (OFAC) sanctions risks associated with banks’ products, services, customers, and locations.” The notice stated that the agency will collect MLR information for OCC supervised community and trust banks, and explained that the annual Risk Summary Form (RSF), which collects data about different products, services, customers, and geographies (PSCs), will include three significant changes in 2022. The changes in the 2022 RSF are: (i) the addition of six new PSCs; (ii) the addition of three new customer types under the money transmitters category; and (iii) the deletion of four existing PSCs. Comments close on August 8.
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].”
- Jedd R. Bellman to discuss “The CFPB’s crackdown on collection junk fees and the growing anti-CFPB rhetoric” at an Accounts Recovery webinar
- Benjamin W. Hutten to discuss “Latest on AML regulations and impact of economic sanctions” at a Mortgage Bankers Association webinar
- Benjamin W. Hutten to discuss “Fundamentals of financial crime compliance” at the Practicing Law Institute
- Benjamin W. Hutten to discuss “Ongoing CDD: Operational considerations” at NAFCU’s Regulatory Compliance & BSA Seminar