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  • Agencies seek comments on proposed changes to CECL

    Agency Rule-Making & Guidance

    On October 17, the OCC, Federal Reserve Board, FDIC, and NCUA published a proposed interagency policy statement on allowances for credit losses and proposed interagency guidance on credit risk review systems.

    The proposed policy statement describes the measurement of expected credit losses under the current expected credit losses (CECL) methodology for determining allowances for credit losses applicable to financial assets measured at amortized costs. It will apply to financial assets measured at amortized cost, loans held-for-investment, net investments in leases, held-to-maturity debt securities, and certain off-balance-sheet credit exposures. The proposed policy statement also stipulates financial assets for which the CECL methodology is not applicable, and includes supervisory expectations for designing, documenting, and validating expected credit loss estimation processes. Once finalized, the proposed policy would be effective at the time of each institution’s adoption of CECL.

    The proposed credit risk review systems guidance—which is relevant to all institutions supervised by the agencies—will update the 2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses to reflect the CECL methodology. The proposed guidance “discusses sound management of credit risk, a system of independent, ongoing credit review, and appropriate communication regarding the performance of the institution's loan portfolio to its management and board of directors.” Furthermore, the proposed guidance stresses that financial institution employees involved with assessing credit risk should be independent from an institution’s lending function.

    Comments on both proposals are due December 16.

    Agency Rule-Making & Guidance OCC Department of Treasury Federal Reserve FDIC NCUA

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  • OFAC sanctions four individuals for corruption in South Africa

    Financial Crimes

    On October 10, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13818 against four members of a corruption network in South Africa for alleged corruption violations of the Global Magnitsky Human Rights Accountability Act. According to OFAC, the four individuals “leveraged [their] political connections to engage in widespread corruption and bribery, capture government contracts, and misappropriate state assets.” As a result of the sanctions, all property and interests in property of the designated persons within U.S. jurisdiction must be blocked and reported to OFAC. OFAC notes that its regulations “generally prohibit” U.S. persons from participating in transactions with these individuals and entities.

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

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  • Deputy Treasury Secretary discusses priorities and developments

    Federal Issues

    On September 23, Department of Treasury Deputy Secretary Justin Muzinich delivered remarks at the 2019 Treasury Market Structure Conference.  He discussed broadly the Department’s domestic and international finance priorities, including housing finance reform, digital taxation, cryptocurrency, and securities. Muzinich first addressed Treasury’s housing finance reform plan released September 5 (previously covered by InfoBytes here), stating that the “plan includes nearly 50 recommended legislative and administrative reforms that are incremental, realistic, and balanced, and aim to preserve widespread and affordable access to the 30-year fixed-rate mortgage.” With respect to digital taxation, Muzinich discussed the disproportionate effect of taxing digital businesses’ revenue on U.S. firms, and stated that the Department is actively seeking a multilateral solution. He next addressed several concerns regarding the use of cryptocurrency to evade existing legal frameworks, such as those governing taxation, anti-money laundering, and countering the financing of terrorism. Muzinich emphasized that the existing legal frameworks “apply to digital assets in no uncertain terms,” and referred to guidance released by the Department’s Office of Foreign Assets Control, which clarified that U.S. sanctions compliance obligations are the same regardless of whether a transaction is denominated in digital currency or traditional fiat currency (previously covered by InfoBytes here.) Muzinich noted, however, that there still exist several concerns that the government must consider regarding the effect cryptocurrency has on financial stability, the monetary base, consumer protection and privacy. The Deputy Secretary noted that these issues are being discussed both internationally and domestically. Muzinich closed his remarks by discussing the securities market and announced, among other things, that the Department is working with the Financial Industry Regulatory Authority to begin publicly releasing aggregated data on Treasury volumes, which will ensure that all market participants have access to the same comprehensive data.

    Federal Issues Department of Treasury Housing Finance Reform Cryptocurrency Securities Anti-Money Laundering

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  • OFAC sanctions additional entities and vessels operating in Venezuela’s oil sector

    Financial Crimes

    On September 24, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13850 against four entities for their alleged involvement in the transportation of oil from Venezuela to Cuba. According to OFAC, the entities’ actions offer support to the Maduro regime and “enable its repressive security and intelligence apparatus.” In addition, OFAC identified four vessels as blocked property owned by the identified entities. As a result of the sanctions, “all property and interests in property of these entities, and of any entities that are owned, directly or indirectly, 50 percent or more by the designated entities, that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC.” OFAC notes that its regulations “generally prohibit” U.S. persons from participating in transactions with blocked or designated persons.

    Additionally, the announcement notes that OFAC is delisting two entities in recognition of their actions to ensure that their vessels are not complicit in supporting the Maduro regime. As a result of the delisting, all property and interest of the entities are now unblocked and lawful transactions involving U.S. persons are no longer prohibited.

    Since OFAC’s designation of Venezuela’s state-owned oil company last January, the department has sanctioned several entities and individuals connected to Venezuela’s oil sector. Continuing InfoBytes coverage on these actions can be found here.

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

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  • OFAC sanctions Iran’s central bank and national development fund

    Financial Crimes

    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.

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

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  • District Court dismisses suit claiming banks evading Iran sanctions

    Courts

    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.”

    Courts Sanctions Department of Treasury OFAC Class Action Iran Of Interest to Non-US Persons

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  • OFAC settles with London bank for Sudanese sanctions violations

    Financial Crimes

    On September 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $4,000,000 settlement with a London-based commercial bank for 72 alleged violations of the Sudanese Sanctions Regulations (SSR). The settlement resolves allegations that between September 2010 and August 2014, the bank processed 72 bulk funding payments totaling $190,700,000 related to Sudan, which involved transactions processed to or through U.S. financial institutions in apparent violation of the SSR, which prohibits U.S. persons, including U.S. financial institutions, from processing such transactions. OFAC notes that it lowered the penalty to $4,000,000 from the proposed $228,840,000, in light of the bank’s operating capacity and the fact that it represented that it ceased the conduct at issue.

    In arriving at the settlement amount, OFAC considered various mitigating factors including that (i) OFAC has not issued a violation against the bank in the five years preceding the earliest date of the transactions at issue; (ii) the bank fully cooperated with the investigation into the alleged violations, including by entering into a statute of limitations tolling agreement and agreeing to extend the agreement; (iii) the bank provided significant investigative leads regarding a foreign financial institution that hosted an account involved in processing the transactions; and (iv) the bank undertook several remedial measures in response to the alleged violations, such as exiting the Sudanese market in 2014, hiring new senior management, and implementing improvements to its compliance program.

    OFAC also considered various aggravating factors, including that (i) the bank exhibited “reckless disregard for U.S. sanctions regulations when it entered the Sudanese market; (ii) the bank ignored warning signs that it may have been violating U.S. law; and (iii) several of the bank’s senior managers were aware of and involved in the conduct giving rise to the alleged violations.

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

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  • OFAC sanctions persons linked to corruption network in Venezuela

    Financial Crimes

    On September 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13850 against three individuals and 16 entities connected to two previously sanctioned Colombian nationals (covered by InfoBytes here) for enabling the Maduro regime “to corruptly profit from imports of food aid and distribution in Venezuela.” According to OFAC, the designated individuals are immediate family members with business connections to the sanctioned Colombian nationals “who are responsible for or complicit in, or have directly or indirectly engaged in, any deceptive or corrupt transaction or series of transactions with the Government of Venezuela or projects or programs administered by the Government of Venezuela.” The 16 designated entities, OFAC noted, are either owned or controlled by the designated individuals or one of the sanctioned Colombian nationals. As a result of the sanctions, “all property and interests in property of the individuals and entities designated today, and of any entities that are owned, directly or indirectly, 50 percent or more by those individuals or entities, that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC.” OFAC noted that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated entities and individuals. OFAC also referred financial institutions to Financial Crimes Enforcement Network advisories FIN-2019-A002, FIN-2017-A006, FIN-2017-A003, and FIN-2018-A003 for further information concerning the efforts of Venezuelan government agencies and individuals to use the U.S. financial system and real estate market to launder corrupt proceeds, as well as human rights abuses connected to corrupt foreign political figures and their financial facilitators.

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

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  • OFAC sanctions North Korean cyber groups

    Financial Crimes

    On September 13, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13722 against three North Korean state-sponsored cyber groups allegedly responsible for North Korea’s malicious cyber activity on critical infrastructure around the world. OFAC cited cyber attacks using phishing and backdoor intrusions, targeting a range of organizations that included financial institutions. In addition to malicious cyber activities on conventional financial institutions and major companies, North Korea’s cyber operations also targeted Virtual Asset Providers and cryptocurrency exchanges “to possibly assist in obfuscating revenue streams and cyber-enabled thefts that also potentially fund North Korea’s WMD and ballistic missile programs.” As a result of the sanctions, “all property and interests in property of these individuals and 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 individuals, they may be subject to U.S. correspondent account or payable-through account sanctions.

    Financial Crimes Of Interest to Non-US Persons OFAC Department of Treasury Sanctions North Korea

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  • U.S. enforcement authorities seize $3.7 million, arrest 281 for involvement in Business Email Compromise schemes

    Financial Crimes

    On September 10, the DOJ announced a coordinated effort with the U.S. Department of Homeland Security, the U.S. Department of the Treasury, the U.S. Postal Inspection Service, and the U.S. Department of State, against a series of Business Email Compromise (BEC) scams. The effort was conducted over a four-month period, resulting in the seizure of nearly $3.7 million and the arrest of 281 individuals in the U.S. and overseas, including 167 in Nigeria, 18 in Turkey and 15 in Ghana, along with arrests in France, Italy, Japan, Kenya, Malaysia, and the U.K. According to the DOJ, “BEC, also known as ‘cyber-enabled financial fraud,’ is a sophisticated scam often targeting employees with access to company finances and businesses working with foreign suppliers and/or businesses that regularly perform wire transfer payments.” BEC scams can involve requests for paper checks and may not actually “compromise” an email account or computer network. The DOJ notes that many BEC scams are perpetrated by foreign citizens, who are often members of transnational criminal organizations.

    As previously covered by InfoBytes, the Financial Crimes Enforcement Network (FinCEN), in July, discussed efforts designed to restrict and impede Business Email Compromise (BEC) scammers and other illicit actors who profit from email compromise fraud schemes and issued an updated advisory, providing general trends in BEC schemes, information concerning the targeting of non-business entities, and risks associated with the targeting of vulnerable business processes.

    Financial Crimes Fraud DOJ Department of Treasury Of Interest to Non-US Persons Enforcement FinCEN

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