Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Treasury submits Hong Kong Autonomy Act report to Congress

    Financial Crimes

    On December 11, the U.S. Treasury Department released a report submitted to Congress pursuant to Section 5(b) of the Hong Kong Autonomy Act (the Act), which was enacted on July 14. The Act requires that the Secretary of State submit to Congress a report (Section 5(a) Report) that includes (i) “an identification of the foreign person”; and (ii) “a clear explanation for why the foreign person was identified and a description of the activity that resulted in the identification.” The Secretary submitted the Section 5(a) Report on October 14, which identified 11 foreign persons that OFAC designated pursuant to Executive Order 13936 on August 7. The Act requires Treasury to submit the Section 5(b) report between 30 and 60 days of the Section 5(a) submission, detailing any foreign financial institution (FFI) that knowingly conducts a significant transaction with a foreign person identified by the Secretary in the Section 5(a) Report. The 5(b) Report notes that Treasury has no information on any FFIs that have conducted significant transactions with the designated foreign persons, after conducting “regular searches of all available sources of information, including classified and unclassified holdings.” Treasury notes that it will continue to monitor for new activity that meets the criteria and engage with foreign governments and FFIs to ensure they “they understand the reporting requirements and sanctions risks under the [the Act].”

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

    Share page with AddThis
  • OFAC sanctions entities connected to IRGC-QF

    Financial Crimes

    On December 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13224 against an official in the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF), along with the Iranian regime’s envoy to the Houthi rebels in Yemen, for allegedly “acting for or on behalf of the IRGC-QF.” OFAC also announced sanctions against an Iranian university and a separate individual for providing support to IRGC-QF operations. As a result, all property and interests in property belonging to the designated persons subject to U.S. jurisdiction are blocked, and any “entities that are owned, directly or indirectly, 50 percent or more by such persons, are also blocked.” U.S. persons are “generally prohibited from engaging in transactions” with the designated persons. OFAC further warned foreign financial institutions that if they knowingly facilitate significant transactions for the designated persons they “risk exposure to sanctions that could sever their access to the U.S. financial system or block their property and interests in property under U.S. jurisdiction.”

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

    Share page with AddThis
  • OFAC sanctions entities for assisting North Korean coal exportation

    Financial Crimes

    On December 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Orders 13687, 13722, and 13810 against six entities related to the alleged transportation of North Korean coal. OFAC also identified four vessels as blocked property. According to OFAC, by engaging in activities prohibited under UN Security Council resolution 2371, the six sanctioned entities have assisted North Korea’s continued efforts to circumvent UN prohibitions on the exportation of North Korean coal. As a result of the sanctions, “all property and interests in property of these targets 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 or entities, they may be subject to U.S. secondary sanctions. OFAC also recommended all relevant jurisdictions review a global advisory issued last May by the U.S. Departments of State and Treasury, along with the U.S. Coast Guard (covered by InfoBytes here), which warned the maritime industry of deceptive shipping practices used by Iran, North Korea, and Syria to evade economic sanctions.

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

    Share page with AddThis
  • 2nd Circuit: SEC within authority to bring actions for SAR failings

    Courts

    On December 4, the U.S. Court of Appeals for the Second Circuit q summary judgment in favor of the SEC in an action brought by the agency against a penny stock broker-dealer, concluding the agency has the authority to bring an action under Section 17(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 17a-8 promulgated thereunder for failure to comply with the Suspicious Activity Report (SAR) provisions of the Bank Secrecy Act (BSA). According to the opinion, the SEC filed an action against the broker-dealer for violating the Exchange Act and Rule 17a-8’s reporting, recordkeeping, and record-retention obligations by failing to file SARs as required by the BSA. Both parties moved for summary judgment, with the broker-dealer arguing that the SEC was improperly enforcing the BSA. The district court granted summary judgment in favor of the SEC in part (deferring “its resolution of categories of allegedly deficient SARs pending discovery and additional briefing”) and denied summary judgment for the broker-dealer, concluding that the SEC had authority to bring the action under the Exchange Act. After discovery and additional briefing, the SEC moved for summary judgment on the Rule 17a-8 violations and the district court granted summary judgment as to nearly 3,000 violations on the basis of the broker-dealer’s SARs-reporting and recordkeeping practices and imposed a $12 million civil penalty.

    On appeal, the 2nd Circuit agreed with the district court, rejecting the broker-dealer’s argument that the SEC is attempting to enforce the BSA, which only the U.S. Treasury Department has the authority to do. The appellate court noted that the SEC is enforcing the requirements of Rule 17a-8, which requires broker-dealers to adhere to the BSA in order to comply with requirements of the Exchange Act, which does not constitute the agency’s enforcement of the BSA. Moreover, the appellate court concluded that the SEC did not overstep its authority when promulgating Rule 17a-8, as SARs “serve to further the aims of the Exchange Act by protecting investors and helping to guard against market manipulation,” and that the broker-dealer did not meet its “‘heavy burden’ to show that Congress ‘clearly expressed [its] intention’ to preclude the SEC from examining for SAR compliance in conjunction with FinCEN and pursuant to authority delegated under the Exchange Act.” In affirming the $12 million civil penalty, the appellate court stated that the district court acted “within its discretion to impose the [] penalty” considering the broker-dealer’s “systematic and widespread evasion of the law.”

    Courts Appellate SEC Second Circuit Financial Crimes Department of Treasury Bank Secrecy Act SARs

    Share page with AddThis
  • OFAC sanctions supporter of Iranian chemical weapons research

    Financial Crimes

    On December 3, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against a subordinate to the Iranian Organization of Defensive Innovation and Research and its director for its involvement in Iran’s chemical weapons research. The government made the sanctions designations pursuant to Executive Order 13382, which aims to freeze the assets of proliferators of weapons of mass destruction along with their supporters. As a result, all property and interests in property belonging to, or owned by, the designated persons subject to U.S. jurisdiction are blocked, and U.S. persons are also generally prohibited from engaging in transactions with them. OFAC further warned foreign financial institutions that knowingly facilitating significant transactions or providing significant support to the designated persons may subject them to U.S. sanctions.

    Additionally, OFAC updated and issued several Iran-related FAQs.

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

    Share page with AddThis
  • OFAC sanctions Chinese tech company for supporting Maduro regime

    Financial Crimes

    On November 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against a Chinese technology company for allegedly “having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, actions or policies that undermine democratic processes or institutions.” The sanctions, issued pursuant to Executive Order (E.O.) 13692, reflect Treasury’s continued efforts to hold persons who offer support to the Maduro regime accountable. As a result, all property and interests in property belonging to the identified individuals subject to U.S. jurisdiction are blocked, and “any entities that are owned, directly or indirectly, 50 percent or more by the designated individuals, are also blocked.” U.S. persons are generally prohibited from dealing with any property or interests in property of blocked or designated persons.

    Concurrently, OFAC issued Venezuela-related General License (GL) 38 and a related frequently asked question. GL 38 authorizes the wind down of transactions and activities involving the sanctioned company or any entity owned—directly or indirectly at a 50 percent or greater interest—through January 14, 2021, which would otherwise be prohibited by E.O. 13692. According to OFAC, GL 38 does not authorize (i) any debit to the sanctioned entity’s accounts on a U.S. financial institution’s books; or (ii) any transactions otherwise prohibited by the Venezuela Sanctions Regulations.

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

    Share page with AddThis
  • OFAC sanctions entities for assisting North Korean regime

    Financial Crimes

    On November 19, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions pursuant to Executive Order 13722 against two entities allegedly involved in the exportation of forced labor from North Korea. According to OFAC, the sanctioned entities—a Russian construction company and a North Korean company—have “engaged in, facilitated, or been responsible for the exportation of forced labor from North Korea, including exportation to generate revenue for the Government of North Korea or Workers’ Party of Korea.” In addition, OFAC updated the Specially Designated Nationals and Blocked Person List to provide additional information on three previously designated companies responsible for sending North Korean workers to Russia and China. As a result of the sanctions, “all property and interests in property of these targets 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 or entities, they may be subject to U.S. secondary sanctions.

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

    Share page with AddThis
  • Fed extends some Covid-19 lending facilities through March 2021

    Federal Issues

    On November 30, the Federal Reserve Board announced the extension of the Commercial Paper Funding Facility (CPFF), the Money Market Liquidity Facility (MMLF), the Primary Dealer Credit Facility (PDCF), and the Paycheck Protection Program Liquidity Facility (PPPLF) through March 31, 2021, while many other Covid-19 lending facilities will terminate at the end of the year.

    Earlier this month, Treasury Secretary Steven T. Mnuchin sent a letter to Federal Reserve Board Chairman Jerome Powell stating that he intends to let several Covid-19-related lending facilities that rely on Coronavirus Aid, Relief, and Economic Security (CARES) Act funding expire at the end of the year, while requesting a 90-day extension for facilities that do not rely on Treasury’s funding. Specifically, Mnuchin stated that the lending facilities that used CARES Act funding—the Primary Market Corporate Credit Facility (PMCCF), the Secondary Market Corporate Credit Facility (SMCCF), the Municipal Liquidity Facility (MLF), the Main Street Lending Program (MSLP), and the Term Asset-Back Securities Loan Facility (TALF)—“have clearly achieved their objective,” noting that “[b]anks have the lending capacity to meet the borrowing needs of their corporate, municipal, and nonprofit clients.” Mnuchin stated that while portions of the economy are still in need of fiscal support, “financial conditions have responded” and the use of the CARES Act-reliant facilities “has been limited.” Thus, Mnuchin requested that the Federal Reserve return the unused facility funds to Treasury so that Congress can “re-appropriate $455 billion, consisting of $429 billion in excess Treasury funds for the Federal Reserve facilities and $26 billion in unused Treasury direct loan funds.” Mnuchin, however, in “an abundance of caution,” requested a 90-day extension on facilities that do not require Treasury funding—the CPFF, MMLF, PDCF, and the PPPLF.

    In response, the Federal Reserve Bank of Boston updated the Main Street Lending Program For-Profit Business and Nonprofit Organization FAQs to address the Main Street facilities at the end of this year. The update advises that (i) lender registration should be initiated by December 4; (ii) eligible loans should be submitted to the Main Street Portal for participation by December 14, and the Fed “will make efforts to process the loans submitted [] by December 14, 2020, in order to effect the purchase of eligible participation interests in advance of the termination date”; and (iii) the Main Street Special Purpose Vehicle will cease issuing commitment letters as of December 23.

    Federal Issues Covid-19 Department of Treasury Federal Reserve

    Share page with AddThis
  • Treasury: Expenses paid from PPP loans are not deductible

    Federal Issues

    On November 18, the U.S. Treasury Department and Internal Revenue Service (IRS) clarified the tax treatment of expenses where a Paycheck Protection Program (PPP) loan has not been forgiven by the end of the year the loan was received. According to the IRS revenue ruling, businesses are not taxed on the proceeds of a forgiven PPP loan, thus the business expenses paid from those proceeds are not deductible. The revenue ruling illustrates multiple taxpayer scenarios, which conclude that if the PPP loan has not yet been forgiven by the end of 2020, but the business reasonably believes the loan will be forgiven in the future, the expenses are not deductible. This applies whether the business has filed for forgiveness yet or not. However, if a PPP loan was expected to be forgiven, and was not, the expenses are deductible.

    Federal Issues Covid-19 SBA IRS Department of Treasury

    Share page with AddThis
  • OFAC sanctions network for financially contributing to the Supreme Leader of Iran

    Financial Crimes

    On November 18, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions against “a key patronage network for the Supreme Leader of Iran” (Foundation)—a conglomerate of roughly 160 holdings in key sectors of Iran’s economy, including finance, energy, construction, and mining—along with Iran’s Minister of Intelligence and Security. The Foundation is being designated pursuant to Executive Order (E.O.) 13876, which also targets the Supreme Leader of Iran, the Iranian Supreme Leader’s Office (SLO), as well as their affiliates. According to OFAC, the Foundation, among other things, allegedly transferred large amounts of money to the SLO and made financial contributions to candidates for Iran’s presidential election. The Foundation also allegedly “maintains control of its economic empire through a network of holding companies touching nearly every sector of the Iranian economy.” Seven of these companies have also been designated, “along with dozens of their owned-or-controlled subordinate entities, as well as a number of “independent” Foundation owned-or-controlled subsidiaries and their owned-or-controlled subordinate companies.” The Iranian Minister of Intelligence and Security is being designated pursuant to E.O. 13553 for “having acted or purported to act for or on behalf of, directly or indirectly, the [Ministry of Intelligence and Security],” which plays “a key role in the Iranian regime’s brutal human rights abuses against the Iranian people.”

    As a result, all property and interests in property belonging to, or owned by, the designated persons subject to U.S. jurisdiction are blocked, and U.S. persons are also generally prohibited from engaging in transactions with them. OFAC further warned foreign financial institutions that knowingly facilitating significant transactions or providing significant support to the designated persons may subject them to U.S. correspondent account or payable-through account sanctions.

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

    Share page with AddThis

Pages