Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
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.
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.”
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.
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.
On September 13, the U.S. Treasury Department'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.
U.S. enforcement authorities seize $3.7 million, arrest 281 for involvement in Business Email Compromise schemes
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.
On September 10, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Housing Finance Reform: Next Steps” to discuss the federal government’s plans for reforming and strengthening the mortgage market. As previously covered by InfoBytes, the Department of Treasury and HUD released complementary proposals on September 5 discussing plans to end the conservatorships of Fannie Mae and Freddie Mac (GSEs) and reform the housing finance system. The Committee heard from Treasury Secretary Steven Mnuchin, HUD Secretary Ben Carson, and FHFA Director Mark Calabria. Committee Chairman Mike Crapo (R-ID) opened the hearing by stating a preference for comprehensive legislation to end the conservatorship of the GSEs but stressed that the agencies should “begin moving forward with incremental steps that move the system in the right direction.” Democratic members of the Committee stated their oppositions to the proposals, with Senator Sherrod Brown (D-Ohio) arguing that the Treasury’s plan “will make mortgages more expensive and harder to get,” make it more difficult for small lenders to compete, and roll back tools designed to help underserved families.
Treasury Secretary Mnuchin defended his agency’s proposal, and noted that while he prefers that Congress take the lead on ending the GSE conservatorships and plans to work with Congress on a bipartisan basis to enact comprehensive housing finance reform legislation, he also sees the need to concurrently develop administrative actions to protect taxpayers and foster competition. Among other things, Mnuchin discussed steps to remove the net worth sweep, which requires the GSEs to send nearly all their profits to the Treasury, arguing that ending the sweep will allow the GSEs to retain their earnings and build up capital.
FHFA Director Calabria emphasized that plans released by the Treasury and HUD are “broadly consistent” with his top priorities, which include developing capital standards for the GSEs to match their risk profiles that would “begin the process to end the [GSE] conservatorships,” as well as reforms to reduce the risks in the GSEs’ portfolios. All three witnesses agreed with Crapo’s assessment that the GSEs in their current form “are systemically important companies [and] that they continue to be too big to fail.” Calabria further emphasized that while he believes only Congress can reach a comprehensive solution, he believes the agencies can also make significant steps.
HUD Secretary Carson commented that a central principle of HUD’s housing finance plan is to improve coordination between HUD and FHFA to allow qualified borrowers access to responsible and affordable credit options, with HUD, the Department of Veterans Affairs, and the Department of Agriculture acting as the sole sources of low-down-payment financing for borrowers outside of the conventional mortgage market. Carson further noted that reform will “reduce the Federal Government’s outsized role in housing finance.”
OFAC announces anti-terrorism sanctions targeting foreign banks that transact with designated terrorists
On September 10, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) announced the designation of 15 leaders, individuals, and entities affiliated with terror groups, pursuant to the newly issued Executive Order (E.O.) 13886, “Modernizing Sanctions to Combat Terrorism,” which updates E.O. 13224. E.O. 13886 provides Treasury and the State Department with “new tools” to identify and designate perpetrators. Most notably, under E.O. 13886, foreign financial institutions are now subject to secondary sanctions, allowing OFAC to prohibit or impose strict conditions on the opening or maintaining in the U.S. of a correspondent account or a payable-through account by any foreign financial institution that knowingly facilitates a significant transaction for any Specially Designated Global Terrorist (SDGT), or a person acting on behalf of or at the direction of, or owned or controlled by, a SDGT.
As a result of the sanctions, all property and interests in property of the sanctioned targets 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 designated persons. Finally, OFAC warns that persons that engage in transactions with the designated individuals “may themselves be exposed to sanctions or subject to an enforcement action.”
On September 9, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) issued Venezuela-related General License (GL) 34, “Authorizing Transactions Involving Certain Government of Venezuela Persons,” related to Executive Order (E.O.) 13884. As previously covered by InfoBytes, E.O. 13884, among other things, prevents all property and property interests of the Government of Venezuela existing within the U.S. or in the possession of a U.S. person from being transferred, paid, exported, withdrawn, or otherwise dealt in.
GL 34 authorizes transactions with certain Government of Venezuela individuals, including United States citizens; permanent resident aliens of the United States; individuals in the United States who have a valid U.S. immigrant or nonimmigrant visa, other than individuals in the United States as part of Venezuela’s mission to the United Nations; and former employees and contractors of the Government of Venezuela. OFAC also updated FAQ 680 to reflect the new GL.
On September 6, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) announced amendments effective October 9 to the Cuban Assets Control Regulations (CACR), which implement changes in accordance with President Trump’s 2017 National Security Presidential Memorandum “Strengthening the Policy of the United States Towards Cuba.” Key elements of the changes include:
- Lowering the value of permitted remittances to Cuba. Family remittances will be capped at $1,000 U.S. dollars per quarter that a single remitter can send to an individual Cuban national. Remittances to close family members of prohibited Cuban officials and members of the Cuban Communist Party will be forbidden. While the amendments rescind the authorization for donative remittances, they add a new provision authorizing remittances to certain individuals and independent non-governmental organizations in Cuba “to support the operation of economic activity . . . independent of government control.”
- “U-turn” transactions. The amended sanctions revoke what is commonly referred to as the Cuban “U-turn” authorization. Effective next month, financial institutions subject to U.S. jurisdiction will no longer be authorized to process Cuba-related payments that originate and terminate outside the United States. However, financial institutions subject to U.S. jurisdiction will be permitted to reject such transactions.
The changes will have the greatest impact on U.S. banks offering foreign correspondent banking services and foreign banks utilizing those services, increasing compliance risks for both. They also shut a significant window to the U.S. financial system that foreign persons conducting international trade with Cuba previously enjoyed.
- Amanda R. Lawrence and Sherry-Maria Safchuk to discuss "California privacy rule" on an NAFCU webinar
- Sasha Leonhardt to discuss "The Servicemembers Civil Relief Act and the Military Lending Act: Common pitfalls and emerging issues" at a NAFCU webinar
- Michelle L. Rogers to discuss "BigLaw" at the Women in Business Law Leadership Conference
- Buckley Webcast: NYDFS mortgage servicing rules: Untangling federal and state servicing requirements
- H Joshua Kotin and Jessica M. Shannon to discuss "TILA/RESPA mortgage servicing and origination" at the NAFCU Regulatory Compliance School
- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Which bud’s for you? A deep-dive into evolving marijuana laws" at the ACAMS International AML & Financial Crime Conference
- Benjamin W. Hutten to discuss "Understanding OFAC sanctions" at a NAFCU webinar
- Brandy A. Hood to discuss "RESPA 8 (TRID applied compliance)" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- John P. Kromer to discuss "Navigating the multi-state fintech regulatory regime" at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Critique of direct examination; Questions and answers" at the American Bar Association Section of Litigation Anatomy of a Trial: Murder Trial of Ziang Sung Wan
- Hank Asbill to discuss "What judges want from trial lawyers" at the American Bar Association Section of Litigation Anatomy of a Trial: Murder Trial of Ziang Sung Wan
- Steven R. vonBerg to speak at the "Conference super session" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference