InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OFAC says prohibitions no longer apply to previously sanctioned Chinese military company
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.
OFAC reaches $2.1 million settlement with German software company
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.”
OFAC settles with global payments company
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.
OFAC amends Somalia Sanctions Regulations
On April 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced amendments and reissued the Somalia Sanctions Regulations in its entirety to further implement an April 2010 Somalia-related executive order (E.O. 13536), and to implement a July 2012 Somalia-related executive order (E.O. 13620). The final rule “replaces the regulations that were published in abbreviated form on May 5, 2010 and includes additional interpretive and definitional guidance, general licenses, statements of licensing policy, and other regulatory provisions that will provide further guidance to the public.” Updates include new section 1(a) of E.O. 13536, as amended by E.O. 13620, which blocks, with certain exceptions, “all property and interests in property that are in the United States, that come within the United States, or that are or come within the possession or control of any United States person of: (i) the persons listed in the Annex to amended E.O. 13536; and (ii) any person determined by the Secretary of the Treasury, in consultation with the Secretary of State. . .to have engaged in acts that directly or indirectly threaten the peace, security, or stability of Somalia. . . .” The final rule takes effect April 28.
OFAC sanctions Guatemalan officials
On April 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13818 against one current and one former Guatemalan government official under the Global Magnitsky Human Rights Accountability Act. According to OFAC, the sanctioned persons “have directly or indirectly engaged in, corruption, including the misappropriation of state assets, the expropriation of private assets for personal gain, corruption related to government contracts or the extraction of natural resources, or bribery.” 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 “the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person or the receipt of any contribution or provision of funds, goods or services from any such person.”
Treasury supports UK’s new Global Anti-Corruption Sanctions Regime
On April 26, U.S. Treasury Secretary Janet Yellen issued a statement in support of the UK’s new Global Anti-Corruption Sanctions Regime that will provide the UK with authority similar to that under the U.S. Global Magnitsky program, which targets human rights abusers and corrupt actors. Yellen noted that the UK’s new regime will provide opportunities for the two countries “to take complementary sanctions actions where appropriate,” and magnify the impact of each country’s respective sanctions. She further noted that “U.S. sanctions are more likely to compel changes in behavior and disrupt threatening activities when pursued in concert with our allies—carrying a more forceful economic impact by disrupting access to the international financial system—and sending a stronger message to malign actors by virtue of our solidarity.” Emphasizing that sanctions are just one tool to combat corruption, Yellen stressed that Treasury will support global efforts to, among other things, provide guidance to financial institutions and engage with “foreign and private sector partners to encourage reforms, ensure corrupt officials are held accountable, and see that vulnerabilities to corruption are addressed.”
OFAC sanctions Burmese timber and pearl enterprises
On April 21, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 14014 against a Burmese state-owned entity responsible for timber and pearl exports from Burma. According to OFAC, the timber and pearl industries are “key economic resources for the Burmese military regime that is violently repressing pro-democracy protests” and is responsible for the continuing deadly attacks against the Burmese people. As a result of the sanctions, all property and interests in property of the entity in the U.S. or in the possession or control of U.S. persons 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.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific license.
OFAC issues Belarus-related General License 2H
On April 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued General License No. 2H (GL 2H) to authorize a “45-day wind down period” for nine Belarusian entities to enter into certain transactions. GL 2H replaces and supersedes in its entirety General License No. 2G and authorizes all transactions with any entities that are owned by 50 percent or more by the nine named entities. All property and interests in property of these entities, if blocked, remain blocked, and U.S. persons must report authorized transactions or any series of transactions exceeding $50,000 to the U.S. Department of State no later than 30 days after execution. The authorization expires on June 3.
U.S. steel manufacturer settles with OFAC for violating Iranian sanctions
On April 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $435,003 settlement with an Oklahoma-based steel manufacturer to resolve alleged violations of the Iranian Transactions and Sanctions Regulations. According to OFAC’s accompanying web notice, between 2013 and 2018, the company allegedly engaged with a third-party Iranian engineering company on at least 61 occasions to import engineering services. The company asserted that, while several senior officials “were involved in the process of approving each transaction and issuing checks to the Iranian engineering company,” the company’s “lack of familiarity with U.S. sanctions requirements caused its management to allow the Apparent Violations to continue until a new Chief Executive Officer was hired in October 2018.” Once management learned of the alleged violations, the company stated it ceased working with the Iranian engineering company and took several remedial measures to prevent the conduct from reoccurring.
In arriving at the settlement amount, OFAC considered various aggravating factors, including that (i) the company failed to conduct basic due diligence regarding the transactions with the Iranian engineering company; (ii) senior management “had actual knowledge” that the company was outsourcing work to the Iranian engineering company; and (iii) the conduct caused more than $1 million in benefits to Iran.
OFAC also considered various mitigating factors, including that the company (i) had not received a penalty notice from OFAC in the preceding five years; (ii) voluntarily self-disclosed the alleged violations and cooperated with OFAC’s investigation; (iii) ceased the conduct at issue; and (iv) took remedial measures, including terminating the employee responsible for initiating and overseeing the transactions at issue, and developing and implementing an export compliance policy to provide, among other things, staff training and a requirement that all international contracting opportunities be approved by the company’s president.
OFAC sanctions Mexican cartel commander
On April 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to the Foreign Narcotics Kingpin Designation Act against a regional commander responsible for controlling territory belonging to a major Mexico-based drug trafficking cartel. OFAC noted that the action was taken in coordination with the State Department and DOJ, which unsealed an indictment against the sanctioned individual. Acting Assistant Attorney General Nicholas L. McQuaid emphasized that the designation and indictment “show that the [DOJ], together with our law enforcement partners, will aggressively investigate and criminally prosecute the violent cartels and kingpins who import illegal drugs into our communities.” According to OFAC, this designation is the agency’s fourteenth action taken against the Mexico-based drug trafficking cartel (see previous InfoBytes coverage here). As a result of the sanctions, all property and interests in property belonging to the sanctioned individual 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 or interests in property of blocked or designated persons.