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  • Special Alert: OFAC encourages humanitarian aid, promises consideration of Covid-19 compliance challenges

    Federal Issues

    The Department of the Treasury’s Office of Foreign Assets Control recently took two actions to address the impact of Covid-19. First, OFAC issued a fact sheet that consolidates existing authorizations and guidance permitting humanitarian, agricultural, and medical aid to six jurisdictions subject to sanctions. Second, OFAC encouraged companies facing compliance challenges due to Covid-19 to shift resources to higher-risk areas, noting that it would take this move into consideration if it leads to a violation during the pandemic. Companies facing compliance challenges may wish to consider such a shift, while documenting their risk-based rationale for doing so.

    Humanitarian fact sheet

    Last week, OFAC issued a fact sheet regarding the provision of Covid-19-related assistance under its Iran, Cuba, North Korea, Syria, Ukraine/Russia, and Venezuela sanctions regimes. The fact sheet made no changes to existing laws and guidance, but consolidated existing licenses, exemptions, authorizations, and related FAQs relevant to humanitarian aid and medical equipment for these regimes. The fact sheet should prove to be a valuable resource for financial institutions and other organizations confronting a wave of transactions to provide personal protective equipment to sanctions-targeted jurisdictions wracked by Covid-19, while complying with OFAC regulations. 

    Federal Issues Department of Treasury OFAC Sanctions Covid-19

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  • Korean bank settles investigation into Iran transfers; resolves BSA/AML violations allegations

    Financial Crimes

    On April 20, the U.S. Attorney for the Southern District of New York and the New York attorney general announced that a Korean bank will pay $51 million in penalties to resolve a six-year investigation into the bank’s transfer of more than $1 billion to Iranian entities in violation of U.S. economic sanctions. According to the U.S. Attorney’s press release and deferred prosecution agreement and statement of facts (as well as a press release from the state attorney general), the bank violated the Bank Secrecy Act (BSA) by “willfully failing to establish, implement, and maintain an adequate anti-money laundering (‘AML’) program” at its New York branch—even though its compliance officer repeatedly asked it to do so—which led to the illegal transfer of approximately $1 billion in transactions to Iran in violation of the International Emergency Economic Powers Act. According to the government, the bank’s lack of an effective AML program resulted in its failure to detect and report $10 million in payments through the bank and other U.S. financial institutions from Korean entities to Iranian entities, as well as its failure to “report the balance of the $1 billion of such sanctioned transactions” between the parties. Furthermore, the bank also failed to self-report to the U.S. Treasury Department’s Office of Foreign Assets Control its wrongdoing in a timely manner or its willful violations of the BSA prior to the investigation. Under the terms of the deferred prosecution agreement, the bank will pay $51 million through a civil forfeiture action, half of which will go to the United States Victims of State Sponsored Terrorism Fund, and will undergo regular reviews of its AML and sanctions compliance programs.

    The bank also reached a separate agreement with NYDFS for violating state regulations, under which it will pay an additional $35 million penalty for violations of BSA/AML laws. Among other things, NYDFS found that the compliance program of the bank’s New York branch failed to achieve satisfactory levels until its 2019 examination. “While the department applauds the bank for its ultimate efforts after eight examination cycles of noncompliance, one positive examination report does not equate to a sustainable, safe and sound financial institution,” NYDFS said in its consent order. Under the terms of the order, the bank is required to revise its BSA/AML compliance program and enhance its customer due diligence program to ensure compliance with relevant state laws and regulations. NYDFS acknowledged the bank’s substantial cooperation in the matter, including remediating identified shortcomings.

    Financial Crimes DOJ State Attorney General NYDFS OFAC Department of Treasury Settlement Of Interest to Non-US Persons Korea Anti-Money Laundering Bank Secrecy Act

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  • FCRA class action dispute stayed for Supreme Court appeal

    Courts

    On April 15, the U.S. Court of Appeals for the Ninth Circuit granted a joint motion to stay a mandate pending a credit reporting agency’s (CRA) filing of a petition for writ of certiorari with the U.S. Supreme Court. If a petition is filed, the stay will continue until final disposition by the Court. As previously covered by InfoBytes, in February the 9th Circuit reduced punitive damages in a class action against the CRA for allegedly violating the FCRA by erroneously linking class members to criminals and terrorists with similar names in a database maintained by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). The appellate court found that all class members had standing due to, among other things, the CRA’s alleged “reckless handling of information from OFAC,” which subjected class members to “a real risk of harm,” and rejected the CRA’s request for judgment as a matter of law or a new trial on the basis that the class had failed to provide sufficient evidence of injuries or to support the damages award. The appellate court concluded, however, that the $52 million punitive damages award was “unconstitutionally excessive,” explaining that, although the CRA’s “conduct was reprehensible, it was not so egregious as to justify a punitive award of more than six times an already substantial compensatory award.” 

    The CRA subsequently filed a petition for rehearing (which the appellate court denied), challenging, among other things, the 9th Circuit’s conclusion that the CRA’s decision to make the credit reports available to numerous potential creditors and employers was “sufficient to show a material risk of harm to the concrete interest of all class members.” The CRA argued that this was “exactly the sort of hypothetical risk of injury the Supreme Court has made clear does not cut it” to establish concrete injury, and that the decision was inconsistent with the 9th Circuit’s own precedent, in which the appellate court determined that “the risk of injury becomes material only when the document gets into third-party hands.” The CRA also argued that the 4 to 1 benchmark ratio between punitive damages and statutory damages was still too high, because it “conflicts not just with the Supreme Court’s commands, but with decisions from other circuits finding much lower compensatory-damages awards sufficiently ‘substantial’ to demand a 1:1 ceiling.”

    Courts Appellate Ninth Circuit U.S. Supreme Court Class Action FCRA OFAC

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  • OFAC advises risk-based compliance approach during Covid-19 crisis

    Federal Issues

    On April 20, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued a statement reminding businesses—including financial institutions—to adhere to a risk-based administration of their sanctions compliance plans. The release notes that, in light of Covid-19, businesses may need to reassign resources otherwise dedicated to sanctions compliance to other areas. If apparent violations are made due to this reallocation of resources, OFAC asserts that it will take this into consideration when determining the appropriate response to the business. Also, businesses and persons subject to OFAC regulatory authority are urged to contact OFAC if the businesses anticipate any delays in satisfying deadlines or in filing required submissions and reports, including meeting the 10-day deadline for filing reject reports. The statement provides OFAC contact information appropriate to a number of situations, including matters related to reject reports, subpoenas, license reports, requests for reconsideration, and self-disclosures.

    Federal Issues Agency Rule-Making & Guidance Department of Treasury OFAC SBA Of Interest to Non-US Persons CARES Act Covid-19

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  • Multiagency advisory warns of North Korean cyber-threat to international finance system

    Financial Crimes

    On April 15, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), in conjunction with the Departments of State and Homeland Security and the Federal Bureau of Investigation, issued an advisory warning that North Korea’s (DPRK) cyber activities—including cybertheft, money laundering, extortion, and cryptojacking—“pose a significant threat to the integrity and stability of the international finance system.” These activities, the agencies caution, highlight DPRK’s use of cyber-enabled means to generate revenue while mitigating the impact of OFAC-imposed sanctions. In addition to providing examples of cyber activities that target the international financial sector and DPRK state-sponsored cyber incidents, the advisory also outlines recommended measures that governments, industry, civil society, and individuals can take to counter DPRK cyber threats. These include (i) raising awareness; (ii) sharing technical information; (iii) implementing and promoting cybersecurity best practices; (iv) notifying law enforcement; and (v) strengthening anti-money laundering, countering the financing of terrorism, and counter-proliferation financing compliance. The agencies reiterate the consequences of engaging in prohibited and sanctionable conduct, and remind individuals and entities that OFAC has the authority to impose sanctions on any persons found to have engaged in conduct supporting DPRK cyber-related activity. The agencies also point out that foreign financial institutions that knowingly conduct or facilitate significate trade or transactions on behalf of a designated person for DPRK-related activity, may “lose the ability to maintain a correspondent or payable-through account in the [U.S.]”

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

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  • OFAC guidance addresses Covid-19 humanitarian assistance and trade

    Federal Issues

    On April 16, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published a Fact Sheet providing guidance to ensure humanitarian-related trade and assistance reaches at-risk populations through legitimate and transparent channels during the global Covid-19 pandemic. Specifically, the Fact Sheet highlights the most pertinent exemptions, exceptions, and authorizations for humanitarian assistance and trade under the IranVenezuelaNorth KoreaSyriaCuba, and Ukraine/Russia-related​ sanctions programs. OFAC notes, however, that under certain sanctions program, entities may be required to obtain separate authorization from other U.S. government agencies. The Fact Sheet also provides guidance for persons seeking to export personal protective equipment from the U.S. Additional questions regarding the scope or applicability of any humanitarian-related authorizations can be directed to OFAC’s Sanction Compliance and Evaluation Division.

    Federal Issues Financial Crimes Department of Treasury OFAC Covid-19 Of Interest to Non-US Persons Sanctions

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  • OFAC issues amended Venezuela-related general license and FAQ

    Financial Crimes

    On April 10, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Venezuela General License (GL) 5C, which supersedes GL 5B and authorizes certain transactions otherwise prohibited under Executive Orders 13835 and 13857 related to, or that provide financing for, dealings in the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond on or after July 22, 2020. Concurrently, OFAC issued a new Venezuela-related frequently asked question regarding GL 5C.

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

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  • OFAC amends North Korea Sanctions Regulations

    Financial Crimes

    On April 9, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced amendments to the North Korea Sanctions Regulations. The final rule amends the sanctions regulations to incorporate “Treasury-administered provisions of the North Korea Sanctions and Policy Enhancement Act of 2016 [(NKSPEA)], as amended by the Countering America’s Adversaries Through Sanctions Act of 2017 [(CAATSA)] and the National Defense Authorization Act for Fiscal Year 2020 [(NDAA)].”

    Specifically, OFAC is incorporating into the amended regulations prohibitions with respect to the blocking, correspondent, or payable-through accounts sanctions contained within the NKSPEA, CAATSA, and NDAA. The final rule also adds a new section applicable to individuals and entities that are owned or controlled by a U.S. financial institution and established or maintained outside the U.S., which prohibits them from “knowingly engaging in any transaction, directly or indirectly, with the Government of North Korea or any person designated for the imposition of sanctions with respect to North Korea under NKSPEA. . ., an applicable Executive Order, or an applicable United Nations Security Council resolution.” In addition, the final rule amends the definition of luxury goods by creating “a regulatory exception to exclude items approved for import, export, or reexport to or into North Korea by the United Nations Security Council.” The final rule also incorporates new statutory exemptions, makes technical and conforming edits, revises an interpretive provision, and updates the authorities and delegation sections of the regulations, among other things. The amended North Korea Sanctions Regulations take effect April 10.

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

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  • OFAC amends Venezuela-related general license

    Financial Crimes

    On April 3, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued amended Venezuela General License (GL) 13E, which supersedes GL 13D and extends the expiration date through May 14, 2020 for certain transactions involving the identified corporation and any of its subsidiaries that are normally prohibited under Executive Orders (E.O.) 13850, 13857, and 13884. As previously covered by InfoBytes, E.O. 13884, among other things, prevents all property and interest in property of the Government of Venezuela within the U.S. or in the possession of a U.S. person from being transferred, paid, exported, withdrawn, or otherwise dealt in. OFAC notes that the corporation is engaged with OFAC on a proposed corporate restructuring that may result in significant ownership and control changes.

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

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  • District court denies request to lift OFAC sanctions despite EU decision

    Courts

    On March 31, the U.S. District Court for the District of Columbia granted the Treasury Department’s Office of Foreign Assets Control’s (OFAC) motion to dismiss and denied two Iranian corporations’ (plaintiffs) cross-motion for summary judgment. According to the opinion, the plaintiffs requested to be delisted from OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List) following the Court of Justice of the European Union’s decision in 2013 to lift its own sanctions, which were, according to the plaintiffs, “the basis for OFAC including [the plaintiffs] in its SDN list in the first place.” The plaintiffs were added to the SDN List in 2011 after OFAC allegedly determined that they had assisted certain U.S. and United Nations-sanctioned Iranian companies in procuring goods for uranium enrichment activities. OFAC denied the plaintiffs’ request to be delisted in 2018, causing the plaintiffs to file a complaint seeking to remove the sanctions or “cause OFAC to request the information needed to remove [the plaintiffs] from the SDN List,” citing violations of their rights under the U.S. Constitution and the Administrative Procedure Act. Among other things, the plaintiffs argued that OFAC’s decision to reject the request for delisting was based on “undisclosed/secret information,” and further, OFAC “never provided any evidence to substantiate the[] allegations” that the plaintiffs had worked with other OFAC-sanctioned Iranian firms. Moreover, the plaintiffs contended that OFAC violated their “procedural and substantive due process rights because it failed to provide [the plaintiffs] notice and opportunity to be heard before designating [them] as an SDN.”

    The court, however, found among other things that OFAC’s actions were not “arbitrary or capricious,” stating that while OFAC considered classified evidence of the plaintiffs’ involvement, it also provided unclassified summaries to the plaintiffs. “In denying [the plaintiffs’] request for removal, OFAC requested and reviewed information provided by [the plaintiffs], and it responded to [the plaintiffs’] arguments for reconsideration,” the court stated, noting that OFAC ultimately concluded that the plaintiffs failed to submit credible arguments or evidence “establishing that an insufficient basis exists for the company’s designation.” In addition, the court rejected the plaintiffs’ Fifth Amendment argument, stating that the constitutional claims fail because the “Supreme Court has long held that non-resident aliens without substantial connections to the United States are not entitled to Fifth Amendment protections.”

    Courts OFAC Department of Treasury Sanctions Of Interest to Non-US Persons Iran Administrative Procedures Act Due Process

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