InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
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.
Biden order authorizes sanctions authority covering Russian activities
On April 15, the Biden administration announced several actions intended to block property with respect to specified harmful foreign activities by the Russian government, including the issuance of Executive Order (E.O.) Blocking Property With Respect To Specified Harmful Foreign Activities Of The Government Of The Russian Federation. Specifically Directive 1 to the E.O. provides that, at the determination of the acting director of the Office of Foreign Assets Control (OFAC) and in consultation with the State Department, U.S. financial institutions are prohibited from:
- Participating “in the primary market for ruble or non-ruble denominated bonds issued after June 14, 2021 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation”; and
- “Lending ruble or non-ruble denominated funds to the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.”
These actions are prohibited as of June 14, 2021, “except to the extent provided by law or unless licensed or otherwise authorized by [OFAC].” For purposes of the Directive, a “U.S. financial institution” is defined as “any U.S. entity (including its foreign branches) that is engaged in the business of accepting deposits, making, granting, transferring, holding, or brokering loans or other extensions of credit, or purchasing or selling foreign exchange, securities, commodity futures or options, or procuring purchasers and sellers thereof, as principal or agent.” This term also includes branches, offices, and agencies of foreign financial institutions located in the U.S., but does not include such institutions’ foreign branches, offices, or agencies.
In conjunction with the issuance of the new E.O., OFAC also published several new and updated FAQs and added several individuals and entities to OFAC’s list of Specially Designated Nationals. The new additions include sanctions taken against (i) several Russian technology companies that support the Russian Intelligence Services, which OFAC stated are responsible for having “executed some of the most dangerous and disruptive cyber attacks in recent history”; (ii) five individuals and three entities related to Russia’s occupation of the Crimea region of Ukraine pursuant to E.O.s 13660 and 13685; and (iii) 16 entities and 16 individuals that attempted to influence the 2020 U.S. presidential election at the direction of Russian government leadership.
As a result of the sanctions, all of the property and interests in property of the designated persons that are in the United States or in the possession or control of U.S. persons, as well as any entities that are owned 50 percent or more by the designated persons, are blocked and must be reported to OFAC. Additionally, OFAC regulations generally prohibit U.S. persons from participating in transactions with the designated persons unless exempt or otherwise authorized by an OFAC general or specific license. In its announcement, OFAC further warned that “foreign persons that knowingly engage in a significant transaction or transactions with the persons designated today may themselves face the risk of designation,” and emphasized that “financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals may expose themselves to secondary sanctions or be subject to an enforcement action.”
OFAC amends FAQs on Sudan sanctions
On April 12, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published amended frequently asked questions related to the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) and the Sudan Program and Darfur Sanctions. FAQs 97 and 98 clarify TSRA licensing application options and steps, which require that applicants provide all relevant information for parties, including financial institutions and purchasing agents, that may be involved in the proposed transactions. FAQ 500 explains that persons are no longer required to obtain specific licenses from OFAC to export or reexport agricultural commodities, medicines, or medical devices to Sudan. Finally, FAQ 836 states that U.S. persons are no longer prohibited from engaging in transactions with respect to Sudan or the Government of Sudan that were previously prohibited by the Sudanese Sanctions Regulations, 31 C.F.R. part 538.
OFAC sanctions Burmese gem enterprise
On April 8, 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 all gemstone activities in Burma. According to OFAC, gemstones are a “key economic resource for the Burmese military regime that is violently repressing pro-democracy protests” and is accountable for the continuing deadly attacks against the people of Burma. 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.
2nd Circuit: Banking a known terrorist organization does not, by itself, establish Antiterrorism Act liability
On April 7, the U.S. Court of Appeals for the Second Circuit affirmed summary judgments (see here and here) dismissing amended complaints filed in two actions seeking to hold a U.K. bank and a French bank, respectively, liable under the Antiterrorism Act of 1990 (ATA) for allegedly “providing banking services to a charitable organization with alleged ties to Hamas, a designated Foreign Terrorist Organization (FTO) alleged to have committed a series of terrorist attacks in Israel in 2001-2004.” The complaints alleged that the U.K. bank and the French bank knowingly provided banking services, including sending millions of dollars in wire transfers, to organizations previously designated by the U.S. as Specially Designated Global Terrorists. The district court referred to the 2nd Circuit’s decision in Linde v. Arab Bank PLC, in which the appellate court held that “a bank’s provision of material support to a known terrorist organization is not, by itself, sufficient to establish the bank’s liability under the ATA,” and that “in order to satisfy the ATA’s requirements for civil liability as a principal,” the bank’s act must “also involve violence or endanger human life.” Moreover, the Linde opinion held, among other things, that a bank’s act must be intended to intimidate or coerce the civilian population or influence or affect a government, and that the bank “ must have been ‘generally aware of [its] role as part of an overall illegal or tortious activity at the time’” the assistance was provided.
The plaintiffs argued in a consolidated appeal that the district court misapplied the Linde holding and erred in concluding that the evidence presented was “insufficient to permit an inference that the bank was generally aware that it was playing a role in terrorism.” The banks countered that if the appellate court reversed the judgments, the claims should be thrown out for lack of personal jurisdiction. On appeal, the 2nd Circuit agreed with the district court’s dismissal of claims “on the ground that plaintiffs failed to adduce sufficient evidence that the bank itself committed an act of international terrorism within the meaning of §§ 2333(a) and 2331(1)” of the ATA. The opinion noted, among other things, that the plaintiffs’ experts said the charities to which the banks transferred funds as instructed by one of the organizations actually performed charitable work and that there was no indication that they funded terrorist attacks. As such, the banks’ conditional cross-appeal was dismissed as moot.
Agencies issue MRMG; seek comments on BSA/AML compliance
On April 9, the Federal Reserve Board, FDIC, and OCC, in consultation with FinCEN and the NCUA, issued a joint statement on the use of risk management principles outlined in the agencies’ “Supervisory Guidance on Model Risk Management” (known as the “model risk management guidance” or MRMG) as it relates to financial institutions’ compliance with Bank Secrecy Act/anti-money laundering (BSA/AML) rules. While the joint statement is “intended to clarify how the MRMG may be a useful resource to guide a bank’s [model risk management] framework, whether formal or informal, and assist with BSA/AML compliance,” the agencies emphasized that the MRMG is nonbinding and does not alter existing BSA/AML legal or regulatory requirements or establish new supervisory expectations. In conjunction with the release of the joint statement, the agencies also issued a request for information (RFI) on the extent to which the principles discussed in the MRMG support compliance by financial institutions with BSA/AML and Office of Foreign Assets Control requirements. The agencies seek comments and information to better understand bank practices in these specific areas and to determine whether additional explanation or clarification may be helpful in increasing transparency, effectiveness, or efficiency. Comments on the RFI are due within 60 days of publication in the Federal Register.
OFAC sanctions Pakistan-based transnational human smuggling organization
On April 7, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13581, “Blocking Property of Transnational Criminal Organizations,” against a Pakistani national and a transnational criminal organization (TCO). In addition, OFAC designated three individuals and one entity associated with the TCO. According to OFAC, Treasury’s designation of this human smuggling organization as a significant TCO is an “important step taken alongside our partners, towards disrupting . . . operations based in Pakistan and around the world.” As a result of the sanctions, all assets belonging to the designated persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. U.S. persons are generally prohibited from engaging in dealings involving any property or interests in property of the blocked or designated persons.
OFAC sanctions Mexican cartel members and facilitator
On April 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to the Foreign Narcotics Kingpin Designation Act against two members of a major Mexico-based drug trafficking cartel, along with another individual responsible for facilitating travel related to the illicit activities for senior cartel members and their allies. In addition, OFAC designated two businesses located in Mexico. According to OFAC, the designations serve as “a reminder that Treasury will continue to sanction those providing support to [the cartel], whether that person is a violent actor or a complicit businessperson.” As a result of the sanctions, all property and interests in property belonging to the sanctioned individuals and entities 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.
OFAC issues new Syria sanctions FAQs
On April 5, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published two new Syria Frequently Asked Questions, FAQs 884 and 885. FAQ 884 relates to non-U.S. persons’, including nongovernmental organizations’ (NGOs) and foreign financial institutions’ exposure to U.S. secondary sanctions pursuant to the Caesar Syria Civilian Protection Act of 2019 (Caesar Act) for activities that would be authorized under the Syrian Sanctions Regulations (SySR), while FAQ 885 governs whether U.S. and non-U.S. persons (including NGO and foreign financial institutions) may facilitate certain humanitarian assistance to Syria without the risk of sanctions. OFAC clarified, among other things, that “non-U.S. persons, including NGOs and foreign financial institutions, would not risk exposure to sanctions under the Caesar Act for engaging in activity, or facilitating transactions and payments for such activity, that is authorized for U.S. persons under a general license (GL) issued pursuant to the SySR.” With respect to certain humanitarian assistance, OFAC explained that “[t]he export of U.S.-origin food and most medicines to Syria is not prohibited and does not require a Department of Commerce Bureau of Industry and Security (BIS) or OFAC license, and therefore non-U.S. persons would not risk exposure to sanctions under the [Caesar Act] for engaging in such activity.”