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OFAC reaches $508 million settlement with British tobacco company on North Korean transactions
On April 25, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $508 million settlement with one of the world’s largest tobacco companies to resolve potential civil liabilities stemming from allegations that the company sent more than $250 million in profits from a North Korean joint venture through U.S. financial institutions by relying on designated North Korean banks and several intermediaries. According to OFAC’s web notice, from 2007 to 2016, the London-headquartered company formed a conspiracy to export tobacco and related products to North Korea, and remitted approximately $250 million in payments from the North Korean joint venture. The payments were allegedly remitted through bank accounts controlled by sanctioned North Korean banks to the company’s Singaporean subsidiary via U.S. banks who cleared the transactions. By causing U.S. financial institutions to process wire transfers containing blocked property interests of sanctioned North Korean banks in order to export financial services and facilitate the export of tobacco, the company violated the Weapons of Mass Destruction Proliferators Sanctions Regulations and the North Korea Sanctions Regulations, OFAC said.
According to OFAC, the settlement is the largest ever reached with a non-financial institution and reflects the statutory maximum penalty due to OFAC’s determination that the company’s conduct was egregious and not voluntarily self-disclosed. In arriving at the settlement amount, OFAC determined, among other things, that the company and its subsidiaries willfully conspired to transfer hundreds of millions of dollars related to North Korea through U.S. financial institutions while being aware that U.S. sanctions regulations prohibited this conduct. The company and its subsidiaries also allegedly “relied on an opaque series of front companies and intermediaries” to conceal their North-Korea-related business, with management having actual knowledge about the alleged conspiracy from the beginning. OFAC also considered various mitigating factors, including that the company has not received a penalty notice from OFAC in the preceding five years, and that the company cooperated with OFAC and agreed to toll the statute of limitations.
Providing context for the settlement, OFAC said that this action demonstrates that “creating the illusion of distance between a firm and apparently violative conduct does not shield that firm from liability.” Moreover, “[s]enior management decisions to approve or otherwise support arrangements that obscure dealings with sanctioned countries and parties can be reflected throughout an organization, compounding sanctions risks and increasing the likelihood of committing potential violations.”
Concurrently, the DOJ announced that the company and one of its subsidiaries have agreed to pay combined penalties of more than $629 million to resolve bank fraud and sanctions violations charges stemming from the aforementioned conduct. According to the DOJ, the subsidiary pleaded guilty to a criminal information charging both entities with conspiracy to commit bank fraud and conspiracy to violate the International Emergency Economic Powers Act. The company entered into a deferred prosecution agreement related to these charges.
OFAC sanctions facilitators of DPRK virtual currency laundering
On April 24, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Orders 13722 and 13382, against three individuals for providing material support to the Democratic People’s Republic of Korea (DPRK) through several previously designated entities. According to OFAC, the DPRK uses illicit facilitation networks to access the international financial system, launder stolen virtual currency, and generate revenue to support the regime’s weapons of mass destruction and ballistic missile programs. “The United States and our partners are committed to safeguarding the international financial system and preventing its use in the DPRK’s destabilizing activities, especially in light of the DPRK’s three launches of intercontinental ballistic missiles (ICBMs) this year alone,” Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson said in the announcement. OFAC explained that the DPRK deploys IT workers to fraudulently obtain employment to generate revenue in virtual currency, and said that in 2022 alone, DPRK cyber actors were able to steal an estimated $1.7 billion in virtual currency through various hacks. The stolen virtual currency was converted into fiat currency using a network of over-the-counter virtual currency traders (including traders based in China) to avoid detection by financial institutions or authorities, OFAC said.
As a result of the sanctions, all property and interests in property belonging to the sanctioned entities subject to U.S. jurisdiction 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.” OFAC further warned that “persons that engage in certain transactions with the individuals or entities designated today may themselves be exposed to designation,” and that “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today could be subject to U.S. correspondent or payable-through account sanctions.”
OFAC settles with Indian tobacco company on North Korean transactions
On March 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $332,500 settlement with an India-registered tobacco company to resolve allegations that it “requested payment in U.S. dollars for its indirect exportation of tobacco to the Democratic People’s Republic of Korea [(DPRK)].” According to OFAC’s web notice, in late 2016, an assistant manager at the company and a representative from a Thai intermediary began communicating about a prospective order of tobacco from a DPRK customer. A decision was eventually made not to include the DPRK customer or to list the DPRK in trade documents for the order. Rather, the order listed the Thai intermediary as the customer and China as the destination. OFAC maintained that the company issued three invoices to the Thai intermediary for its tobacco orders, and asked that payments be sent in USD to either the company’s bank account at a non-U.S. bank in India or to the India-branch of a U.S. bank. Between July and August 2017, four Hong Kong-organized intermediaries remitted funds to the company for these shipments and made five payments totaling approximately $369,228. Four of the five USD payments were sent to the non-U.S. bank, causing three U.S. financial institutions to clear the payments. The fifth payment was sent to the India-branch of a U.S. bank. By directing the Hong Kong intermediaries to remit payments in USD, OFAC claimed the company “caused U.S. correspondent banks that processed the payments, as well as the foreign branch of a U.S. bank, to export financial services to or otherwise facilitate the exportation of tobacco to the DPRK” in violation of the North Korea Sanctions Regulations.
In arriving at the settlement amount, OFAC determined, among other things, that several managers had actual knowledge of the alleged conduct at issue, and that the company “acted recklessly” by “fail[ing] to exercise a minimal degree of caution or care for U.S. sanctions laws and regulations and caus[ing] U.S. financial institutions to export financial services or otherwise facilitate the exportation of tobacco to the DPRK.”
OFAC also considered various mitigating factors, including that the company has not received a penalty notice from OFAC in the preceding five years. Additionally, the company undertook remedial measures upon learning of the alleged violations, cooperated with OFAC throughout the investigation, and agreed to toll the statute of limitations, the notice said.
Providing context for the settlement, OFAC said that this action “highlights the deceptive practices DPRK entities use to evade U.S. and international sanctions and acquire revenue-generating goods, such as by employing intermediaries in various countries to coordinate shipping and make payments.”
OFAC sanctions persons supporting North Korea
On March 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against three entities and two individuals for their roles in illicitly generating revenue to support the government of the Democratic People’s Republic of Korea (DPRK). According to OFAC, two of the sanctioned entities are designated pursuant to Executive Order (E.O.) 13687 “for being agencies, instrumentalities, or controlled entities of the Government of North Korea or the Workers’ Party of Korea.” One of the entities is a subordinate to the Government of North Korea, and is used by the DPRK government to earn foreign currency, collect intelligence, and provide cover status for intelligence operatives. The other entity—a subordinate to the DPRK Ministry of People’s Armed Forces (which was previously sanctioned by OFAC)—allegedly generated funds for the DPRK government for decades by conducting art and construction projects on behalf of regimes throughout the Middle East and Africa. The two individuals are sanctioned, pursuant to E.O. 13810, for being North Korean persons who have generated revenue for the DPRK government or the Workers’ Party of Korea. These individuals, OFAC said, established the third sanctioned entity in the Democratic Republic of the Congo to earn revenue from construction and statue-building projects with local governments.
As a result of the sanctions, all property and interests in property of the sanctioned persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC, as well as “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons.” Persons that engage in certain transactions with the designated individuals and entities may themselves be exposed to sanctions, and “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today could be subject to U.S. correspondent or payable-through account sanctions.”
OFAC sanctions officials connected to DPRK
On December 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against three North Korean officials for providing support to the Democratic People’s Republic of Korea’s (DPRK) development of weapons of mass destruction (WMD) and ballistic missiles. According to OFAC, the designations are “in line with wider multilateral efforts to impede the DPRK’s ability to advance its unlawful WMD and ballistic missile programs that threaten regional stability.” As a result of the sanctions, all property and interests in property of the sanctioned entity that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC, as well as “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons.” OFAC noted that its regulations prohibit U.S. persons from participating in transactions with designated persons unless authorized by a general or specific license issued by OFAC.
OFAC sanctions individuals connected to DPRK
On November 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against two individuals for engaging in activities related to transportation and procurement activities on behalf of the Democratic People’s Republic of Korea (DPRK). According to OFAC, these individuals acted on behalf of an entity previously designated by OFAC for operating in the transportation industry in the DPRK economy (covered by InfoBytes here). OFAC also noted that the designation is a part of continuing efforts by the U.S. to limit DPRK’s ability to advance its unlawful weapons of mass destruction and ballistic missile programs, and follows numerous recent DPRK ballistic missile launches. As a result, all property, and interests in property of the designated persons that are in the U.S. or in the possession or control of U.S. persons, must be blocked and reported to OFAC. OFAC regulations generally prohibit all dealings by U.S. persons or within the U.S. (including transactions transiting the U.S.) that involve any property or interests in property of blocked or designated persons. OFAC further warned that engaging in certain transactions with the designated individuals and entities entails risk of designation. Additionally, OFAC warned that a foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the designated individuals or entities could be subject to U.S. correspondent or payable-through account sanctions.
OFAC sanctions North Korean fuel procurement network
On October 7, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13810 against two individuals and three entities for engaging in activities related to the exportation of petroleum to the Democratic People’s Republic of Korea (DPRK), which directly support the development of DPRK weapons programs and its military. OFAC’s actions build upon other U.S. government actions taken against one of the sanctioned individuals and entities, including criminal charges for conspiring to evade economic sanctions of the DPRK and conspiring to launder money. As a result of the sanctions, all property and interests in property of the sanctioned persons subject to U.S. jurisdiction 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 persons, including transactions transiting the U.S. OFAC’s announcement further warned that any foreign financial institution that knowingly facilitates significant transactions or provides significant financial services for any of the designated persons may be subject to U.S. correspondent account or payable-through account sanctions. Additionally, persons that engage in certain transactions with the designated persons may themselves be exposed to designations.
House Republican concerned about Treasury sanctions on virtual currency mixer
On August 23, Representative Tom Emmer (R-MN) sent a letter to Treasury Secretary Janet Yellen raising privacy and due process concerns related to recent “first-of-their-kind” sanctions issued against a virtual currency mixer accused of allegedly laundering more than $7 billion in virtual currency, including more than $455 million stolen by a Democratic People’s Republic of Korea state-sponsored hacking group that is separately subject to U.S. sanctions (covered by InfoBytes here). The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) said the sanctions resulted from the company “having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, a cyber-enabled activity originating from, or directed by persons located, in whole or in substantial part, outside the United States that is reasonably likely to result in, or has materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States and that has the purpose or effect of causing a significant misappropriation of funds or economic resources, trade secrets, personal identifiers, or financial information for commercial or competitive advantage or private financial gain.” (Covered by InfoBytes here.)
Emmer stressed, however, that adding the company to OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List seemed to diverge from previous OFAC precedent since several of the company’s designated “smart contract addresses” do not appear to be a person, entity, or property, but rather are distributed technological tools that are not controlled by any entity or natural person. “OFAC has a long, commendable history of utilizing financial sanctions to enhance the national security of the United States,” the letter said. “Nonetheless, the sanctioning of neutral, open-source, decentralized technology presents a series of new questions, which impact not only our national security but the right to privacy of every American citizen.” Emmer referenced May 2019 guidance issued by FinCEN (covered by InfoBytes here), which he said drew “a distinction between ‘providers of anonymizing services’ (including ‘mixers’)” which are subject to Bank Secrecy Act obligations and “‘anonymizing software providers’” which are not. Emmer recognized that OFAC is not bound by FinCEN regulations, but said it is his understanding that the sanctioned company is “simply the anonymizing software deployed on the blockchain.”
Emmer requested clarification from Treasury on several questions, including the factors OFAC considers when designating technology to the SDN List and how OFAC plans to “uphold the appeals process for the sanctioned addresses that have no ability to appeal the sanction to OFAC” because they “are smart contracts with no agency, corporate or personal, and as such cannot speak for themselves or those whose funds they hold.”
OFAC sanctions “mixer” for laundering over $7 billion in virtual currency
On August 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13694 against a virtual currency mixer accused of allegedly laundering more than $7 billion in virtual currency since 2019. According to OFAC, this amount includes more than $455 million stolen by a previously sanctioned Democratic People’s Republic of Korea state-sponsored hacking group (covered by InfoBytes here). OFAC stated that the designations resulted from the company “having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, a cyber-enabled activity originating from, or directed by persons located, in whole or in substantial part, outside the United States that is reasonably likely to result in, or has materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States and that has the purpose or effect of causing a significant misappropriation of funds or economic resources, trade secrets, personal identifiers, or financial information for commercial or competitive advantage or private financial gain.” Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson, added that the company “repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis,” and stressed that Treasury “will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.” As previously covered by InfoBytes, in 2020, Treasury’s FinCEN penalized a bitcoin mixer $60 million for violating the Bank Secrecy Act.
As a result of the sanctions, all property and interests in property of the sanctioned entity that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC, as well as “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons.” OFAC noted that its regulations prohibit U.S. persons from participating in transactions with designated persons unless authorized by a general or specific license issued by OFAC or exempt.
Treasury further stressed that players in the virtual currency industry should take a risk-based approach for assessing risks associated with different virtual currency services, implementing measures to mitigate risks, and addressing the challenges anonymizing features can present to anti-money laundering/countering the financing of terrorism sanctions obligations. “[M]ixers should in general be considered as high-risk by virtual currency firms, which should only process transactions if they have appropriate controls in place to prevent mixers from being used to launder illicit proceeds,” Treasury said.
OFAC sanctions North Koreans and issues Venezuela general license
On May 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13382 against one individual, two banks, and a trading company connected to the Democratic People’s Republic of Korea’s (DPRK) development of weapons of mass destruction (WMD) and ballistic missile programs and to the U.S.-designated DPRK national airline. According to OFAC, the U.S. is “committed to seeking dialogue and diplomacy with the DPRK but will continue to address the threat posed by the DPRK’s unlawful WMD and ballistic missile programs to the United States and the international community.” As a result of the sanctions, all property and interests in property of the sanctioned individuals and entities subject to U.S. jurisdiction 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 person, including transactions transiting the U.S. OFAC’s announcement further warned that any foreign financial institution that knowingly facilitates significant transactions or provides significant financial services for any of the designated individuals or entities may be subject to U.S. correspondent account or payable-through account sanctions.
The same day, OFAC issued Venezuela- related General License 8J, which authorizes certain transactions involving Petróleos de Venezuela, S.A. (PDVSA) that were previously prohibited under prior Executive Orders to the extent such transactions and activities are “necessary for the limited maintenance of essential operations in Venezuela or the wind down of operations in Venezuela for certain entities,” among other things.