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OFAC sanctions North Koreans
On January 12, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13382 against five Democratic People’s Republic of Korea (DPRK) individuals based in Russia and China that OFAC designated as “responsible for procuring goods for the DPRK’s weapons of mass destruction (WMD) and ballistic missile-related programs.” According to OFAC, these sanctions are part of the U.S.’s ongoing efforts to counter the DPRK’s “continued use of overseas representatives to illegally procure goods for weapons.” As a result of the sanctions, all property and interests in property of the sanctioned individuals 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 may be subject to U.S. correspondent account or payable-through account sanctions.
OFAC settles with bank for alleged NKSR and Foreign Narcotics Kingpin Sanctions Regulations violations
On December 23, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a roughly $115,005 settlement of two cases with a Delaware-based bank for allegedly processing transactions in violation of the North Korea Sanctions Regulations (NKSR) and the Foreign Narcotics Kingpin Sanctions Regulations. According to OFAC’s web notice, in the first matter, between December 2016 and August 2018, the bank processed 1,479 transactions totaling $382,685, and maintained nine accounts on behalf of five employees of the North Korean Mission to the United Nations without a license from OFAC. Additionally, the bank allegedly often misidentified North Korea or did not properly complete the citizenship field in the customer profiles, which resulted in failing to flag the accounts. The web notice explained that “[u]nder the [NKSR], a general license authorizing certain transactions with the North Korean Mission to the United Nations specifies that it does not authorize U.S. financial institutions to open and operate accounts for employees of the North Korean mission. It further specifies that U.S. financial institutions are required to obtain OFAC specific licenses to operate accounts for such persons.” According to the web notice, since the bank did not obtain a specific license to offer these services, its conduct resulted in apparent violations.
In arriving at the settlement amount of $105,238, OFAC considered various aggravating factors, including, among other things, that the bank (i) failed to use due caution or care in processing the 1,479 transactions, which was in violation of the NKSR for over a year; (ii) “had reason to know that it maintained accounts for North Korean nationals because at account opening, the account holders of all nine accounts presented to [the bank] North Korean passports”; and (iii) “is a large and commercially sophisticated financial institution with a global presence.” OFAC also considered various mitigating factors, including, among other things, that the bank (i) “enhanced its controls for identifying government officials of sanctioned countries”; and (ii) “updated its operating procedures to specify that reviews of customers in or affiliated with sanctioned jurisdictions must be escalated.”
In the second matter, according to the web notice, the bank allegedly maintained accounts for a U.S. resident who was on OFAC’s SDN List. The bank did not block the account and disclose to OFAC until after the fifth high-confidence sanctions screening alert was generated because the previous alerts had a “match on full name DOB and geographical location.” The bank’s fraud unit, unaware of the sanctions-related reason for account closure, then credited one of the individual’s accounts, which caused it to be re-opened. The notice reported that the failure to correctly identify the individual as a person on the SDN List was the result of human error and a breakdown in the bank’s sanctions compliance procedures. Further, “[i]n addition to incorrectly dispositioning these alerts, [the bank’s] analysts contravened [the bank’s] procedures which require alerts to be escalated if a match occurs in first and last name and any additional information field.” Such conduct resulted in 145 apparent violations of the Foreign Narcotics Kingpin Sanctions Regulations.
In arriving at the settlement amount of $9,766, OFAC considered various aggravating factors, including, among other things, that the bank (i) “failed to exercise due caution or care for U.S. economic sanctions requirements by incorrectly adjudicating high-confidence sanctions screening alerts four times over four years, despite full date-of-birth and first and last name matches”; (ii) permitted $35,514.13 in transactions by an individual on the SDN List; and (iii) “is a large and sophisticated financial institution with a global presence.” OFAC also considered various mitigating factors, including, among other things, that the bank did not appear to have had actual knowledge of the conduct that led to the apparent violations, and represented that it has terminated this conduct and has undertaken remedial measures.
Indonesian company settles with OFAC for $1 million for North Korea sanctions violations, enters into deferred prosecution agreement with DOJ
On January 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a more than $1 million settlement with an Indonesian-based paper products manufacturer for 28 apparent violations of the North Korea Sanction Regulations. According to OFAC’s web notice, between 2016 and 2018, the company “exported cigarette paper to entities located in or doing business on behalf of the Democratic People’s Republic of Korea (DPRK),” including a Chinese intermediary that procured paper on behalf of an OFAC-designated company operating under an alias. The company allegedly directed payments for its DPRK-related exports to a U.S. dollar bank account held at a non U.S. bank, leading to 28 wire transfers being cleared through U.S. banks. OFAC noted that while the company initially referenced the DPRK entities on documents such as invoices, packing lists, and bills of lading, it eventually replaced the references with the names of intermediaries located in third countries.
In arriving at the settlement amount, OFAC considered various aggravating factors, including that the company (i) “acted with reckless disregard for U.S. sanctions laws and regulations” by directing DPRK-related payments to its U.S. dollar account; (ii) was aware that management had actual knowledge of the conduct at issue; and (iii) the company’s actions “caused U.S. persons to confer economic benefits to the DPRK and an OFAC-designated person.”
OFAC also considered various mitigating factors, including that the company (i) cooperated with OFAC’s investigation; (ii) has undertaken remedial measures, ceased all dealings with the DPRK, and enhanced its compliance controls and internal policies by, among other things, procuring a sanctions screening service from a third-party provider, implementing a know-your-customer process, and requiring that “all trading companies or agents purchasing goods on behalf of other end-users sign an anti-diversion agreement that includes OFAC sanctions compliance commitments.”
Separately, the DOJ announced that the company agreed to pay a $1.5 million fine and enter into a deferred prosecution agreement for conspiring to commit bank fraud after admitting it deceived U.S. banks in order to trade with the DPRK. The company also “agreed to implement a compliance program designed to prevent and detect violations of U.S. sanctions laws and regulations and to regularly report to the [DOJ] on the implementation of that program.” The company is also required to report violations of relevant U.S. laws to the DOJ and “cooperate in the investigation of such offenses.”
OFAC sanctions entities for assisting North Korean coal exportation
On December 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Orders 13687, 13722, and 13810 against six entities related to the alleged transportation of North Korean coal. OFAC also identified four vessels as blocked property. According to OFAC, by engaging in activities prohibited under UN Security Council resolution 2371, the six sanctioned entities have assisted North Korea’s continued efforts to circumvent UN prohibitions on the exportation of North Korean coal. As a result of the sanctions, “all property and interests in property of these targets 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 or entities, they may be subject to U.S. secondary sanctions. OFAC also recommended all relevant jurisdictions review a global advisory issued last May by the U.S. Departments of State and Treasury, along with the U.S. Coast Guard (covered by InfoBytes here), which warned the maritime industry of deceptive shipping practices used by Iran, North Korea, and Syria to evade economic sanctions.
OFAC sanctions entities for assisting North Korean regime
On November 19, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions pursuant to Executive Order 13722 against two entities allegedly involved in the exportation of forced labor from North Korea. According to OFAC, the sanctioned entities—a Russian construction company and a North Korean company—have “engaged in, facilitated, or been responsible for the exportation of forced labor from North Korea, including exportation to generate revenue for the Government of North Korea or Workers’ Party of Korea.” In addition, OFAC updated the Specially Designated Nationals and Blocked Person List to provide additional information on three previously designated companies responsible for sending North Korean workers to Russia and China. As a result of the sanctions, “all property and interests in property of these targets 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 or entities, they may be subject to U.S. secondary sanctions.
DOJ sues companies for laundering funds for North Korean banks
On July 23, the DOJ announced it filed a complaint in the U.S. District Court for the District of Columbia, alleging that four companies engaged in a scheme to launder U.S. dollars on behalf of sanctioned North Korean banks and seeking forfeiture of $2,372,793. The DOJ claims that the North Korean banks illegally accessed the U.S. financial market and used the companies to make and receive U.S. dollar payments to and from North Korean front companies. According to the DOJ, the complaint “illuminates how a global money laundering network coordinates with front companies to move North Korean money through the [U.S.] and violate the sanctions imposed by [the] government on North Korea.” The DOJ further refers to a United Nations Panel of Experts statement that North Korean networks access formal banking channels by, among other things, maintaining correspondent bank accounts and representative offices abroad staffed by foreign nationals that make use of front companies, which permit North Korean banks “to conduct illicit procurement and banking activity.”
UAE manufacturer settles OFAC, DOJ charges for apparent North Korean sanctions violations
On July 16, a United Arab Emirates cigarette filter and tear tape manufacturer settled OFAC and DOJ charges for apparent violations of the North Korea Sanctions Regulations (NKSR) 31 C.F.R. part 510 and the International Emergency Economic Powers Act (IEEPA). According to OFAC’s release, the company allegedly violated the NKSR by (i) engaging in deceptive practices in order to export cigarette filters to North Korea through a network of front companies in China and other countries; and (ii) receiving three wire transfers totaling more than $330,000 in accounts at a U.S. bank’s foreign branch as payment for exporting the filters. OFAC noted that the conduct leading to the apparent violations included aggravating factors such as (i) the company’s senior manager and customer-facing employee willfully violated the NKSR by agreeing to, among other things, transact with non-North Korean front companies to conceal the North Korea connection despite a company policy that “warned that its banks would not handle transactions with sanctioned jurisdictions” including North Korea; and (ii) the senior manager and customer-facing employee were aware that the filters would be sent to North Korea. OFAC also considered various mitigating factors, including that the company substantially cooperated with OFAC’s investigation and agreed to provide ongoing cooperation. Under the terms of the settlement agreement, the company is required to pay a $665,112 civil monetary penalty to OFAC, which will be deemed satisfied by payment of the fine assessed by the DOJ arising out of the same conduct.
In the parallel criminal enforcement action, the company entered into a deferred prosecution agreement with the DOJ, accepting responsibility for its criminal conduct and agreeing to pay a $666,543.88 fine. According to the DOJ, this is the Department’s first corporate enforcement action for violations of the IEEPA. In addition, the company agreed to, among other things, fully cooperate with any investigation, implement a compliance program designed to prevent and detect any future violations of U.S. economic sanctions regulations, provide quarterly reports to the DOJ regarding the status of compliance improvements, provide OFAC-related training, and annually certify to OFAC that it has implemented and has continued to uphold its compliance-related commitments.
Global advisory addresses illicit shipping and sanctions evasion practices
On May 14, the U.S. Departments of State and Treasury, along with the U.S. Coast Guard, issued a global advisory warning the maritime industry of deceptive shipping practices used by Iran, North Korea, and Syria to evade economic sanctions. The “Sanctions Advisory for the Maritime Industry, Energy and Metals Sectors, and Related Communities” expands upon previously issued advisories and discusses due diligence approaches that entities, including financial institutions, should employ to monitor illicit activity and mitigate the risk of potentially engaging in prohibited activities or transactions. Among other things, the advisory provides a list of general compliance practices that may help entities “in more effectively identifying potential sanctions evasion.” These include: (i) institutionalizing sanctions compliance programs; (ii) establishing Automatic Identification System (AIS) best practices and contractual requirements to monitor for manipulations and disruptions, which may be an indication of potential illicit or sanctionable activity; (iii) monitoring ships throughout the entire transaction lifecycle, including those leased to third parties; (iv) knowing your customers and counterparties; (v) exercising supply chain due diligence; (vi) incorporating these best practices into contractual language; and (vii) engaging in industry information sharing of challenges, threats, and risk mitigation measures.
See here for previous InfoBytes coverage on global shipping advisories.
OFAC clarifies North Korea SDNs
On May 13, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) provided clarifying text related to the modified North Korea Sanctions and Policy Enforcement Act (covered by InfoBytes here), which bars foreign subsidiaries of U.S. financial institutions from knowingly engaging in transactions with Specially Designated Nationals (SDNs) identified under North Korea-related authorities. OFAC added the following text to 490 SDN records to assist the private sector in identifying persons that have been so designated: “Transactions Prohibited For Persons Owned or Controlled by U.S. Financial Institutions: North Korea Sanctions Regulations section 510.214.”
Multiagency advisory warns of North Korean cyber-threat to international finance system
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.]”