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On January 21, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions pursuant to Executive Order 13224 against a Hizballah-affiliated financial facilitator, along with members of an international network of facilitators and companies connected to both the designated individual and a Hizballah-linked financial facilitator sanctioned by OFAC on January 18 (covered by InfoBytes here). According to OFAC, the designated persons evaded sanctions efforts in order to help Hizballah gain access to the international financial system and raise funds to support acts of terrorism and other illicit activities. “Today’s action exposes and targets Hizballah’s misuse of the international financial system to raise and launder funds for its destabilizing activities as the Lebanese people suffer during an unprecedented economic crisis in Lebanon,” Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson stated. “Treasury is committed to disrupting Hizballah’s illicit activity and attempts to evade sanctions through business networks while the group doubles down on corrupt patronage networks in Lebanon.”
As a result of the sanctions, all transactions by U.S. persons or in the U.S. that involve any property or interests in property of designated or otherwise blocked persons are generally prohibited. Additionally, “any entities that are owned, directly or indirectly 50 percent or more by them, individually, or with other blocked 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 any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific OFAC license. OFAC further warned that the agency “can prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account of a foreign financial institution that knowingly conducted or facilitated any significant transaction on behalf of a Specially Designated Global Terrorist.”
On January 24, FinCEN issued a Notice of Proposed Rulemaking (NPRM) to establish a limited-duration pilot program for financial institutions to share suspicious activity reports (SARs), pursuant to Section 6212 of the Anti-Money Laundering Act of 2020. The pilot program would allow financial institutions with SAR reporting obligations to share SARs and related information (subject to certain restrictions) with their foreign branches, subsidiaries, and affiliates for the purpose of combating illicit finance risks. The NPRM would expand guidance that previously only permitted SARs to be shared internally with foreign head offices, controlling companies (domestic or foreign), and domestic affiliates, and seeks input on the expected costs and benefits, technical challenges, merits of quarterly reporting, and SAR confidentiality protections. According to FinCEN, the pilot program is intended to provide feedback as the agency considers longer-term approaches towards SAR sharing with foreign affiliates. Comments are due March 28.
On January 20, the Federal Reserve Board published a discussion paper, Money and Payments: The U.S. Dollar in the Age of Digital Transformation, which calls for public comments on questions related to the possibility of a U.S. central bank digital currency, or CBDC. “The introduction of a CBDC would represent a highly significant innovation in American money,” the Fed said, although the agency noted that it “does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.” The paper examines the pros and cons of a potential CBDC and outlines a series of potential benefits, including faster payment options between countries. Among the various CBDC structures the Fed is considering is an intermediated model through which the private sector would facilitate the management of CBDC holdings and payments through accounts or digital wallets. Potential intermediaries could include commercial banks and regulated nonbank financial service providers. Such a model “would facilitate the use of the private sector’s existing privacy and identity-management frameworks; leverage the private sector’s ability to innovate; and reduce the prospects for destabilizing disruptions to the well-functioning U.S. financial system,” the Fed said. Additionally, a potential CBDC would also need to be readily transferable between customers of different intermediaries and must be designed to comply with rules regulating money laundering and the financing of terrorism (including the identification of persons accessing CBDC).
While a CBDC could improve cross-border payments and increase financial inclusion, the Fed warned that a CBDC may also yield potential negative effects, including affecting monetary policy implementation and interest rate control, as well as illicit finance controls and operational resilience. Consumer privacy could also be a concern, the Fed stated, noting that “any CBDC would need to strike an appropriate balance between safeguarding consumer privacy rights and affording the transparency necessary to deter criminal activity,” as the infrastructure of a CBDC could create opportunities for hackers since it would “potentially have more entry points than existing payment services.” The CBDC model under consideration would have intermediaries leverage exiting tools to address privacy concerns.
Feedback on the paper will be received through May 20.
On January 20, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License (GL) 5I, which supersedes GL 5H 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 January 20, 2023. Concurrently, OFAC updated a Venezuela-related frequently asked question regarding GL 5I. Additionally, OFAC amended the definition of “applicable schedule amount” contained in appendix A to 31 CFR part 501. The amendment became effective January 21.
On January 21, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published a final rule in the Federal Register amending the Transnational Criminal Organizations Sanctions Regulations. The final rule reissues the regulations in their entirety to further implement Executive Order (E.O.) 13581 and E.O. 13863 related to transnational criminal organizations. Last July, President Biden extended the national emergency related to significant transnational criminal organizations declared in E.O. 13581 for an additional one-year period. Replacing regulations that were published in abbreviated form in January 2012 (and amended in July 2019 here), OFAC’s final rule provides additional comprehensive interpretive guidance, definitions, general licenses, and other regulatory provisions. The final rule is effective immediately.
On January 20, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions pursuant to Executive Order 14024 against four individuals engaged in Russian government-directed influence activities to destabilize Ukraine. OFAC stated that it will continue to take actions, including in partnership with the Ukrainian government, “to undercut Russia’s destabilization efforts.” The designations are the latest actions to target purveyors of Russian disinformation, including similar designations made last April (covered by InfoBytes here). 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. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” OFAC noted that its regulations generally prohibit U.S. persons from participating in transactions with the designated 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.”
On January 18, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224 against three Hizballah-linked financial facilitators and their Lebanon-based travel company. According to OFAC, “Hizballah’s widespread network of financial facilitators has helped the group exploit Lebanon’s financial resources and survive the current economic crisis.” The designated persons allow Hizballah “access to material and financial support through the legitimate commercial sector to fund its acts of terrorism and attempts to destabilize Lebanon’s political institutions,” OFAC stated, adding that the sanctions demonstrate the agency’s “ongoing efforts to target Hizballah’s continued attempts to exploit the global financial sector and evade sanctions.” As a result of the sanctions, all transactions by U.S. persons or in the U.S. that involve any property or interests in property of designated or otherwise blocked persons are generally prohibited. Additionally, “any entities that are owned, directly or indirectly 50 percent or more by them, individually, or with other blocked 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 any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific OFAC license. OFAC further warned that the agency “can prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account by a foreign financial institution that either knowingly conducted or facilitated any significant transaction on behalf of a Specially Designated Global Terrorist,” or “knowingly facilitates a significant transaction for Hizballah or certain persons designated for their connection to Hizballah.”
On January 13, the acting Director of FinCEN Him Das spoke at the Financial Crimes Enforcement Conference to discuss the transformation of the anti-money laundering/counter-terrorist financing regulatory regime as it relates to new threats, new innovations, and new partnerships. Das highlighted recent FinCEN rulemaking initiatives, including a proposed rule issued last December (covered by InfoBytes here) to implement the beneficial ownership information reporting provisions of the Corporate Transparency Act. In particular, the proposed rule would require many U.S. and foreign companies to report their true beneficial owners to FinCEN and update that information when those beneficial owners change. Das explained that FinCEN is examining how a proposed beneficial ownership database would interplay with the Customer Due Diligence Rule, and stated the agency will share more information in the coming months. Das also discussed an Advance Notice of Proposed Rulemaking (covered by InfoBytes here), which sought comments on potential requirements under the Bank Secrecy Act to address vulnerabilities in the U.S. real estate market to money laundering and other illicit activity.
With respect to new innovation, Das noted that while FinCEN is exploring the idea of creating regulatory sandboxes to test new methods of transaction monitoring using artificial intelligence, the agency needs feedback from institutions on the potential use and risks of the program. Das also discussed other potential innovative ideas, including, among other things, “new approaches to customer risk rating and institutional risk assessment, digital identity tools and utilities, and automating the adjudication and filing of [suspicious activity reports] related to certain types of activity.”
On January 12, the U.S. Treasury Department’s Office of Foreign Assets Control 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 reaches $5.2 million settlement with Hong Kong company for apparent Iranian sanctions violations
On January 11, the U.S. Treasury Department’s Office of Foreign Assets Control announced a $5.2 million settlement with a Hong Kong, China-based company for allegedly processing certain transactions related to goods of Iranian origin through U.S. financial institutions in violation of the Iranian Transactions and Sanctions Regulations (ITSR). According to OFAC’s web notice, from August 2016 through May 2018, certain company employees violated company-wide policies and procedures by causing the company to purchase Iranian-origin goods from a supplier in Thailand for resale to buyers in China. Under the terms of the trading arrangement, the company made 60 separate U.S. dollar payments from its bank in Hong Kong to the Thai supplier’s banks in Thailand, transferring a total of $75.6 million. Each of these payments were allegedly “processed and settled through multiple U.S. financial institutions, including the U.S. correspondent banks of the Hong Kong and Thai banks.” Due to the noncompliant employees’ misconduct, the funds transfer instructions omitted references to Iran. As a result, U.S. financial institutions were unable to flag the transfers as violating the ITSR, which would have “caused them to reject and report each of these U.S. dollar denominated funds transfers.”
In calculating the settlement amount, OFAC considered the following aggravating factors: (i) the noncompliant employees omitted Iranian country of origin references from all relevant transactional documents over a period of two years, despite knowing and having been advised repeatedly that this conduct violated the ITSR and company policy; (ii) the noncompliant employees “had actual knowledge about the [supplier’s] relation to Iran”; (iii) the company’s actions conferred significant economic benefits to Iran, specifically with respect to Iran’s petrochemical sector; and (iv) the company “is a sophisticated offshore trading and cross-border trade financing company with ready access to experience and expertise in international trade, investment, financing, and sanctions compliance.”
OFAC also considered various mitigating factors, including that (i) the company repeatedly reminded noncompliant employees not to make U.S. dollar payments in connection with Iran-related business transactions; (ii) senior management and compliance personnel were unaware of the violations due to the concealment of the information internally; (iii) the company has not received a penalty notice from OFAC in the preceding five years; and (iv) the company voluntarily self-disclosed the apparent violations, cooperated with OFAC’s investigation, and has undertaken significant remedial measures to ensure sanctions compliance.
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- Lauren R. Randell to discuss “Significant legal developments in the Northeast” at the 37th Annual National Institute on White Collar Crime
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