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On October 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13848 against five Iranian entities for allegedly attempting to influence the U.S. electoral process. According to OFAC, these designations are intended to “counter efforts” from foreign actors that “spread disinformation online and execut[e] malign influence operations aimed at misleading U.S. voters.” Three of the entities, including the Islamic Revolutionary Guard Corps (IRGC) and the IRGC-Qods Force (IRGC-QF), are designated “for having directly or indirectly engaged in, sponsored, concealed, or otherwise been complicit in foreign interference in the 2020 U.S. presidential election.” Two other entities are designated for being owned or controlled by the IRGC-QF, which, along with the IRGC, has been designated under a number of authorities since 2007. As a result, all property and interests in property belonging to, or owned by, the designated persons subject to U.S. jurisdiction are blocked, and “any entities 50 percent or more owned by one or more designated persons are also blocked.”
The same day, OFAC also sanctioned an IRGC-QF general pursuant to E.O. 13224 for allegedly “exploit[ing] his position as the Iranian regime’s ambassador in Iraq to obfuscate financial transfers conducted for the benefit of the IRGC-QF.” According to OFAC, the designated individual, among other things, allegedly facilitated financial transfers benefiting the IRGC-QF, and helped “IRGC-QF obtain foreign currency in Iraq, in return for equivalent sums that the IRGC-QF in Iran has transferred to relevant entities.”
As a result of OFAC’s recent actions, all property and interests in property belonging to, or owned by, the designated persons subject to U.S. jurisdiction are blocked. U.S. persons are also “generally prohibited from engaging in transactions” with the designated individuals. OFAC further warned foreign financial institutions that knowingly facilitating significant transactions or providing significant support to the designated entities may subject them to sanctions and could terminate access to the U.S. financial system.
On October 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13224 against two members of Hizballah’s Central Council, which supports Hizballah’s activities by identifying and electing council members that assert control over policies and military initiatives. As a result of the sanctions, all property and interests in property of the individuals, “and of 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, 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 individuals, including “the making of any contribution of funds, goods, or services by, to, or for the benefit of any blocked person or the receipt of any contribution of funds, goods or services from any such person.” OFAC further warned that engaging in certain transactions with the designated individuals subjects persons to the risk of secondary sanctions pursuant to E.O. 13224 and the Hizballah Financial Sanctions Regulations, which implement the Hizballah International Financing Prevention Act of 2015. Furthermore, OFAC noted that it has the authority to “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 knowingly facilitates a significant transaction for Hizballah or on behalf of a designated terrorist group, or a person acting on behalf of or at the direction of, or owned or controlled by, Hizballah.”
On October 20, the Federal Reserve Board, OCC, and FDIC (collectively, “federal bank regulatory agencies”) finalized two rules for large banks.
The federal bank regulatory agencies first announced a final rule intended to reduce interconnectedness within the financial system between the largest banking organizations and to minimize systemic risks stemming from failure of these organizations. As the federal bank regulatory agencies noted in their announcement, the final rule, Regulatory Capital Treatment for Investments in Certain Unsecured Debt Instruments of Global Systemically Important U.S. Bank Holding Companies, Certain Intermediate Holding Companies, and Global Systemically Important Foreign Banking Organizations; Total Loss-Absorbing Capacity Requirements, “prescribes a more stringent regulatory capital treatment for holdings of [total loss-absorbing capacity] (TLAC) debt.” U.S. global systemically important banking organizations (GSIBs) will be required, among other things, to deduct from their regulatory capital certain investments in unsecured debt instruments issued by foreign or U.S. GSIBs in order to meet minimum TLAC requirements and long-term debt requirements, as applicable. The final rule recognizes the systemic risks posed by banking organizations’ investments in covered debt instruments and “create[s] an incentive for advanced approaches [for] banking organizations to limit their exposure to GSIBs.” The final rule takes effect April 1, 2021.
The federal bank regulatory agencies also announced a second final rule, Net Stable Funding Ratio: Liquidity Risk Measurement Standards and Disclosure Requirements, which will implement a stable funding requirement for certain large banking organizations established by a quantitative metric known as the net stable funding ratio (NSFR). The NSFR will measure banking organizations’ level of stability, and will require that a minimum level of stable funding be maintained over a one-year period. According to the federal bank regulatory agencies, the NSFR is intended “to reduce the likelihood that disruptions to a banking organization’s regular sources of funding will compromise its liquidity position,” and is designed to “promote effective liquidity risk management, and support the ability of banking organizations to provide financial intermediation to businesses and households across a range of market conditions.” The final rule “applies to certain large U.S. depository institution holding companies, depository institutions, and U.S. intermediate holding companies of foreign banking organizations, each with total consolidated assets of $100 billion or more, together with certain depository institution subsidiaries” with “increases in stringency based on risk-based measures of the top-tiered covered company.” The final rule takes effect July 1, 2021.
On October 15, the Financial Crimes Enforcement Network (FinCEN) issued Advisory FIN-2020-A008 outlining new financial and behavioral indicators, as well as updated typologies, to help financial institutions identify human trafficking. The advisory highlights four specific typologies human traffickers may use to evade detection and launder illicit proceeds: (i) front companies that may appear to have legitimate registrations and licenses; (ii) exploitative employment practices; (iii) funnel accounts used to transfer funds between geographic areas, often in amounts below the cash reporting threshold; and (iv) alternative payment methods, including payments by “credit cards, prepaid cards, mobile payment applications, and convertible virtual currency.” The advisory includes examples for financial institutions to monitor, such as multiple employees receiving salaries in the same account, or payments that are immediately withdrawn or transferred into another account. FinCEN also notes that human traffickers use third-party payment processors to wire funds in order to conceal the true originator or beneficiary. While the advisory includes a specific list of red flag indicators, FinCEN warns financial institutions to consider additional behaviors, both behavioral indicators and financial indicators when determining whether a transaction may be associated with human trafficking. Financial institutions reporting human trafficking in a suspicious activity report should reference the advisory in the appropriate fields to indicate a connection between the activities involved in the SAR and those described in the advisory.
On October 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated an al-Qa’ida facilitator based in Australia and the company he owns for “having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of” the terrorist organization, pursuant to Executive Order 13224. Specifically, OFAC alleges that the individual and his company are involved in gemstone dealings, which provide the ability to move funds internationally for the benefit of al-Qa’ida. As a result of the sanctions, all 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 must be blocked and reported to OFAC. OFAC further warned foreign financial institutions that knowingly facilitating significant transactions or providing significant financial services to the designated person or entity may subject them to U.S. correspondent account or payable-through sanctions.
OFAC reaches $4.1 million settlement with holding company to resolve Iranian Transactions and Sanctions Regulations violations
On October 20, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a more than $4.1 million settlement with a Nebraska-based multinational conglomerate holding company to resolve 144 apparent violations of the Iranian Transactions and Sanctions Regulations engaged in by its indirectly wholly owned Turkish subsidiary. According to OFAC’s web notice, the Turkish subsidiary, in violation of the company’s compliance policies, allegedly sold goods to two third-party Turkish distributors knowing that the goods “would be shipped to a distributor in Iran for resale to Iranian end-users, including several entities later identified as meeting the definition of the Government of Iran.” The Turkish subsidiary also purchased goods manufactured by other company subsidiaries, and allegedly took measures “to obfuscate its dealings with Iran” and conceal these activities from the company. Employees of certain other company subsidiaries also allegedly received communications revealing that these orders may have been intended for Iranian end users; however only one of these subsidiaries warned the Turkish subsidiary that such transactions were prohibited.
In arriving at the settlement amount, OFAC considered various aggravating factors, including that (i) the Turkish subsidiary’s management “willfully engaged” in prohibited transactions, and certain senior management “intentionally concealed its dealings with Iran”; (ii) certain company subsidiaries had knowledge, or reason to know, that some of the products sent to the Turkish subsidiary were intended for Iran; and (iii) the Turkish subsidiary “demonstrated a pattern of conduct by knowingly engaging in prohibited dealings for approximately three years.”
OFAC also considered various mitigating factors, such as (i) the company voluntarily self-disclosed the apparent violations, and cooperated with the investigation; (ii) the company and its subsidiaries and affiliates signed a tolling agreement; and (iii) the company has undertaken remedial measures, including enhancing its compliance procedures for foreign subsidiaries, to minimize the risk of similar violations from occurring in the future.
On October 13, the Financial Stability Board (FSB) published a report providing high-level recommendations for the regulation, supervision, and oversight of “global stablecoin” (GSC) arrangements. FSB defines “stablecoins” as a “specific category of crypto-assets which have the potential to enhance the efficiency of the provision of financial services, but may also generate risks to financial stability, particularly if they are adopted at a significant scale.” GSCs are those with multi-jurisdictional reach that “could become systemically important in and across one or many jurisdictions, including as a means of making payments.” The report, Regulation, Supervision, and Oversight of “Global Stablecoin” Arrangements, follows an analysis of financial stability risks raised by GSCs as well as a survey of FSB and non-FSB members’ approaches to stablecoins. Prior to issuing the report, FSB also conducted several outreach meetings with representatives from regulated financial institutions, fintech firms, academia, and the legal field. The October report, which takes into account public feedback received earlier in the year, outlines 10 high-level recommendations that “call for regulation, supervision and oversight that is proportionate to the risks, and stress the value of flexible, efficient, inclusive, and multi-sectoral cross-border cooperation, coordination, and information sharing arrangements among authorities that take into account the evolving nature of GSC arrangements and the risks they may pose over time.” However, the report stresses that because these recommendations primarily address financial stability risks, issues such as anti-money laundering/combating the financing of terrorism, data privacy, cyber security consumer and investor protection, and competition are not covered. These issues, which may present consequences for financial stability if not properly addressed, should be incorporated as part of a comprehensive supervisory, regulatory, and oversight framework, the report states.
Among other things, the report also provides regulatory authorities a guide “of relevant international standards and potential tools to address vulnerabilities arising from GSC activities,” and outlines a timeline of actions that will build a roadmap to ensure “any relevant international standard-setting work is completed.”
On October 13, the member nations of the G7 issued a joint statement stressing their commitment to working with the financial services sector to address and mitigate ransomware attacks. The statement highlights the recent increase in ransomware attacks over the last few years and notes that the scale, sophistication, and frequency has intensified as attackers “demand payments primarily in virtual assets to facilitate money laundering.” These ransom payments, the G7 warns, “can incentivize further malicious cyber activity; benefit malign actors and fund illicit activities; and present a risk of money laundering, terrorist financing, and proliferation financing, and other illicit financial activity.” The G7 reminds financial institutions that paying ransom is subject to anti-money laundering/combating the financing of terrorism (AML/CFT) laws and regulations, and warns non-financial services companies that providing certain services, such as money transfers, may subject them to the same obligations. The G7 further urges entities to follow international obligations for reporting ransom payments as suspicious activity and to take measures to prevent sanctions evasions. Moreover, the G7 recommends that entities implement standards set by the Financial Action Task Force to reduce criminals’ access to and use of financial services and digital assets, and emphasizes the importance of implementing effective programs to “hold and exchange information about the originators and beneficiaries of virtual asset transfers.” The G7 plans to share information related to ransomware threats, explore opportunities for coordinated targeted financial sanctions, and encourage a global implementation of AML/CFT obligations on virtual assets and virtual asset service providers.
On October 14, the DOJ announced it had entered into a plea agreement with a Brazil-based investment company that owns companies primarily involved in the meat and agricultural business, in which the company agreed to pay a criminal penalty of over $256 million related to violations of the FCPA’s anti-bribery provisions. According to the DOJ, between 2005 and 2017, to execute the bribery scheme in Brazil, the company “conspired with others to violate the FCPA by paying bribes to Brazilian government officials in order to ensure that Brazilian state-owned and state-controlled banks would enter into debt and equity financing transactions with [the company and company]-owned entities, as well as to obtain approval for a merger from a Brazilian state-owned and state-controlled pension fund.” Specifically, between 2005 and 2014, the company paid or promised more than $148 million in bribes to high-level Brazilian government officials, in exchange for receiving hundreds of millions of dollars in financing from a Brazilian state-owned and state-controlled bank. In another instance, the company paid more than $4.6 million in bribes to a high-ranking executive of a Brazilian state-controlled pension fund in exchange for the fund’s approval of a significant merger that benefited the company. The company also paid approximately $25 million in bribes to a high-level Brazilian government official in order to obtain hundreds of millions of dollars of financing from a different Brazilian state-owned and state-controlled bank. Company executives also “used New York-based bank accounts to facilitate the bribery scheme and to make corrupt payments, purchased and transferred a Manhattan apartment as a bribe, and met in the United States to discuss and further aspects of the illegal scheme.”
The announcement noted that the company did not voluntarily disclose the violations but still received partial credit and a 10 percent reduction off the U.S. Sentencing Guidelines fine range for its remediation and cooperation with the DOJ’s investigation. Under the terms of the plea agreement, the company will pay the U.S. approximately $128.2 million of the $256 million criminal penalty. The remaining portion will be offset by $128.2 million in penalties the company will pay pursuant to a resolution with the Brazilian authorities. The company also agreed to continue to cooperate with the DOJ in any ongoing or future criminal investigations, and will enhance its compliance program, and report on the implementation of its enhanced compliance program for a three-year period.
The SEC simultaneously announced a resolution in a related matter with the company, along with a majority-owned subsidiary and two Brazilian nationals who own the company and the subsidiary. According to the SEC, the Brazilian nationals engaged in a bribery scheme to facilitate the subsidiary’s acquisition of a U.S. food corporation. The SEC charged the two companies and individuals with violations of the books and records and internal accounting provisions of the FCPA. Under the terms of the cease and desist order, the subsidiary must pay approximately $27 million in disgorgement and the two Brazilian nationals are required to each pay civil penalties of $550,000. All parties also agreed to self-report on the status of certain remedial measures for a three-year period.
On October 9, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13851 against a Nicaraguan financial institution, as well as two government officials for supporting the Ortega regime, which “continue[s] to undermine Nicaragua’s democracy.” According to OFAC, the financial institution served as a tool for Ortega to “siphon money from  $2.4 billion in oil trusts and credit portfolios…in order to remain in power and pay a network of patronage.” As a result, all property and interests in property of the sanctioned individuals and entities, and any entities owned 50 percent or more by such persons subject to U.S. jurisdiction, are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from entering into transactions with the sanctioned persons.
- Thomas A. Sporkin to discuss "Managing internal investigations and advanced government defense" at the Securities Enforcement Forum
- Jeffrey P. Naimon to discuss "2021 - A new beginning/what's to come" at the QuestSoft Lending Compliance & Risk Management Virtual Conference
- H Joshua Kotin to discuss "Mortgage servicing in a recession: Early intervention, loss mitigation and more" at the NAFCU Virtual Regulatory Compliance Seminar
- Daniel R. Alonso to discuss "Independent monitoring in the United States" at the World Compliance Association Peru Chapter IV International Conference on Compliance and the Fight Against Corruption
- Jonice Gray Tucker to discuss "Cyber security, incident response, crisis management" at the Legal & Diversity Summit
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Pandemic fallout – Navigating practical operational challenges" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "BSA/AML - Covid impact and regulatory/guidance roundup" at an NAFCU webinar