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Treasury official flags “de-risking” as a concern in combating illicit financial risks
On December 5, Assistant Secretary for Terrorist Financing and Financial Crimes at the U.S. Department of Treasury Elizabeth Rosenberg outlined key illicit finance risks impacting the broader financial system during the ABA/ABA Financial Crimes Enforcement Conference. Rosenberg noted that for many nations, the illicit finance threat posed by Russia related to its invasion into Ukraine is a top priority. She commented that more than 30 countries immediately implemented sanctions or other economic measures against Russia, and that since then, the U.S. and other countries have created an expansive, multilateral web of restrictions targeting Russia’s ability to fund its war. Rosenberg also recognized that by reassessing their understanding of Russian illicit financial risks and implementing adaptive measures, companies and financial institutions play an important role in providing critical insight into emerging threats. Rosenberg also discussed Treasury’s risk-based approach to crafting policy responses, including those related to beneficial ownership transparency, investment adviser misuse, and the use of residential and commercial real estate to hide and grow illicit funds.
Rosenberg warned, however, that there are challenges in implementing a truly risk-based approach. She pointed to observations made by the Financial Action Task Force, which showed that while many countries and their financial institutions “are keenly aware of where enhanced due diligence is needed,” many “often can not readily identify the inverse: places where simplified due diligence should be expected and permitted.” She cautioned that focusing on high-risk areas rather than lower-risk parts “is not without costs,” and illustrated a common form of de-risking that occurs “when financial institutions categorically cut off relationships or services to avoid perceived risks—for example, certain geographic regions—rather than applying a nuanced, risk-based approach.” Doing so can lead to “deleterious effects,” she warned, such as excluding businesses based on their location or status, or impacting emerging markets that could serve underbanked populations. Rosenberg said Treasury intends to study these concerns through the Anti-Money Laundering Act of 2020, and will develop a strategy for addressing de-risking, including recommendations on ways to improve public-private engagement on the issue, regulatory guidance and adjustments, and international supervision.
FinCEN’s Das discusses agency’s priorities
On December 6, FinCEN acting Director Himamauli Das spoke before the ABA/ABA Financial Crimes Enforcement Conference about how FinCEN is addressing new threats, new innovations, and new partnerships, in addition to its efforts to implement the AML Act. Das first began by speaking about beneficial ownership requirements of the Corporate Transparency Act (CTA). He noted that a final rule was issued in September, which implemented the beneficial ownership information reporting requirements (covered by InfoBytes here). He also stated that a second rulemaking, concerning access protocols to the beneficial ownership database by law enforcement and financial institutions, may be released before the end of the year, and that work is currently underway on a third rulemaking concerning revisions to the customer due diligence rule. With regard to anti-corruption, Das noted that the agency has been working with the Biden administration, and highlighted three alerts issued by FinCEN in 2022 that highlight “the risks of sanctions and export controls evasion by Russian actors, including through real estate, luxury goods, and other high-value assets.” Das explained that the alerts “complement ongoing U.S. government efforts to isolate sanctioned Russians from the international financial system.”
Transitioning into discussing effective AML/CFT programs, Das said that the “AML Act’s goal of a strengthened, modernized, and streamlined AML/CFT framework will ultimately play out over a series of steps as we implement all of the provisions of the AML Act.” He then described how the AML Act requires FinCEN to work with the FFIEC and law enforcement agencies to establish training for federal examiners in order to better align the examination process. He further noted that the AML/CFT priorities and their incorporation into risk-based programs as part of the AML Program Rule are “crucial” for providing direction to examiners on approaches that improve outcomes for law enforcement and national security.
Das also highlighted the digital asset ecosystem as a key priority area for FinCEN and acknowledged that the area has seen “continuing evolution” since 2013 and 2019, when the agency released its latest related guidance documents on the topic. Das explained that FinCEN is taking a “close look” at the elements of its AML/CFT framework applicable to virtual currency and digital assets to determine whether additional regulations or guidance are necessary, which “includes looking carefully at decentralized finance and its potential to reduce or eliminate the role of financial intermediaries that play a critical role in our AML/CFT efforts.”
9th Circuit revives data breach class action against French cryptocurrency wallet provider
On December 1, the U.S. Court of Appeals for the Ninth Circuit affirmed in part and reversed in part a district court’s dismissal of a putative class action brought against a French cryptocurrency wallet provider and its e-commerce vendor for lack of personal jurisdiction. As previously covered by InfoBytes, plaintiffs—customers who purchased hardware wallets through the vendor’s platform between July 2017 and June 2020—alleged violations of state-level consumer protection laws after a 2020 data breach exposed the personal contact information of thousands of customers. Plaintiffs contended, among other things, that when the breach was announced in 2020, the wallet provider failed to inform them that their data was involved in the breach, downplayed the seriousness of the attack, and did not disclose that the attack on its website and the vendor’s data theft were connected. The district court held that it did not have jurisdiction over the French wallet provider, and ruled, among other things, that the plaintiffs did not establish that the wallet provider “expressly aimed” its activities towards California in a way that would establish specific jurisdiction, and “did not cause harm in California that it knew was likely to be suffered there.” The district court further held that the fact that the vendor was headquartered in California at the time the breach occurred was not sufficient to establish general jurisdiction because the vendor moved to Canada before the class action was filed. “Courts have uniformly held that general jurisdiction is to be determined no earlier than the time of filing of the complaint,” the district court wrote, dismissing the case with prejudice.
On appeal, the 9th Circuit concluded that dismissal was improper because the French wallet provider’s contracts with California were sufficient to establish jurisdiction under the “purposeful availment” framework. The appellate court explained that because the French wallet provider sold roughly 70,000 wallets in the state, collected California sales tax, and shipped wallets directly to California addresses, the “facts suffice to establish purposeful availment because [the French wallet provider’s] contacts with the forum cannot be characterized as ‘random, isolated, or fortuitous.’” However, the 9th Circuit limited the claims to only those brought by California residents under the state’s consumer protection laws. A forum-selection clause in the French wallet provider’s privacy policy and terms of use documents provided that disputes would be subject to the exclusive jurisdiction of French courts, the appellate court said, which was enforceable except with respect to the class claims of California residents brought under California law “because it violated California public policy against waiver of consumer rights under California’s Consumer Legal Remedies Act.”
The 9th Circuit also determined that the district court abused its discretion in disallowing any jurisdictional discovery concerning the defendant e-commerce vendor. Explaining that the e-commerce vendor employs more than 200 people who work remotely from California, including a data-protection officer (DPO) who may have played a role related to the data breach, the appellate court wrote that “[b]ecause more facts are needed to determine whether those activities support the exercise of jurisdiction, we reverse the district court’s denial of jurisdictional discovery with respect to the DPO’s role and responsibilities and his relationship to [the e-commerce vendor], which processed and stored the data.”
OFAC sanctions Haitian politicians
On December 2, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 14059 against two Haitian politicians for their involvement in activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production. As a result of the sanctions, all property and interests in property belonging to the sanctioned persons 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.” U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons. Persons that engage in certain transactions with the individuals or entities designated today may themselves be exposed to sanctions or subject to enforcement. Additionally, OFAC warned that engaging in certain transactions with the designated individuals could expose entities to sanctions or subject them to an enforcement action.
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.
Treasury announces price cap on Russian crude oil
On December 2, the U.S. Treasury Department announced an agreement entered into by the 27 member states of the European Union and the members of the G7 (collectively, the “Price Cap Coalition”), which adopts a price cap on seaborne Russian crude oil in an effort to restrict Russian revenue streams for its war in Ukraine. According to the announcement, beginning next week, the Price Cap Coalition will impose a ban on a range of services, including maritime insurance and trade finance, related to the maritime transport of Russian crude oil unless purchasers buy the oil at or below the $60/barrel cap. Starting February 5, 2023, this ban will also extend to the maritime transport of Russian-origin petroleum products unless they are sold at or below a yet-to-be-announced price cap. As previously covered by InfoBytes, last month OFAC published guidance on the price cap policy for Russian crude oil. According to Treasury’s announcement, the guidance clarifies that the price cap policy’s “‘safe harbor’ for service providers through the recordkeeping and attestation process is designed to shield such service providers from strict liability for breach of sanctions in cases where service providers inadvertently deal in the purchase of Russian oil sold above the price cap owing to falsified or erroneous records provided by those who act in bad faith or make material misrepresentations.” OFAC also published a Determination Pursuant to Executive Order 14071 officially announcing the price cap on December 5.
OFAC sanctions Hizballah accountants and weapons facilitator
On December 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224 against two individuals and two companies based in Lebanon for providing financial services to Hizballah. OFAC also designated another individual for actively working to procure weapons for Hizballah. According to OFAC, the designations target persons that manage and enable Hizballah’s financial operations throughout Lebanon, including Hizballah’s “quasi-financial institution” and its central finance unit. As a result, all property, and interests in property of the designated persons, “and of any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” OFAC regulations generally prohibit all transactions by U.S. persons or within the United States (including transactions transiting the United States) that involve any property or interests in property of designated persons. OFAC cautioned that “persons that engage in certain transactions with the persons designated today may themselves be exposed to sanctions or subject to an enforcement action.” Additionally, OFAC warned that a foreign financial institution that knowingly conducts or facilitates a significant transaction on behalf of any of the designated persons could be subject to U.S. sanctions.
OFAC sanctions Iranian officials
On November 23, the U.S. Treasury Department Office of Foreign Assets Control (OFAC)) announced sanctions pursuant to Executive Order 13553 against three Iranian security officials related to the Iranian regime’s continued crackdown on ongoing protests throughout the country, including most recently in Kurdish areas. According to OFAC, the Iranian regime has increased its aggressive actions against the Iranian people as part of its ongoing suppression of peaceful protests against a regime that denies human rights and fundamental freedoms to its people. As a result of the sanctions, all property and interests in property belonging to the sanctioned persons 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.” U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons. Persons that engage in certain transactions with the individuals designated today may themselves be exposed to designation. Additionally, OFAC warned that “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the persons designated today could be subject to U.S. sanctions.”
OFAC sanctions persons exploiting Guatemala mining sector
On November 18, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13818 against a Russian national and a Belarusian national, as well as three associated entities, “for their role in exploiting the Guatemalan mining sector.” OFAC noted that the designations demonstrate “the U.S. government’s ongoing commitment to impose tangible and significant consequences on corrupt actors in order to protect the U.S. financial system from abuse,” as well as its commitment “to identifying acts of corruption and promoting accountability for corrupt actors and disrupting their access to the U.S. and international financial system.” As a result of the sanctions, all property and interests in property belonging to the sanctioned persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “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 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 announces sanctions tied to Mexican drug cartel
On November 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 14059 against a Mexican drug cartel and its co-leaders for “having engaged in, or attempted to engage in, activities or transactions that materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.” OFAC attributed its actions in part to a “critical” partnership with the Drug Enforcement Administration and the Mexican government. As a result of the sanctions, all property and interests in property belonging to the sanctioned persons 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.” U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons.