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On September 9, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced two settlements totaling $583,100 with the U.S.-based subsidiary of a global financial institution for apparent violations of the Ukraine-Related Sanctions Regulations. According to OFAC, the financial institution allegedly agreed to process a funds transfer exceeding $28 million through the U.S. related to a series of purchases of fuel oil involving a property interest of an oil company in Cyprus that was previously designated by OFAC. OFAC alleged that at the time the payment was processed, the bank “had reason to know of the designated oil company’s potential interest, but did not conduct sufficient due diligence to determine whether the designated oil company’s interest in the payment had been extinguished.” The bank agreed to pay $157,500 to resolve the apparent violation.
Additionally, OFAC stated the bank also agreed to separately remit $425,600 for apparent violations stemming from the processing of 61 transactions “destined for accounts at a designated financial institution.” The bank allegedly failed to stop these payments because its sanctions screening tool did not include a specific business identifier code assigned to the designated financial institution, OFAC claimed, and its screening tool “was calibrated so that only an exact match to a designated entity would trigger further manual review.”
In arriving at the settlement amount, OFAC considered various mitigating factors, including that (i) the apparent violations were non-egregious; (ii) the bank had in place “an OFAC compliance program at the time of the apparent violations”; and (iii) the bank has undertaken remedial efforts to address the deficiencies, including reviewing the circumstances of the apparent violations with its U.S. sanctions compliance unit, and agreeing to conduct additional training and implement changes to internal procedures as necessary.
OFAC also considered various aggravating factors, including that “several senior managers within the bank’s anti-financial crime division, as well as a representative from its counsel’s office, failed to exercise a minimal degree of caution or care in connection with the conduct that led to the apparent violation,” and had actual knowledge of the alleged conduct.
On September 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13224 against two former Lebanese government ministers who allegedly “provided material support to Hizballah and engaged in corruption.” According to OFAC, the sanctions are part of Treasury’s continuing effort to “prioritize disruption of the full range of Hizballah’s illicit financial activity,” which has designated over 90 Hizballah-affiliated persons since 2017. 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 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.” 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 a terrorist group like Hizballah, or a person acting on behalf of or at the direction of, or owned or controlled by, [a Specially Designated Global Terrorist] such as Hizballah.”
On September 2, the U.S. Treasury Department and the State of Delaware announced a Memorandum of Understanding (MOU) intended to foster cooperative efforts to “shut down or otherwise disrupt the illicit activities of entities that should not be operating in the United States.” Under the MOU, Treasury’s Office of Foreign Assets Control (OFAC) and Delaware’s Department of Justice will communicate frequently and meet as needed to identify and shut down entities on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List) or that are otherwise blocked. The MOU is intended, among other things, to (i) promote certain U.S. economic sanctions-related information sharing and facilitate coordinated investigations; (ii) foster cooperative efforts to “heighten awareness of U.S. economic sanctions within both the Delaware business community and the general public” and “protect national security by promoting compliance with U.S. trade and economic sanctions laws”; (iii) support litigation against entities identified on the SDN List; (iv) “[i]mprove transparency into corporate structures used to disguise illicit business dealings”; and (v) “[p]revent abuse of U.S. companies by criminal and terrorist organizations, corrupt individuals, and other blocked persons through cancellation of entities or imposition of OFAC penalties.”
On September 4, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13692 against four current or former Venezuelan government officials for allegedly facilitating “the illegitimate Maduro regime’s efforts to undermine the independence and democratic order of Venezuela,” and for engaging in a scheme to, among other things, “control[ ] the state’s wealth and assets for regime purposes.” As a result, all property and interests in property belonging to the identified 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 the designated individuals are also blocked.” OFAC further noted that U.S. persons are generally prohibited from dealing with any property or interests in property of blocked or designated persons.
On September 3, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated six entities, pursuant to Executive Order 13846, for allegedly providing support to a petrochemical company previously designated for “transfer[ing] the equivalent of hundreds of millions of dollars’ worth of exports from the National Iranian Oil Company (NIOC), which helps to finance Iran’s Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF) and its terrorist proxies.” According to OFAC, the designated entities “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of” the sanctioned petrochemical company by, among other things, (i) selling and purchasing thousands of tons of petrochemicals on behalf of the company; (ii) brokering the sales of petrochemicals for the company; (iii) facilitating the shipment and resale of petrochemical products for the company; and (iv) processing millions of dollars in proceeds of petrochemical sales.
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 support to the designated entities may subject them to sanctions and could sever access to the U.S. financial system.
On September 1, the Financial Crimes Enforcement Network (FinCEN) released a statement reiterating that “the unauthorized disclosure of [suspicious activity reports] (SARs) is a crime that can impact the national security of the United States, compromise law enforcement investigations, and threaten the safety and security of the institutions and individuals who file such reports.” FinCEN stated it is aware that a series of articles will be published by various media outlets based on unlawfully disclosed SARs and other sensitive government documents and has referred the matter to the DOJ and the U.S. Treasury Department’s Office of Inspector General.
On August 31, the DOJ announced that a company operating in South East Asia has pleaded guilty to “conspiring to launder monetary instruments in connection with evading sanctions on North Korea and deceiving correspondent banks into processing U.S. dollar transactions.” The company admitted and accepted responsibility for the criminal conduct and will pay a $673,714 fine. According to the DOJ, from at least February 2017 until at least May 2018, the company’s dual invoicing practices and false statements concealed the purchase of commodities for North Korean customers, leading to U.S. correspondent banks processing U.S. dollar transactions that would otherwise not have been authorized. Among other things, the company and its co-conspirators admitted to using front companies to “conceal the North Korean nexus,” including utilizing financial cutouts and falsifying shipping records. These actions, the DOJ stated, circumvented the U.S. correspondent banks’ sanction and anti-money laundering filters, which are designed to prevent banks from processing wire transfers on behalf of customers located in North Korea. In addition to paying the financial penalty, the company has agreed to “implement rigorous internal controls” and cooperate fully with the DOJ.
On August 28, the DOJ and the U.S. Attorney’s Office for the Southern District of New York announced (see here and here) they had entered into a deferred prosecution agreement with a multinational nutrition company headquartered in Los Angeles, in which the company agreed to pay a criminal fine of over $55.7 million related to violations of the FCPA’s books and records provisions. According to the DOJ, the company “knowingly and willfully conspired with others in a scheme to falsify its books and records and provide corrupt payments and benefits to Chinese government officials.” Between 2007 and 2016, the company’s books showed that its Chinese subsidiary reimbursed its employees “more than $25 million for entertaining and giving gifts to Chinese government officials and Chinese media personnel. . ., some of which was used for improper purposes,” which the DOJ said was part of a scheme to obtain, retain, and increase business in China and remove negative media reports about the subsidiary. The payments were used to obtain and retain “certain direct selling licenses for its wholly-owned subsidiaries in China” and to “improperly influenc[e] certain Chinese governmental investigations into [the subsidiary’s] compliance with Chinese laws,” as well as to influence state-owned or controlled media.
As part of the deferred prosecution agreement, the company agreed to cooperate with the DOJ’s ongoing or future criminal investigations and to enhance its compliance program. The company received credit for cooperating with the investigation and taking remedial measures such as “terminating and disciplining individuals who orchestrated the misconduct, adopting heightened controls and anti-corruption protocols, and significantly increasing the resources devoted to compliance.”
The SEC simultaneously announced a resolution in which the company agreed to pay over $58.6 million in disgorgement and more than $8.6 million in prejudgment interest to settle allegations that the company violated the FCPA’s books and records and internal accounting controls provisions.
On August 26, a joint alert was issued by the Cybersecurity and Infrastructure Security Agency (CISA), the U.S. Treasury Department, the FBI, and U.S. Cyber Command warning that since February 2020, North Korean hackers have resumed targeting banks worldwide through the use of fraudulent international money transfers and ATM cash-outs. The alert provides an “overview of North Korea’s extensive, global cyber-enabled bank robbery scheme, a short profile of the group responsible for this activity, in-depth technical analysis, and detection and mitigation recommendations to counter this ongoing threat to the Financial Services sector.” The North Korean hackers, the alert notes, were responsible for stealing $81 million from a Bangladeshi bank in 2016, and have engaged in fraudulent ATM cash-outs affecting upwards of 30 countries in a single incident. According to the alert, the hackers’ “international robbery scheme” poses “severe operational risk” for individual banks beyond reputational harm and financial losses. A robbery directed at one bank may implicate multiple banks “in both the theft and the flow of illicit funds back to North Korea,” the alert warns. The hackers “initially targeted switch applications at individual banks with FASTCash malware but, more recently, have targeted at least two regional interbank payment processors,” the alert states, cautioning that this suggests the hackers “are exploring upstream opportunities in the payments ecosystem.”
Last month, the U.S. Senate Permanent Subcommittee on Investigations issued a bipartisan report titled “The Art Industry and U.S. Policies that Undermine Sanctions,” which details findings from a two-year investigation related to how Russian oligarchs appear to have used the art industry to evade U.S. sanctions. According to the Subcommittee, the investigation—which focused on major auction houses, private New York art dealers, and seven financial institutions—revealed that the “secretive nature” of the art industry “allowed art intermediaries to purchase more than $18 million in high-value art in the United States through shell companies linked to Russian oligarchs after they were sanctioned by the United States in March 2014,” and that, moreover, “the shell companies linked to the Russian oligarchs were not limited to just art and engaged in a total of $91 million in post-sanctions transactions.” The report claims that the art industry is largely unregulated, and, unlike financial institutions, is not subject to the Bank Secrecy Act (BSA) and is not required to maintain anti-money laundering (AML) and anti-terrorism financing controls. However, the report notes that sanctions imposed by the U.S. Treasury’s Office of Foreign Assets Control (OFAC) do apply to the industry, emphasizing that U.S. persons are not allowed to conduct business with sanctioned individuals or entities.
The Subcommittee’s key findings include that while four of the major auction houses have established voluntary AML controls, they treat an art agent or advisor as the principal purchaser of the art, which allows the auction house to perform due diligence on the art agent or advisor instead of identifying and evaluating a potentially undisclosed client. The auction houses also reportedly rely on financial institutions to identify the source of funds used to purchase the art. Because of these practices, the report concludes that these shell companies continue to have access to the U.S. financial system despite the imposition of sanctions.
The report makes several recommendations including: (i) the BSA should be amended to include businesses that handle transactions involving high-value art; (ii) Treasury should be required to collect beneficial ownership information for companies formed or registered to do business in the U.S., making the information available to law enforcement; (iii) Treasury should consider imposing sanctions on a sanctioned individual’s immediate family members; (iv) Treasury should announce and implement sanctions concurrently “to avoid creating a window of opportunity for individuals to avoid sanctions”; (v) the ownership threshold for blocking companies owned by sanctioned individuals should be lowered or removed; (vi) Treasury should maximize its use of suspicious activity reports filed by financial institutions to, among other things, alert other financial institutions of the risks of transacting with sanctioned entities; (vii) OFAC should issue comprehensive guidance for auction houses and art dealers on steps for determining “whether a person is the principal seller or purchaser of art or is acting on behalf of an undisclosed client, and which person should be subject to a due diligence review”; and (viii) OFAC should issue guidance on “the informational exception to the International Emergency Economic Powers Act related to ‘artworks.’”
Additionally, in June, a bipartisan group of senators introduced the Anti-Money Laundering Act of 2020 (AMLA) as an amendment (S.Amdt 2198 to S.4049) to the National Defense Authorization Act (NDAA), which would, among many other things, require federal agencies to study “the facilitation of money laundering and the financing of terrorism through the trade of works of art or antiquities” and, if appropriate, propose rulemaking to implement the study’s findings within 180 days of the AMLA’s enactment.
- 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