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OFAC sanctions Nicaraguan officials connected to Ortega-Murillo regime
On January 10, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions pursuant to Executive Order 13851 against six Nicaraguan government officials. The sanctions, taken in conjunction with EU sanctions adopted the same date, relate to Nicaraguan President Daniel Ortega and Vice President Rosario Murillo’s regime’s ongoing “subjugation of democracy through effectuating sham elections, silencing peaceful opposition, and holding hundreds of people as political prisoners.” Complementing OFAC’s actions, the State Department “impose[d] visa restrictions on individuals complicit in undermining democracy in Nicaragua, including mayors, prosecutors, and university administrators, as well as police, prison, and military officials.” As a result of the sanctions, all property and interests in property of 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 in the aggregate by one or more of such persons are also blocked.”
OFAC published FAQs on Belarus, Ukraine-/Russia-related, and Venezuela-related sanctions programs
On January 7, the U.S. Treasury Department’s Office of Foreign Assets Control published a new FAQ 956 regarding Belarus, Ukraine-/Russia-related, and Venezuela-related sanctions programs, which prohibit U.S. persons from dealing in certain new debts (such as bonds, loans, drafts, loan guarantees, or letters of credit) of certain identified persons in these countries. The FAQ provides additional guidance on how OFAC views modifications to pre-existing loans, contracts, or other agreements to replace LIBOR as the reference rate. According to the FAQ, “[l]oans, contracts, or other agreements that use LIBOR as a reference rate that are modified to replace such benchmark reference rate will not be treated as new debt for OFAC sanctions purposes, so long as no other material terms of the loan, contract, or agreement are modified.”
OFAC issues additional Afghanistan general licenses and guidance to support humanitarian assistance
On December 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued three general licenses (GLs) to expand existing authorizations and further support humanitarian assistance in Afghanistan. The GLs authorize transactions and activities involving the Taliban or the Haqqani Network that would otherwise be prohibited by the Global Terrorism Sanctions Regulations, the Foreign Terrorist Organizations Sanctions Regulations, or amended Executive Order 13224. Subject to certain conditions, General License 17 authorizes transactions “that are for the conduct of the official business of the United States Government by employees, grantees, or contractors thereof”; General License 18 authorizes transactions and activities that are for the conduct of the official business of specified international organizations and other international entities by employees, grantees, or contractors; and General License 19 authorizes transactions and activities that are ordinarily incident and necessary to specific nongovernmental organizations’ activities, such as humanitarian projects to meet basic human needs and activities that support rule of law, citizen participation, government accountability and transparency. Notably, the GLs do not authorize (i) financial transfers to identified blocked persons (except for when executing the payment of certain taxes, fees, or import duties, or for the purchase or receipt of permits, licenses, or public utility services); or (ii) “[a]ny debit to an account on the books of a U.S. financial institution of any blocked person” described within the GLs.
In addition to the GLs, OFAC published several responses to frequently asked questions to provide clarity on the scope of GLs and U.S. sanctions on the Taliban and the Haqqani Network (see FAQs 928, 929, 931, 950, 951, 952, 953, 954, and 955). OFAC also issued a humanitarian fact sheet providing an overview of the newest authorizations and latest guidance regarding the flow of humanitarian assistance to Afghanistan.
OFAC issues amended Weapons of Mass Destruction Trade Control Regulations
On December 23, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced amendments to the Weapons of Mass Destruction Trade Control Regulations. The amendments, among other things: (i) add Executive Order 13382, “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters” as an authority to the regulations; (ii) eliminate appendix I, containing an outdated list of persons subject to import measures, from the regulations; and (iii) revise three definitions in the regulations to reflect the removal of appendix I and to make technical edits to the authority citation. The amendments took effect on December 27.
OFAC sanctions BiH official and entity
On January 5, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, the first designations under Executive Order 14033, against an individual and one entity under that individual’s control in response to corrupt activities and ongoing threats to the stability and territorial integrity of Bosnia and Herzegovina (BiH). According to OFAC, the designated individual has used his official BiH position to accumulate personal wealth through graft, bribery, and other forms of corruption and has undermined BiH institutions by attempting to unilaterally transfer state competencies from the BiH government, among other things. As a result of the sanctions, all property and interests in property of the sanctioned individual 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, 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.”
French data protection agency issues privacy fines over cookies
On January 6, the French data protection agency, Commission Nationale de l’Informatique et des Libertés (CNIL), fined a multinational technology company 150 million euros and a global social media company 60 million euros (approximately $170 and $68 million USD respectively) for failure to comply with the French Data Protection Act related to the companies’ process for managing cookies. (See additional press releases here and here.) According to the CNIL, the companies provide a button allowing users to immediately accept cookies but do not provide an equivalent option to allow users to easily refuse the cookies through a single click. This process, CNIL stated, “influences [a user’s] choice in favor of consent” since a user “cannot refuse the cookies as easily as they can accept them,” and constitutes an infringement of Article 82 of the French Data Protection Act. In addition to the fines, the CNIL gave the companies three months “to provide […] users located in France with a means of refusing cookies as simple as the existing means of accepting them, in order to guarantee their freedom of consent.” Failure to comply will come with the risk of an additional daily fine of 100,000 euros per day of delay.
OFAC settles with money services business for Cuba sanctions violations
On January 3, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $91,172 settlement against a registered money services business for allegedly processing payment transactions for guests traveling to Cuba "for reasons outside of OFAC’s authorized categories” and failing to maintain certain required records associated with Cuba-related transactions. These actions, OFAC, stated, allegedly violated the Cuban Assets Control Regulations (CACR). According to OFAC’s web notice, as the company scaled up its traveler services in Cuba, its technology platforms were allegedly unable to manage the associated sanctions risks, which led to the alleged violations. Among other things, OFAC maintained that the company used a manual process to screen hosts and guests for potential sanctions issues until it began using a customized IP blocking system. Additionally, the company’s alleged recordkeeping violations were primarily attributed to technical defects involving an older version of the company’s mobile application that could be used for Cuba-related travel without “maintain[ing] complete functionality for [g]uests to make an attestation regarding their reason for travel to Cuba.”
In arriving at the settlement amount, OFAC considered various aggravating factors, including, among other things, that the company is a large, sophisticated U.S.-based technology company, and that its alleged violations followed a 2015 foreign policy change with respect to Cuba, as well as associated changes to the CACR, which maintained certain specified restrictions. OFAC also considered various mitigating factors, including that the company (i) did not receive a penalty notice or finding of violation in the past five years preceding the earliest transaction giving rise to this settlement; (ii) conducted a comprehensive review of its sanctions compliance program, voluntarily reported its findings to OFAC, and substantially cooperated with the investigation; and (iii) undertook significant remedial measures to ensure sanctions compliance.
OFAC announces international terrorism sanctions
On December 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224 against three members of a Brazil-based network of an international terrorist group and two connected entities for providing support to the terrorist group. According to OFAC, the terrorist group generates most of its revenue outside of the U.S., and the U.S. government has used financial tools to limit its funding streams globally, such as designating almost 300 individuals and entities affiliated with the terrorist group and other terrorist organizations throughout Afghanistan, Pakistan, the Gulf, Africa, and other regions. As a result, all property and interests in property belonging to the designated individual subject to U.S. jurisdiction are blocked, and 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 report to OFAC.” U.S. persons are generally prohibited from engaging in transactions with the designated individual unless authorized by a general or specific OFAC license or otherwise exempt. OFAC warned that the agency “can prohibit or impose strict conditions on the opening or maintaining in the United State[s] 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.” OFAC further noted that that engaging in certain transactions with the designated individual “entails risk of secondary sanctions pursuant to E.O. 13224, as amended.”
Fed updates legal interpretations related to several regulations
On December 30, the Federal Reserve Board added several new frequently asked questions related to legal interpretations of the Board’s regulations, including Regulations H, O, W, and Y, as well as questions concerning covered savings associations. The Fed noted that, unless specified, the FAQs are staff interpretations and have not been approved by the Board. Future revisions or supplements may be released as necessary or appropriate.
- Regulation H: Five new FAQs discuss (i) branch closing procedures and required notices; (ii) the ability to conduct branch activities should a bank relocate its main office; (iii) when a bank may acquire a debt obligation under its general powers to lend under state law; and (iv) public welfare investments made by state member banks involving housing projects with multiple residential buildings.
- Regulation O: A revised FAQ states that banks may not offer discounts on loan origination fees to an insider if the discount is not available to members of the public with one exception: a bank is not prohibited from “extending credit to an insider as part of a benefit or compensation program that (i) is widely available to employees of the member bank and (ii) does not give preference to any insider of the member bank over other employees of the member bank.”
- Regulation W: Thirty-four new FAQs address various topics related to (i) provisions concerning nonaffiliate and affiliate lending and extensions of credit under the attribution rule; (ii) valuation and timing principles; (iii) revolving credit facilities and loan commitments involving nonaffiliates; (iv) asset purchases from affiliates; (v) a bank’s acquisition of another company’s shares and liabilities; and (vi) exemptions.
- Regulation Y: Nine new FAQs discuss (i) circumstances under the Bank Holding Company Act (BHC Act) where “a bank or company that holds bank shares in a fiduciary capacity [would] be considered to have sole discretionary authority to exercise voting rights”; (ii) tying restriction qualifications, exceptions, and safe harbor; (iii) factors considered in the acquisition of bank securities or assets; (iv) trustee powers; (v) filing requirements for persons acquiring ownership or control of shares; (vi) appraisal standards for federally-related transactions; and (vii) rules for engaging in an activity that is complementary to a financial activity. The Fed notes that while these FAQs refer at times to bank holding companies, the FAQs are also applicable to foreign banking organizations that are subject to the BHC Act in the same manner as a bank holding company under the International Banking Act of 1978.
- Covered Savings Associations: Twenty-nine new FAQs address topics related to covered savings associations (CSAs) and companies that control a CSA pursuant to Section 5A of the Home Owners’ Loan Act. Among other things, the FAQs address (i) the scope of Section 5A; (ii) a CSA’s membership in the Federal Reserve System; (iii) filing requirements; (iv) requirements applicable to a CSA or a company controlling a CSA, as well as mutual CSAs and mutual holding companies controlling a CSA; (v) transactions involving a CSA or a company controlling a CSA; and (vi) the termination of an election to operate as a CSA.
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.