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SEC enters $19 million FCPA settlement with advertising company
On September 24, the SEC announced that a London-based advertising company agreed to pay over $19 million to settle the SEC’s claims that the company violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and the Exchange Act. According to the SEC, the company “through intermediaries, paid as much as a million dollars in bribes to Indian officials to obtain and retain government business, resulting in over $5 million in net profit from 2015 – 2017.” In addition, the company allegedly benefited from other illicit schemes at its subsidiaries such as: (i) “a subsidiary in China making unjustified payments to a vendor in connection with a Chinese tax audit, resulting in significant tax savings to [the company’s subsidiary]”; (ii) “a subsidiary in Brazil making improper payments to purported vendors in connection with government contracts in 2016-2018”; and (iii) “in 2013, a Peruvian subsidiary funneling funds through other [of the company’s] entities to disguise the source of funding for a political campaign in Peru.” The SEC further alleged that the company “failed to devise and maintain a sufficient system of internal accounting controls necessary to detect and prevent the bribe payments at this Indian subsidiary or properly account for the true nature of payments and income at all four subsidiaries.”
The SEC alleged that the company had knowledge of significant red flags connected to the China subsidiary and its CEO through an internal audit in 2017, which found that the China subsidiary was employing tax avoidance schemes and other significant violations of the company’s internal accounting controls. Then in 2018, a China subsidiary employee informed a regional location officer and the company’s regional tax director in China that the China subsidiary was in the midst of a tax audit and its management may face criminal charges for its tax avoidance schemes. The SEC also alleged that despite a policy that prohibited its companies from paying third parties to assist in obtaining or retaining government contracts without the company’s approval, the “Brazil Subsidiary made improper payments to vendors in connection with securing government contracts at [Brazilian CEO’s] direction.” In respect to the Peruvian subsidy, the SEC alleged that the company “was unjustly enriched by $291,935 as a result of Peru Subsidiary acting as a conduit for a bribery scheme.”
In entering the administrative order, the SEC considered the company’s cooperation and remedial efforts. Without admitting or denying wrongdoing, the company consented to a cease and desist order, and agreed to pay a $8 million civil money penalty and approximately $11.2 million in disgorgement and prejudgment interest.
FinCEN seeks comments on antiquities trading
On September 23, the Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM) to solicit public comments on implementing Section 6110 of the Anti-Money Laundering Act of 2020 (Act) regarding the trade in antiquities. FinCEN noted that this is the first of several regulatory actions that the agency intends to undertake to implement Section 6110. As previously covered by InfoBytes, the Act made numerous changes to the Bank Secrecy Act (BSA), including amendments to the definition of “financial institution” to include a “person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities.” FinCEN explained that crimes related to the trade in antiquities may include money laundering and sanctions violations, and may also be exploited by terrorist financiers seeking to evade detection when laundering illicit funds through the U.S. financial system. In March, FinCEN issued an advisory notice (covered by InfoBytes here) alerting financial institutions with existing BSA obligations about illicit activity associated with trade in antiquities and art. According to FinCEN, the ANPRM “is an important step in strengthening U.S. national security by protecting the U.S. financial system from money launderers and terrorist financiers that seek to exploit the antiquities trade.”
In developing the ANPRM, FinCEN coordinated with the FBI, the Attorney General, and Homeland Security Investigations to consider several factors, including “the degree to which the regulations should focus on high-value trade in antiquities, and on the need to identify the actual purchasers of such antiquities, in addition to the agents or intermediaries acting for or on behalf of such purchasers,” whether thresholds should apply when determining persons to regulate, and what exemptions, if any, should apply to the regulations. The ANPRM seeks comments regarding, among other things: (i) “the potential for money laundering, financing of terrorism, and other illicit financial activity in the antiquities industry”; (ii) “the existence of any safeguards in the industry to guard against this potential”; (iii) “the effect that compliance with BSA requirements could have on the antiquities industry”; (iv) “what additional steps may be necessary to protect the industry from abuse by money launderers and other malign actors”; and (v) “which actors within the antiquities trade should be subject to BSA requirements.” Comments are due October 25.
OFAC issues Afghanistan general licenses and related FAQs
On September 24, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued two general licenses (GL) to support the ongoing flow of humanitarian efforts and other activities that support basic human needs in Afghanistan. GL 14, “Authorizing Humanitarian Activities in Afghanistan,” authorizes the U.S. government, nongovernmental organizations, and certain international organizations and entities, as well as those acting on their behalf, to engage in the provision of humanitarian assistance to Afghanistan or other activities that support basic human needs in Afghanistan. GL 15, “Transactions Related to the Exportation or Reexportation of Agricultural Commodities, Medicine, Medical Devices, Replacement Parts and Components, or Software Updates in Afghanistan,” authorizes certain transactions connected to the exportation or reexportation of agricultural commodities, medicine, and medical devices, replacement parts, components, and software updates for medical devices. OFAC also published updated four FAQs related to GLs 14 and 15 (see 928, 929, 930, and 931).
OFAC sanctions Mexican national
On September 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to the Foreign Narcotics Kingpin Designation Act against a Mexican-based cartel boss. OFAC noted that the designated individual allegedly oversaw a drug trafficking corridor and is allegedly responsible for smuggling drugs in the U.S. OFAC also designated seven other Mexican nationals and two Mexican entities. 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. U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons.
Treasury takes robust measures against ransomware
On September 21, the U.S. Treasury Department announced recent actions that are focused on confronting “criminal networks and virtual currency exchanges responsible for laundering ransoms, encouraging improved cyber security across the private sector, and increasing incident and ransomware payment reporting to U.S. government agencies, including both Treasury and law enforcement.” As part of its continuing actions to counter the increasing threat of ransomware, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against a virtual currency exchange, pursuant to Executive Order 13694, as amended, for its alleged role in providing material support to the threat posed by criminal ransomware actors. 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, OFAC issued an updated advisory, which highlights “the sanctions risks associated with ransomware payments in connection with malicious cyber-enabled activities and the proactive steps companies can take to mitigate such risks, including actions that OFAC would consider to be ‘mitigating factors’ in any related enforcement action.” Treasury also noted that FinCEN has engaged with industry, law enforcement, and others regarding the ransomware threat through the FinCEN Exchange public-private partnership (covered by InfoBytes here).
President Biden issues executive order addressing crisis in Ethiopia
On September 17, President Biden signed a new Executive Order (E.O.), Imposing Sanctions on Certain Persons with Respect to the Humanitarian and Human Rights Crisis in Ethiopia, that declares a national emergency with respect to the humanitarian and human rights crisis in northern Ethiopia. The E.O. provides the Secretary of the Treasury, in consultation with the Secretary of State, with the authority “to impose a range of targeted sanctions on persons determined, among other things, to be responsible for or complicit in actions or policies that expand or extend the ongoing crisis or obstruct a ceasefire or peace process in northern Ethiopia or commit serious human rights abuse.” Concurrently, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued three new general licenses, GLs 1, 2, and 3, which authorize official activities associated with certain international organizations and entities, certain nongovernmental organizations’ activities, and certain transactions associated with the exporting or reexporting of agricultural commodities, food, medicine, and medical items. OFAC also published six related FAQs (see FAQs 922, 923, 924, 925, 926, and 927), which provide additional clarity concerning the non-application of OFAC’s 50 Percent Rule to property and interests in property of persons blocked pursuant to the new E.O., as well as guidance on activities authorized by the new GLs.
FinCEN releases notice regarding online child sexual exploitation crimes
On September 16, FinCEN issued a notice regarding an increase in online child sexual exploitation (OCSE) and provided financial institutions with specific suspicious activity report (SAR) filing instructions, noting some financial trends related to OCSE. According to FinCEN, there was a “147 percent increase in OCSE-related SAR filings between 2017 and 2020.” The notice provides that financial institutions should, among other things: (i) “reference only this notice in SAR field 2 (Filing Institution Note to FinCEN) using the keyword ‘OCSE-FIN-2021-NTC3,’” which should also be referenced to specify a relationship between the suspicious activity being reported and the activities in this notice,” and (ii) “select SAR Field 38(z) (Other) as the associated suspicious activity type to indicate a connection between the suspicious activity reported and OCSE activity and include the term ‘OCSE’ in the text box.” FinCEN requests that reporting entities utilize the Child Sexual Exploitation terms and definitions located in the Appendix of the notice when detailing suspicious activity. FinCEN also specifies the selections to be utilized if human trafficking and human smuggling is suspected.
OFAC sanctions entities connected to international terrorism
On September 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224 against members of Lebanon- and Kuwait-based financial conduits that fund Hizballah. In addition, OFAC designated members of an international network of financial facilitators and front companies connected to Hizballah and Iran’s Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF). Together, these networks allegedly “laundered tens of millions of dollars through regional financial systems and conducted currency exchanges and trades” for the benefit of both entities. According to OFAC, Hizballah, supported by the IRGC-QF, utilized the revenues from these networks to fund terrorism, and condoned instability throughout the region. As a result, all property and interests in property belonging to the designated persons 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 control of a U.S. person must be blocked.” U.S. persons are “generally prohibited from engaging in transactions” with the designated members. 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, among other things, knowingly facilitates a significant transaction for Hizballah or certain persons designated for their connection to Hizballah.”
OFAC sanctions individuals in Turkey
On September 16, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224, as amended, against five individuals for allegedly providing “a range of financial and travel facilitation services” for a terrorist organization in Turkey. According to OFAC, the individuals are designated “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].” As a result of the sanctions, all property and interests in property belonging to the sanctioned persons are blocked. OFAC’s announcement further noted that OFAC regulations generally prohibit U.S. persons from participating in transactions with designated persons, adding that “[e]ngaging in certain transactions with the individuals designated today entails risk of secondary sanctions pursuant to E.O. 13224, as amended.”
OFAC sanctions Columbian drug trafficker
On September 16, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to the Foreign Narcotics Kingpin Designation Act against a leader of a Columbia-based international drug trafficking organization. OFAC noted that the designated individual “strategically located maritime corridors in northern Colombia and collects a per kilogram tax from narcotics traffickers for protection and safe passage of multi-ton shipments of narcotics through the [organization’s] area of control.” OFAC also designated three individuals and two entities closely related to the organization’s leader for providing material support to the narcotics trafficking activities. As a result of the sanctions, all property and interests in property belonging to the sanctioned individual subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons.