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OFAC publishes A Framework for OFAC Compliance Commitments
On May 2, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the publication of A Framework for OFAC Compliance Commitments to provide guidance on the essential components of a risk-based sanctions compliance program (SCP) for organizations subject to U.S. jurisdiction, along with foreign entities that conduct business in or with the U.S. or U.S. persons, or use U.S.-origin goods or services. The framework highlights five essential compliance components that should be incorporated into an effective SCP: (i) senior management commitment; (ii) risk assessment “identifying potential OFAC issues” likely to be encountered; (iii) internal controls; (iv) testing and auditing; and (v) training. The framework notes that should an entity be subject to a civil monetary penalty (CMP), the Office of Compliance and Enforcement will determine, as appropriate, what other elements should be added to the entity’s SCP. In additional, OFAC states it will “consider favorably” entities that are able to demonstrate the existence of an effective SCP at the time of an apparent violation, which may mitigate a CMP and contribute towards the determination as to whether the violations are “deemed ‘egregious.’”
OFAC regulations address foreign interference in U.S. elections
On April 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced regulations effective April 29 implementing Executive Order (E.O.) 13848. As previously covered by InfoBytes, E.O. 13848 was issued last September to authorize sanctions against foreign persons found to have engaged in, assisted, or otherwise supported foreign interference in U.S. elections. OFAC stated it intends to supplement the final rule with further regulations, “which may include additional interpretive and definitional guidance, general licenses, and statements of licensing policy.”
OCC proposes Innovative Pilot Program
On April 30, the OCC released a proposed Innovative Pilot Program (and accompanying program FAQs), which is designed to support responsible innovation in the U.S. federal banking system by allowing eligible entities to test novel products, services, or processes that could present significant benefits to consumers, businesses, financial institutions, and communities. Under the program, the OCC would provide eligible entities with regulatory input, through tools such as interpretive letters during the development and implementation of proposed innovative activities. Any proposal the agency determines to have potentially predatory, unfair, or deceptive features; poses undue risk to consumers; or poses undue safety and soundness risk to an institution would be deemed as inconsistent with existing law and policy and not permitted in the program. Highlights of the proposed program include:
- Eligibility. OCC-supervised financial institutions may participate in the program independently or when partnered with a third-party entity to offer an innovative activity. Third-party entities, not supervised by the OCC, may not independently participate. Additionally, eligible entities seeking to participate in the program must establish an uncertainty (“perceived to be a barrier to development and implementation”) that justifies the need for the OCC’s involvement during development or implementation of the innovative product or service and must also show how the innovative activity has the potential to benefit the needs of consumers, businesses, and or communities.
- Parameters. The OCC anticipates participation in the program to last between three and 24 months, but the duration of each pilot will be on a case-by-case basis. The program may include the use of interpretive letters, supervisory feedback, and technical assistance, as well as potential determinations of legal permissibility before a live test. Notably, the program will not provide any statutory or regulatory waivers, and all participants must continue to comply with applicable laws and regulations.
- Evaluation Process. The four-step application process includes (i) a preliminary discussion with the OCC about the proposed pilot; (ii) submission of a tailored expression of interest (EOI) to the OCC’s Office of Innovation or assigned supervisory office; (iii) evaluation of the EOI by the OCC; and (iv) acceptance or declination of the request. If a proposal is accepted, the testing phase will begin and the entity will be required to submit periodic information and reports, including key performance indicators, issues identified, and any steps taken to address the issues.
The OCC will maintain the confidentiality of proprietary information, including the identity of any participating entities. Comments on the proposal must be submitted by June 14.
OFAC reaches settlement with New Jersey corporation for alleged Ukrainian sanctions violations
On April 25, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $75,375 settlement with a New Jersey corporation for two alleged violations of the Ukraine Related Sanctions Regulations. The settlement resolves potential civil liability for the company’s alleged issuance of two separate invoices for software licensing and software support services to an entity previously identified on OFAC’s Sectoral Sanctions Identification List. According to OFAC, the designated entity’s attempts to remit payment were rejected by financial institutions after it was determined that the transaction was prohibited. However, the corporation—which allegedly failed to have in place a sanctions compliance program and failed to “recognize that the delayed collection of payment was prohibited”—explored possible options to collect the payment and did not seek guidance or authorization from OFAC.
Federal Reserve issues BSA/AML enforcement action against Japanese bank
On April 25, the Federal Reserve Board announced an enforcement action against a Japanese bank for alleged weaknesses in its New York branch’s anti-money laundering risk management and compliance programs, including a failure to comply with applicable rules and regulations, including the Bank Secrecy Act. Under the terms of the order, the bank is required to, among other things, (i) develop and implement a written plan to strengthen the board of directors’ oversight of Bank Secrecy Act/anti-money laundering (BSA/AML) compliance and Office of Foreign Assets Control (OFAC) regulations; (ii) submit an enhanced written compliance program that complies with BSA/AML requirements; (iii) submit an enhanced, written customer due diligence plan; (iv) submit a written program to ensure compliant, timely, and accurate suspicious activity monitoring and reporting; (v) submit a written plan to enhance OFAC regulation compliance; and (vi) submit a written plan for independent testing of the bank’s compliance with all applicable BSA/AML requirements. A civil money penalty was not assessed against the bank or the branch. This is the latest in a long string of BSA/AML and OFAC-related regulatory enforcement actions against the U.S. operations of foreign banking organizations. Intense regulatory scrutiny of such institutions’ BSA/AML and OFAC risk management appears to continue unabated.
FINRA forms Office of Financial Innovation
On April 24, the Financial Industry Regulatory Authority (FINRA) announced the formation of a new office, the Office of Financial Innovation, that will act as a central point of coordination for issues related to financial innovation by FINRA members. The new office, which is an outgrowth of FINRA’s Innovation Outreach Initiative (previously covered by InfoBytes here), will collaborate with various FINRA teams as well as regulators, investors, and other stakeholders to encourage the use of fintech in a way that strengthens market integrity and protects investors. The new office also will incorporate FINRA’s existing Office of Emerging Regulatory Issues, which focuses on analyzing new and emerging risks and trends related to the securities market.
FinCEN issues first ever penalty against peer-to-peer virtual currency exchanger
On April 18, the Financial Crimes Enforcement Network (FinCEN) announced a civil money penalty against a California-based individual operating as peer-to-peer exchanger for willful violations of Bank Secrecy Act (BSA) money service business (MSB) requirements. According to FinCEN, the exchanger engaged in activities such as (i) advertising his intentions to purchase and sell bitcoin; and (ii) completing transactions using in-person cash payments, currency sent or received in the mail, or wire transfers through the use of a depository institution. These activities, FinCEN claimed, qualified him as a virtual currency exchanger, MSB, and a financial institution under the BSA. As such, the exchanger was required to register as a MSB with FinCEN, establish and implement an effective written anti-money laundering program, detect and file suspicious activity reports, and report currency transactions, which he failed to do. The order requires the exchanger to pay a $35,350 civil money penalty and permanently prohibits him from engaging in any activity that would qualify him as a MSB.
Treasury sanctions Venezuela’s central bank and official connected to Maduro regime; sanctions Nicaraguan bank and official
On April 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against Venezuela’s central bank, along with an individual determined to be a current or former official of the Government of Venezuela, for providing support to former President Maduro’s regime. OFAC stated that the U.S. “has taken steps to ensure that regular debit and credit card transactions can proceed and personal remittances and humanitarian assistance continue unabated and are able to reach those” affected by the humanitarian crisis in Venezuela. Financial Crimes Enforcement Network advisories FIN-2017-A006, FIN-2017-A003, and FIN-2018-A003 provide additional information concerning the efforts of Venezuelan government agencies and individuals to use the U.S. financial system and real estate market to launder corrupt proceeds, as well as human rights abuses connected to foreign political figures and their financial facilitators.
Additionally the same day, OFAC designated the Nicaraguan president’s son along with a Nicaraguan bank for actions supporting the Ortega regime. According to OFAC, the bank has, among other things, provided material, technical, and financial support to the previously sanctioned vice president, as well as money laundering assistance to the regime. OFAC also cited to the president’s son’s involvement with foreign investors to provide “preferential access to the Nicaraguan economy.” As a result, all property and interests in property of the sanctioned entities and individuals, and of any entities owned 50 percent or more by them 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 entities and individuals.
FATF releases permanent mandate to combat money laundering and other proliferation financing
On April 12, the U.S. Department of the Treasury announced that the Financial Action Task Force (FATF), an international standard setting body, agreed to a permanent mandate for the FATF to continue its work against combating money laundering, terrorist financing, and the financing of the proliferation of weapons of mass destruction. FATF ministers agreed to meet every two years, starting in 2022, to support the commitment to implementing the mandate. Among other things, the mandate states the FATF will (i) develop and refine international standards for combating money laundering; (ii) respond to significant new and emerging threats to the global financial system; (iii) maintain engagement with other international organizations and bodies; and (iv) consult the private sector on matters relating to FATF’s work. The mandate also provides a detailed layout of the organization’s membership composition and internal organization.
German-headquartered financial institution to pay $1.3 billion for Iran sanctions violations
On April 15, U.S. regulators announced settlements totaling $1.3 billion with several banking units of a German-headquartered financial institution to resolve allegations by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), the DOJ, the Federal Reserve Board, the New York Department of Financial Services (NYDFS), and the New York County District Attorney’s Office of apparent violations of multiple sanctions programs, including those related to Burma, Cuba, Iran, Libya, Sudan, and Syria. According to OFAC’s announcement, between January 2007 and December 2011, the institution’s banking units in Germany, Austria, and Italy processed thousands of payments through U.S. financial institutions on behalf of sanctioned entities “in a manner that did not disclose underlying sanctioned persons or countries to U.S. financial institutions which were acting as financial intermediaries.”
According to the settlement agreements (see here, here, and here), OFAC considered various aggravating factors, and noted, among other things, that the institution’s banking units failed to sufficiently enforce policies addressing OFAC sanctions concerns or restrict the processing of transactions in U.S. dollars involving persons or countries subject to sanctions programs administered by OFAC. Additionally, OFAC asserted that the Austrian banking unit claimed on several occasions that OFAC’s sanctions programs “were not legally binding or relevant to [the bank].” OFAC further stated that while the banking units failed to voluntarily self-disclose the alleged violations, they have each agreed to implement and maintain compliance commitments to minimize the risk of the recurrence of the alleged conduct.