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Financial Services Law Insights and Observations


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  • OFAC sanctions Libyan for human rights abuse

    Financial Crimes

    On October 26, the U.S. Treasury Department announced sanctions pursuant to Executive Order 13726 against a Libyan national who is allegedly responsible for serious human rights abuse against migrants in Libya. According to OFAC, the individual has been identified as the de facto manager of a detention center in the country, and is “responsible for the systematic exploitation of African migrants at the detention center where these migrants are subject to various human rights abuses.” As a result of the sanctions, “all property and interests in property of the designated individual that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC,” and “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” OFAC’s announcement further noted that OFAC regulations “generally prohibit” U.S. persons from participating in transactions with designated persons unless exempt or otherwise authorized by a general or specific license.

    Financial Crimes Of Interest to Non-US Persons OFAC OFAC Sanctions OFAC Designations SDN List

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  • FATF advances work on virtual assets, beneficial ownership transparency, and illicit finance risks

    Financial Crimes

    On October 22, the Financial Action Task Force (FATF) announced that it concluded its October plenary, which is the sixth session since the beginning of the Covid-19 pandemic. According to the announcement, utilizing a hybrid approach of both virtually and in-person participation, FATF “advanced its core work on virtual assets, beneficial ownership transparency, and illicit finance risks.” Among other things, the FATF: (i) approved an updated version of its Guidance on a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers for publication; (ii) proposed changes to beneficial ownership standards; (iii) approved the commencement of a study on Illicit Proceeds Generated from the Fentanyl and Related Synthetic Opioids Supply Chain; (iv) adopted an update to its 2016 confidential report on terrorist financing risk indicators; and (v) issued a statement regarding Afghanistan that reaffirmed the “United Nations Security Council Resolutions that Afghanistan should not be used to plan or finance terrorist acts, emphasiz[ing] the importance of supporting the work of non-governmental organizations in the country and maintaining the flow of humanitarian assistance to the Afghan people, and for governments to facilitate information sharing with their financial institutions on any emerging illicit finance risks related to Afghanistan.”

    Financial Crimes Department of Treasury FATF Of Interest to Non-US Persons Anti-Money Laundering Combating the Financing of Terrorism Fintech Virtual Currency Beneficial Ownership

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  • European banks resolve Mozambican bond offerings matter

    Financial Crimes

    On October 19, multiple agencies—the DOJ, SEC and UK’s FCA—announced a coordinated resolution with a European bank related to debt offerings for entities in Mozambique. (See here and here.) In total, fines to U.S. and U.K. authorities reached almost $475 million, and the institution also agreed to forgive $200 million of the debt.

    In a related action, a London-based subsidiary of a Russian bank (bank) separately agreed to pay over $6 million to settle SEC charges related to its role in a second 2016 bond offering. According to the SEC’s order, the second offering as structured by the bank and reespondent permitted investors “to exchange their loan participation notes (LPNs) for a direct sovereign bond issued by the Republic of Mozambique” in an earlier bond offering. However, the SEC alleged that the offering materials distributed and marketed by the respondent and bank “failed to disclose the full nature of Mozambique’s indebtedness and, relatedly, its risk of default on the notes.” Furthermore, the SEC alleged that proceeds from the financing from the respondent and bank were supposed to be used exclusively for maritime projects, but in reality, without the bank’s knowledge, only a portion of the loan proceeds was applied towards maritime projects while the rest was diverted to pay kickbacks and make improper payments to Mozambican government officials. Mozambique later defaulted on the financings after the full extent of “secret” debt was revealed.

    Financial Crimes Securities DOJ SEC Of Interest to Non-US Persons Bond Fraud FCPA UK Enforcement

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  • FinCEN grants limited relief to casinos

    Financial Crimes

    On October 19, the Financial Crimes Enforcement Network (FinCEN) issued a notice that grants limited exceptive relief to casinos from some customer identity verification requirements regarding online gaming. Casinos are not subject to Customer Identification Program (CIP) regulations, which results in casinos not having the ability to rely upon non-documentary verification of a customer’s identity. As previously covered by InfoBytes, in 2020, FinCEN issued an interagency order granting an exemption from the requirements of the CIP rules for insurance premium finance loans extended by banks to all customers. According to the recent notice, a casino can use suitable non-documentary methods to verify online customers’ identification and “[t]he suitability or non-suitability of any particular method should be evaluated based on risk.” The notice also notes that a casino’s anti-money laundering program requires describing when the casino will verify identity by documentary methods, non-documentary methods, or a combination of both. This exceptive relief is effective October 19.

    Financial Crimes FinCEN Department of Treasury Anti-Money Laundering Customer Identification Program

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  • Treasury makes recommendations to enhance effectiveness of sanctions

    Financial Crimes

    On October 18, the U.S. Treasury Department released the results from a comprehensive economic and financial sanctions review and issued recommendations on preserving and enhancing sanctions’ effectiveness in supporting national security and U.S. interests going forward. The 2021 sanctions review involved the participation of hundreds of sanctions stakeholders, including former Treasury officials, the Departments of State and Justice, USAID, Congress, small and large commercial businesses and financial institutions, and foreign governments, among others. The review found that while sanctions are “an essential and effective policy tool,” there are new challenges, “including rising risks from new payments systems, the growing use of digital assets, and cybercriminals,” as well as the “impact of sanctions on the flow of legitimate humanitarian aid to those in need.” The review noted that “American adversaries—and some allies—are already reducing their use of the U.S. dollar and their exposure to the U.S. financial system more broadly in cross-border transactions,” and that Treasury is “mindful of the risk that, if left unchecked, these digital assets and payments systems could harm the efficacy of our sanctions.” The review further found that in the past 20 years, there has been a 933 percent increase in the number of sanctions designations, and stressed that in order to ensure sanctions continue to support U.S. national security objectives, there must be changes made to adapt and modernize the underlying system by which sanctions are deployed.

    The review made the following recommendations to mitigate these challenges and bolster the effectiveness of sanctions programs: (i) adopt a structured policy framework linking sanctions to a clear policy objective; (ii) engage in multilateral coordination when possible; (iii) calibrate sanctions to prevent unintended economic, political, and humanitarian impact; (iv) expand existing outreach to ensure sanctions are easily understood, enforceable, and, where possible, reversible; and (v) invest in modernizing Treasury’s sanctions technology, workforce, and infrastructure, especially with respect to digital assets and services.

    Financial Crimes Of Interest to Non-US Persons OFAC Sanctions OFAC Department of Treasury

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  • Agencies announce new measures to combat ransomware

    Financial Crimes

    On October 15, the U.S. Treasury Department announced additional steps to help the virtual currency industry combat ransomware and prevent exploitation by illicit actors. The guidance builds upon recent “whole-of-government” actions 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.” (Covered by InfoBytes here.) The newest industry-specific guidance—part of the Biden administration’s efforts to counter ransomware threats—outlines sanctions compliance best practices tailored to the unique risks associated with this space. According to Treasury, there is a “need for a collaborative approach to counter ransomware attacks, including public-private partnerships and close relationships with international partners.”

    The same day, the Financial Crimes Enforcement Network (FinCEN) released new data analyzing ransomware trends in Bank Secrecy Act reporting filed between January 2021 and June 2021. The report follows FinCEN’s government-wide priorities for anti-money laundering and countering the financing of terrorism priorities released in July (covered by InfoBytes here). Issued pursuant to the Anti-Money Laundering Act of 2020, the report flags “ransomware as a particularly acute cybercrime concern,” and states that in the first half of 2021, FinCEN identified $590 million in ransomware-related suspicious activity reports (SARs)—an amount exceeding the entirety of the value report in 2020 ($416 million). If this trends continues, FinCEN warns that ransomware-related SARs submitted in 2021 will have a higher transaction value than similar SARs filed in the previous 10 years combined. FinCEN attributes this uptick in activity to several factors, including an increasing overall prevalence of ransomware-related incidents, improved detection and incident reporting, and an increased awareness of reporting obligations and willingness to report by financial institutions.

    In conjunction with the “growing prevalence of virtual currency as a payment method,” Treasury’s Office of Foreign Assets Control (OFAC) issued sanctions compliance guidance for companies in the virtual currency industry, including technology companies, exchangers, administrators, miners, wallet providers, and financial institutions. OFAC warned that “sanctions compliance obligations apply equally to transactions involving virtual currencies and those involving traditional fiat currencies,” and that participants “are responsible for ensuring that they do not engage, directly or indirectly, in transactions prohibited by OFAC sanctions, such as dealings with blocked persons or property, or engaging in prohibited trade- or investment-related transactions.” Among other things, the guidance will assist participants on ways to evaluate risks and build a risk-based sanctions compliance program. OFAC also updated related FAQs 559 and 646.

    Financial Crimes Of Interest to Non-US Persons Department of Treasury OFAC Ransomware FinCEN Privacy/Cyber Risk & Data Security Bank Secrecy Act Virtual Currency Anti-Money Laundering Act of 2020 SARs Biden Anti-Money Laundering Combating the Financing of Terrorism Agency Rule-Making & Guidance

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  • District Court: News reports cannot reverse dismissal of sanctions suit

    Financial Crimes

    On October 13, the U.S. District Court for the Southern District of New York denied a relator’s motion seeking indicative relief, ruling that post-ruling news reports were insufficient to reverse the dismissal of a qui tam suit accusing a UK-based bank and related entities (collectively, “defendants”) of violating U.S. sanctions against Iran. In 2020, the court dismissed the complaint after finding that the government “had articulated multiple valid purposes served by dismissal, and that relator had not carried its burden to show that a dismissal would be ‘fraudulent, arbitrary or capricious, or illegal.’” The relator’s appeal to the U.S. Court of Appeals for the Second Circuit is pending. At the district court, the relator moved for indicative relief based on the premise that if the court had jurisdiction, it would have vacated the dismissal based on disclosures in post-dismissal media reports.

    According to the opinion, the defendants entered into a deferred prosecution agreement (DPA) with the DOJ in 2012 following a multi-year, multi-agency investigation concerning allegations that defendants deceptively facilitated U.S. dollar transactions by Iranian clients between 2001 and 2007 in violation of U.S. sanctions and various New York and federal banking regulations. The defendants admitted to the violations and paid hundreds of millions of dollars in fines and penalties. The relator subsequently filed a qui tam action alleging the defendants misled the government in negotiating the DPA. A government investigation found no support for the allegations. In 2019, the DOJ entered a new DPA with defendants. The relator amended its complaint alleging improper conduct related to the 2019 DPA, which the court dismissed.

    The relator then filed the instant motion to reopen the case, arguing that news reports published in 2020 showed that the defendants engaged in transactions with sanctioned Iranian entities after 2007, which was contrary to the government’s representations when it moved to dismiss the case. The relator claimed that the government incorrectly asserted that it closely examined records before seeking dismissal and failed to honestly conclude that the allegations were meritless. In denying the relator’s motion, the court explained that the relator failed to show that the news reports would be admissible or were important enough to change the outcome of the earlier motion to dismiss. The court held that news reports are inadmissible and further concluded that none of the suspicious activity reports discussed in the news reports contradicted the government’s representations in its motion to dismiss.

    Financial Crimes Courts Of Interest to Non-US Persons OFAC OFAC Sanctions Iran Relator Qui Tam Action DOJ Appellate Second Circuit SARs

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  • FINRA advises firms to incorporate FinCEN’s AML/CFT priorities

    Financial Crimes

    On October 8, the Financial Industry Regulatory Authority (FINRA) encouraged member firms to consider ways to incorporate recently issued anti-money laundering and countering the financing of terrorism priorities (AML/CFT Priorities) into their risk-based compliance programs. As previously covered by InfoBytes, the Financial Crimes Enforcement Network’s (FinCEN) AML/CFT Priorities—issued pursuant to the Anti-Money Laundering Act of 2020—highlighted key threat trends and provided informational resources to help covered institutions manage their risks and meet their obligations under laws and regulations designed to combat money laundering and counter terrorist financing.

    FINRA reminded member firms that FINRA Rule 3310 requires the development and implementation of a written AML program to achieve compliance with the Bank Secrecy Act (BSA). While FinCEN’s issuance of the AML/CFT Priorities “does not trigger an immediate change in the BSA requirements or supervisory expectations for member firms,” FINRA advised member firms to evaluate how they plan to incorporate these priorities into their risk-based AML programs. Among other things, FINRA advised member firms to: (i) review red flags based on potential risks presented by their business activities, size, geographic location, and types of accounts and transactions; and (ii) consider potential technical changes, including those used to monitor and investigate suspicious activity.

    Financial Crimes Of Interest to Non-US Persons FINRA Anti-Money Laundering Combating the Financing of Terrorism Agency Rule-Making & Guidance FinCEN Risk Management Bank Secrecy Act

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  • DOJ team to address cryptocurrency

    Federal Issues

    On October 6, the DOJ announced the launch of the National Cryptocurrency Enforcement Team (NCET), which will focus on addressing “complex investigations and prosecutions of criminal misuses of cryptocurrency, particularly crimes committed by virtual currency exchanges, mixing and tumbling services, and money laundering infrastructure actors.” According to the DOJ, the NCET will combine “the expertise of the Department of Justice Criminal Division’s Money Laundering and Asset Recovery Section (MLARS), Computer Crime and Intellectual Property Section (CCIPS) and other sections in the division, with experts detailed from U.S. Attorneys’ Offices.” Among other things, the NCET will: (i) develop strategic priorities for investigations and prosecutions involving cryptocurrency; (ii) identify areas for increased investigative and prosecutorial focus; (iii) develop and maintain relationships with federal, state, local, and international law enforcement agencies involved in cryptocurrency cases; (iv) train federal prosecutors and law enforcement agencies in investigative and prosecutorial strategies; and (v) coordinate with private sector actors in cryptocurrency matters. In announcing the program, Deputy Attorney General Lisa Monaco stated that “[a]s the technology advances, so too must the Department evolve with it so that we’re poised to root out abuse on these platforms and ensure user confidence in these systems.”

    Federal Issues DOJ Cryptocurrency Anti-Money Laundering Enforcement Financial Crimes Virtual Currency Fintech

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  • OFAC sanctions Mexican nationals

    Financial Crimes

    On October 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to the Foreign Narcotics Kingpin Designation Act against four individuals who are allegedly senior members of a Mexican-based drug cartel, which is said to be responsible for trafficking deadly drugs into the U.S. As a result of the sanctions, all property and interests in property subject to U.S. jurisdiction that belong to the sanctioned persons must be blocked and 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. OFAC further notes that the designations against the individuals were made in collaboration with the Drug Enforcement Administration and Mexico’s Financial Intelligence Unit.

    Financial Crimes Department of Treasury OFAC FinCEN SDN List OFAC Sanctions OFAC Designations Mexico Drug Enforcement Administration Of Interest to Non-US Persons

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