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OFAC amends Venezuela-related general license, delays effective date
On October 24, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued amended Venezuela General License (GL) 5A to highlight a delay in effectiveness and clarify that prior to January 22, 2020, certain transactions related to the financing for, and other dealings in the Petróleos de Venezuela SA 2020 8.5 Percent Bond are prohibited under Executive Orders 13835 and 13857, unless specifically authorized by OFAC. OFAC also published a new FAQ to provide additional guidance on the reason for the issues of GL 5A.
Visit here for additional InfoBytes coverage of actions related to Venezuela.
FATF updates jurisdictions with AML/CFT deficiencies
On October 18, the Financial Action Task Force (FATF) published its updated list of jurisdictions identified as having “strategic deficiencies” in their anti-money laundering and combating the financing of terrorism (AML/CFT) regimes that have also developed action plans with the FATF to address the deficiencies. The list of jurisdictions includes the Bahamas, Botswana, Cambodia, Ghana, Iceland, Mongolia, Pakistan, Panama, Syria, Trinidad and Tobago, Yemen, and Zimbabwe. Notably, Ethiopia, Sri Lanka, and Tunisia have been removed from the list and are no longer subject to the FATF’s AML/CFT compliance process due to making “significant progress” in their regimes, while Iceland, Mongolia, and Zimbabwe have been added since the last update in June (covered by InfoBytes here). The FATF further notes that several jurisdictions have not yet been reviewed, and that it “continues to identify additional jurisdictions, on an ongoing basis, that pose a risk to the international financial system.” While the FATF does not instruct members to apply enhanced due diligence to these jurisdictions, it encourages members to take this information into account when conducting money laundering risk assessments and due diligence.
FinCEN final rule designates Iran a primary money laundering concern; new Treasury and State department mechanism to make humanitarian trade more transparent
On October 25, the U.S. Treasury Department announced the issuance of a final rule by the Financial Crimes Enforcement Network (FinCEN) to impose a fifth special measure against Iran as a jurisdiction of primary money laundering concern under Section 311 of the USA Patriot Act. The final rule prohibits U.S. financial institutions from opening or maintaining a correspondent account on behalf of an Iranian financial institution, and also prohibits U.S. financial institutions from processing transactions involving Iranian financial institutions. The final rule takes effect ten days after publication in the Federal Register.
FinCEN stated that its action is based on Iran’s abuse of the international financial system, including providing support for terrorist groups such as Hizballah and HAMAS, and builds upon Treasury’s Office of Foreign Assets Control’s (OFAC) September designation of Iran’s central bank for providing financial support to the Islamic Revolutionary Guards Corps, its Qods Force, and Hizballah (previous InfoBytes coverage here). Additionally, FinCEN determined that the Iranian regime continues to engage in deceptive financial practices through the use of front companies and shell companies, among other things, to facilitate military purchases. These actions, FinCEN noted, are “further compounded by Iran’s continued failure to adequately address its AML/CFT deficiencies, as identified by the Financial Action Task Force,” which recently re-imposed countermeasures and enhanced due diligence strategies on Iran and “called on its members and urged all jurisdictions to advise their financial institutions to apply enhanced due diligence with respect to business relationships and transactions with natural and legal persons from Iran.” (Previous InfoBytes coverage here.)
Concurrent with the imposition of the fifth special measure, Treasury and the U.S. Department of State announced a new mechanism to increase the transparency of humanitarian trade with Iran that will establish processes for participating foreign governments and financial institutions when conducting enhanced due diligence designed to mitigate the higher risks associated with Iran-related transactions. OFAC’s guidance outlines due diligence and reporting requirements for participating entities, and stipulates that “[p]rovided that foreign financial institutions commit to implement stringent enhanced due diligence steps, the framework will enable them to seek written confirmation from Treasury that the proposed financial channel will not be exposed to U.S. sanctions.”
OFAC amends Venezuela-related general license
On October 21, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced General License (GL) 8D, titled “Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Necessary for Maintenance of Operations for Certain Entities in Venezuela,” which supersedes GL 8C to extend the expiration date through January 22, 2020.
Visit here for additional InfoBytes coverage of actions related to Venezuela.
Treasury convenes Counter-Hizballah International Partnership to prevent illicit financial activity
On October 18, the U.S. Treasury Department announced it had convened the first meeting of the Counter-Hizballah International Partnership (CHIP) involving representatives from over 30 countries. CHIP participants discussed methods to diminish Hizballah’s exploitation of the international financial system to fund terrorist activities and stressed the importance of building momentum and ensuring coordination of efforts. Impact-oriented considerations included: (i) establishing cross-border information sharing among financial intelligence units; (ii) “strengthening terrorism finance risk assessments”; (iii) creating “targeted financial sanctions regimes;” and (iv) prosecuting terrorists and their affiliated financial facilitators.
Find continuing InfoBytes coverage related to Hizballah here.
FATF discusses terror finance risks, virtual currency regulation, and global AML/CFT deficiencies
On October 18, the U.S. Treasury Department released a public statement issued by the Financial Action Task Force (FATF) following the conclusion of its plenary meeting held October 16-18. Topics discussed by attendees included Iranian terrorist financial risks, guidance related to “stablecoins” and virtual assets, and reports related to anti-money laundering/countering the financing of terrorism (AML/CFT). Specifically, the FATF discussed the re-imposition of countermeasures on Iran as well as enhanced due diligence strategies due to the country’s AML/CFT deficiencies. As previously covered by InfoBytes, the FATF issued a public statement last June that called upon members and urged all jurisdictions to require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran. Assistant Secretary for Terrorist Financing and Financial Crimes Marshall Billingslea issued a statement in Treasury’s press release that “countries will be called upon to impose further financial restrictions to protect the international financial system if Iran hasn’t ratified and fully implemented the key treaties related to fighting money laundering and terrorist financing.”
The FATF also issued a public statement to clarify that standards adopted last June (InfoBytes coverage here) apply to “stablecoins” and their service providers. Additionally, the FATF adopted changes to its methodology on how it will assess whether countries are complying with the relevant requirements. Specifically, the FATF noted in the plenary meeting outcomes that “assessments will specifically look at how well countries have implemented these measures. Countries that have already undergone their mutual evaluation must report back during their follow-up process on the actions they have taken in this area.”
Additionally, the FATF (i) provided an updated report on measures for combating ISIL and Al-Qaeda financing; (ii) called upon all countries to apply countermeasures on North Korea due to ongoing AML/CFT and weapons of mass destruction proliferation financing risks to the international financial system; and (iii) noted it will publish reports by year end related to AML/CFT and counter-proliferation financing legal frameworks for both Russia and Turkey, along with a review of implementation measures undertaken by the countries.
DOJ charges Turkish bank in Iran sanctions violation scheme
On October 15, the DOJ announced charges against a Turkish bank alleging fraud, money laundering, and sanctions offenses related to the bank’s alleged participation in a scheme to evade U.S. sanctions on Iran. According to the indictment, the bank used money service businesses and front companies to evade U.S. sanctions against Iran and “avoid prohibitions against Iran’s access to the U.S. financial system.” The bank allegedly lied to U.S. regulators and foreign banks about its participation in the fraudulent transactions. The concealed funds, the DOJ claimed, “were used to make international payments on behalf of the Government of Iran and Iranian banks, including transfers in U.S. dollars that passed through the U.S. financial system in violation of U.S. sanctions laws.” Additionally, the DOJ asserted that the conduct—which allowed Iran access to “billions of dollars’ worth of Iranian oil revenue”—was protected by high ranking government officials in Iran and Turkey, some of whom received millions of dollars in bribes to promote and protect the scheme from U.S. scrutiny.
Agencies issue BSA compliance reminder on digital assets
On October 11, the SEC, Commodity Futures Trading Commission (CFTC), and Financial Crimes Enforcement Network (FinCEN) issued a joint statement to remind persons who engage in digital asset activities or handle cryptocurrency transactions of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA). According to the agencies, AML/CFT obligations apply to entities defined as “financial institutions” under the Bank Secrecy Act, which include “futures commission merchants and introducing brokers obligated to register with the CFTC, money services businesses (MSB) as defined by FinCEN, and broker-dealers and mutual funds obligated to register with the SEC.” The obligations include, among other things, (i) establishing and implementing an effective AML program; and (ii) complying with recordkeeping and reporting requirements such as suspicious activity reporting (SARs).
The agencies note that persons who engage in digital asset-related activities may have AML/CFT obligations regardless of the “label or terminology used to describe a digital asset or a person engaging in or providing financial activities or services involving a digital asset.” According to the agencies, the facts and circumstances underlying the asset or service, “including its economic reality and use,” is what determines how the asset is categorized, the applicable regulatory treatment, and whether the persons involved are financial institution under the BSA.
Additionally, FinCEN reminded financial institutions of its supervisory and enforcement authority to “ensure the effectiveness of the AML/CFT regime,” emphasizing that persons who provide money transmission services are MSBs subject to FinCEN regulation. FinCEN also referred to its May 2019 interpretive guidance, which consolidated and clarified current FinCEN regulations, guidance, and administrative rulings related to money transmissions involving virtual currency. (Previous InfoBytes coverage here.)
OFAC sanctions four individuals for corruption in South Africa
On October 10, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13818 against four members of a corruption network in South Africa for alleged corruption violations of the Global Magnitsky Human Rights Accountability Act. According to OFAC, the four individuals “leveraged [their] political connections to engage in widespread corruption and bribery, capture government contracts, and misappropriate state assets.” As a result of the sanctions, all property and interests in property of the designated persons within U.S. jurisdiction must be blocked and reported to OFAC. OFAC notes that its regulations “generally prohibit” U.S. persons from participating in transactions with these individuals and entities.
OFAC settles with multinational corporation for Cuban sanctions violations
On October 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a settlement of more than $2.7 million with a multinational corporation, on behalf of three subsidiaries, to resolve potential civil liability for 289 alleged violations of the Cuban Assets Control Regulations (CACR). The settlement resolves allegations that between December 2010 and February 2014, the subsidiaries accepted payments on 289 occasions from an entity identified on OFAC’s List of Specially Designated Nationals and Blocked Persons “for goods and services provided to a Canadian customer.” OFAC alleged that although the subsidiaries negotiated and entered into contracts with the Canadian customer—and invoices were sent to the customer—the designated entity was approved as a third-party payer and paid more than 65 percent of the total transactions. OFAC asserted that the subsidiaries failed to undertake sufficient diligence into the activities of the Canadian customer, and noted that the sanctions screening software used by the subsidiaries was set to screen for only one version of the designated entity’s name.
In arriving at the settlement amount, OFAC considered various mitigating factors including that (i) OFAC has not issued a violation against the subsidiaries in the five years preceding the earliest date of the transactions at issue; (ii) the corporation identified the alleged violations by testing and auditing its compliance program, and implemented several remedial measures in response to the alleged violations, which included improvements to its compliance program; and (iii) the corporation entered into, and agreed to extend, multiple statute of limitations tolling agreements.
OFAC also considered various aggravating factors, including that (i) the subsidiaries “failed to take proper or reasonable care with respect to their U.S. economic sanctions obligations”; (ii) the subsidiaries’ actions allowed a large volume of high-value transactions to be conducted with the designated entity, causing “substantial harm” to the CACR objectives; and (iii) the corporation’s submissions to OFAC “leave substantial uncertainty about the totality of the benefits conferred” to the designated entity through the Canadian customer.