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OFAC expands Russian sanctions
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) recently announced several actions targeting Russia’s attempts to circumvent or evade sanctions and implemented other economic measures to degrade the country’s capacity to wage its war against Ukraine. In coordination with the G7 and other international partners, OFAC implemented several new commitments to cut Russia off from revenue streams and key inputs needed to equip its military. The sanctions target 22 individuals and 104 entities with touchpoints in more than 20 countries or jurisdictions with involvement in the technology, energy, and financial services sectors. OFAC also expanded sanctions authorities to target new sectors of Russia’s economy and sever the country’s access to several new categories of services. Additional sanctions-related measures include the designation or identification as blocked property of nearly 200 individuals, entities, vessels, and aircraft by the State Department. Concurrently, the Commerce Department significantly expanded the territorial reach and categories covered by its export controls and added 71 entities to its Entity List to prevent Russia from accessing goods needed for its war.
OFAC noted that it also expanded its Russia-related sanctions authorities through the issuance of a determination that identifies the architecture, engineering, construction, manufacturing, and transportation sectors of the Russian economy pursuant to Executive Order (E.O.) 14024. The determination complements existing sanctions authorities and allows for additional economic costs to be imposed on Russia and for sanctions to be imposed on any person determined to operate of have operated in any of the sectors. OFAC issued a second determination pursuant to E.O. 14071 (effective June 18) to prohibit the “exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of architecture services or engineering services to any person located in the Russian Federation.” (See new OFAC FAQs and general licenses here.)
Additionally, OFAC amended Directive 4 under E.O. 14024 “to require U.S. persons to report to OFAC any property in their possession or control in which the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation has an interest.”
Earlier in the month, OFAC also announced sanctions against a Russian ransomware actor for being complicit in cyberattacks against U.S. law enforcement, businesses, and critical infrastructure. OFAC commented that analysis conducted by FinCEN found that “75 percent of ransomware-related incidents reported between July and December 2021 were linked to Russia, its proxies, or persons acting on its behalf.”
As a result of the sanctions, all property and interests in property of the designated persons that are in the U.S. or in the possession or control of U.S. persons must be blocked and reported to OFAC. Additionally, “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 its regulations “generally prohibit” U.S. persons from participating in transactions with designated persons unless exempt or otherwise authorized by a general or specific license.
OFAC reaches $3.3 million settlement with cosmetics company for Iranian sanctions violations
The U.S Treasury Department’s Office of Foreign Assets Control (OFAC) recently announced settlements with a California-based cosmetics company and a former senior company executive to resolve potential civil liability stemming from allegations that the company participated in a conspiracy to export goods and services from the United States to Iran over roughly an eight-year period. According to OFAC’s web notice, the company entered into an exclusive agreement with an Iranian distributor to sell products in the Middle East, specifically in Iran, without ever receiving a specific license or other applicable OFAC guidance to do so. OFAC maintained that these exported products (for which the company requested a license), were neither generally authorized nor exempt from prohibition. During a later acquisition, the company again applied for, but did not receive, a specific license to export products to Iran. The company knew that an OFAC license was required to lawfully export the products to Iran but continued to do so through departments generally overseen by the former senior company executive, OFAC said, adding that prior to the acquisition, the company did not disclosure the exports or its involvement with Iran, nor was this conduct discovered during pre-acquisition due diligence. By conspiring to export approximately $11.1 million worth of goods to Iran over approximately eight years, the company allegedly violated the Iranian Transactions and Sanctions Regulations.
In arriving at the settlement amount, OFAC considered, among other things, that the company willfully violated U.S. sanctions by exporting its products and services to Iran, despite having knowledge that such conduct was prohibited, and that senior company officials had actual knowledge of the alleged misconduct. The $3.3 million settlement (of which the former senior company executive is responsible for $175,000) reflects that while the company voluntarily self-disclosed the apparent violations, the violations constitute an egregious case. OFAC also considered several mitigating factors, including that: (i) the company has undertaking remedial measures to prevent future misconduct; (ii) the overall percentage represented by its sales to Iran is small; (iii) the company has not received a penalty notice from OFAC in the preceding five years; (iv) the company cooperated with OFAC during the investigation and agreed to toll the statute of limitations; and (v) the former senior company executive’s violations involved the export of benign consumer goods.
Providing context for the settlement, OFAC said, among other things, that the “case highlights that U.S. sanctions on Iran encompass a wide range of potentially violative conduct, including the formation and execution of conspiracies to engage in prohibited activities such as exporting goods to Iran and causing such exports to occur.” OFAC reminded businesses that “placement of a U.S. entity under the compliance structure of a non-U.S. entity that may lack sufficient familiarity with U.S. sanctions laws could prevent the prompt identification of and response to potentially prohibited conduct.”
U.S. and EU enter bilateral sanctions partnership
On May 16, the United States and the European Union entered into a bilateral partnership to strengthen working relationships and share sanctions expertise to address foreign policy goals. The U.S.-EU partnership’s foundation is premised on a collaborative approach for financial sanctions, in which the U.S. Treasury Department’s Office of Foreign Assets Control, the European External Action Service, and the European Commission Directorate-General for Financial Stability, Financial Services and Capital Markets Union will continue to work closely with partners around the world to ensure financial sanctions are fully contributing to member countries’ policy goals. Emphasizing that “[s]anctions are most effective when coordinated with a broad range of international partners who can magnify the economic and political impact,” Treasury stressed the importance of multilateral implementation to maximize the effectiveness of sanctions while minimizing unintended costs and compliance burdens.
OFAC announces new Sudan E.O., issues and amends several sanctions general licenses and FAQs
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) recently announced several sanctions-related actions, including President Biden’s new Executive Order (E.O.) Imposing Sanctions on Certain Persons Destabilizing Sudan and Undermining the Goal of a Democratic Transition. The E.O. expands the scope of a 2006 Executive Order following the determination that recent events in Sudan “constitute an unusual and extraordinary threat to the national security and foreign policy of the United States.” The E.O. outlines specific prohibitions and provides that all property and interests in property that are in the U.S. or that later come in the U.S., or that are in the possession or control of any of the identified U.S. persons must be blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in. Concurrently, OFAC issued a new FAQ clarifying which sanctions authorities are applicable to Sudan and the Sudanese government.
OFAC also issued Venezuela-related General License (GL) 42, which authorizes certain transactions related to the negotiation of settlement agreements with the IV Venezuelan National Assembly and certain other entities. The authorized transactions must relate to debt owed by the Venezuelan government, Petróleos de Venezuela, S.A., or any entity owned, directly or indirectly, 50 percent or more. GL 42 does not authorizes transactions involving the Venezuelan National Constituent Assembly convened by Nicolas Maduro or the National Assembly seated on January 5, 2021. OFAC also released three new related FAQs and one amended FAQ.
Additionally, OFAC released cyber-related GL 1C, which authorizes certain transactions with Russia’s Federal Security Service that would normally be prohibited by the Weapons of Mass Destruction Proliferators Sanctions Regulations, and issued three amended cyber-related FAQs. A few days later, OFAC issued Russia-related GL 8G, which authorizes certain transactions related to energy that would otherwise be prohibited by E.O. 14024, involving certain entities, including Russia’s central bank. OFAC clarified that GL 8G does not authorize prohibited transactions related to (i) certain sovereign debt of the Russian Federation; (ii) the “opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity subject to Directive 2 under E.O. 14024, Prohibitions Related to Correspondent or Payable-Through Accounts and Processing of Transactions Involving Certain Foreign Financial Institutions”; and (iii) or “[a]ny debit to an account on the books of a U.S. financial institution of the Central Bank of the Russian Federation,” among others.
OFAC announces drug cartel sanctions
On May 9, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 14059, against four individuals involved in the fentanyl trade, along with two related Mexico-based entities. According to OFAC, the sanctioned persons are part of a Sinaloa Cartel network responsible for trafficking a significant portion of fentanyl and other drugs into the United States. OFAC coordinated with the Mexican government, the FBI, the DEA, and Homeland Security to take this action. As a result of the sanctions, all property and interests in property belonging to the sanctioned individuals and entities 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. Additionally, OFAC warned that “persons that engage in certain transactions with the individuals and entities designated today may themselves be exposed to sanctions or subject to an enforcement action.”
OFAC sanctions Iranian senior officials for wrongfully detaining U.S. nationals
On April 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 14078, against four senior officials of Iran’s Islamic Revolutionary Guard Corps Intelligence Organization (IRGC-IO). The IRGC-IO was concurrently designated by the State Department for its involvement in the hostage-taking or wrongful detention of U.S. nationals in Iran. OFAC also implemented the State Department’s designation of Russia’s Federal Security Service as well as the IRGC-IO for their role in wrongfully detaining U.S. nationals abroad. As a result of the sanctions, all property and interests in property of the designated persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked.” OFAC’s announcement further noted that its 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 institutions and persons that engage in certain transactions with the designated persons may themselves be exposed to sanctions or subject to enforcement.
OFAC, Turkey sanction terrorist financing facilitators
On May 2, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced, pursuant to Executive Order 13224, a joint action with the Republic of Turkey to designate two financial facilitators of Syria-based terrorist groups. The terrorist groups have both been sanctioned by the U.S. and the United Nations. The action demonstrates OFAC’s continued cooperation with Turkey to restrict the financing of terrorist groups that perpetuate violence and instability throughout the region. According to the announcement, the Turkish Ministry of Treasury and Finance and the Turkish Ministry of Interior concurrently implemented an asset freeze against the sanctioned individuals. As a result of the sanctions, all property interests belonging to the sanctioned individuals and entities that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC, as well as “any entities that are owned, directly or indirectly, 50 percent or more by them, individually, or with other blocked persons.” U.S. persons are generally prohibited from engaging in any dealings involving the property interests of blocked or designated persons, and persons that engage in certain transactions with the designated individuals may themselves be exposed to sanctions. OFAC further stated that it “can prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account of a foreign financial institution that knowingly conducted or facilitated any significant transaction on behalf of a Specially Designated Global Terrorist.”
OFAC adds more sanctions linked to timeshare fraud
On April 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 14059, against seven individuals and 19 Mexican companies connected to timeshare fraud on behalf of the Cartel de Jalisco Nueva Generacion (CJNG). The CJNG—a Mexico-based organization responsible for trafficking a significant proportion of illicit fentanyl and other drugs that enter the U.S.—is also designated under E.O. 14059. OFAC explained that timeshare fraud often targets older U.S. citizens to scam victims of their life savings and is an important revenue stream for the group’s criminal enterprise. The designations build on sanctions imposed on several other companies in April (covered by InfoBytes here) and continue OFAC’s efforts to disrupt CJNG’s timeshare fraud network.
As a result of the sanctions, all property and interests in property of the designated persons located in the U.S. or held by U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons unless authorized by an OFAC-issued general or specific license, or exempt. OFAC further warned that “U.S. persons may face civil or criminal penalties for violations of E.O. 14059 and the Kingpin Act.”
OFAC reaches $7.6 million settlement with online digital-asset trading platform
On May 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a roughly $7.6 million settlement with a Massachusetts-based online trading and settlement platform to resolve potential civil liability stemming from allegations that the platform allowed customers in sanctioned jurisdictions to engage in digital asset-related transactions. According to OFAC’s web notice, between January 2014 and November 2019, the platform allegedly permitted customers to make more than $15.3 million in trades, deposits, and withdrawals, despite having reason to know that the customers’ locations—based on both Know Your Customer (KYC) information and internet protocol address data—were in jurisdictions subject to comprehensive OFAC sanctions. OFAC noted that although the platform implemented a sanctions compliance program to screen new customers, it did not retroactively screen existing customers, thus allowing these customers to continue to conduct trading activity. While the platform made efforts to identify and restrict accounts with a nexus to certain sanctioned jurisdictions, compliance deficiencies resulted in the platform processing 65,942 online digital asset-related transactions for 232 customers apparently located predominantly in Crimea, but also in Cuba, Iran, Sudan, and Syria.
In arriving at the settlement amount, OFAC considered, among other things, that the platform failed to exercise due caution or care for its sanctions compliance obligations and had reason to know that certain customers were located in sanctioned jurisdictions. Additionally, the settlement amount reflects that the platform did not voluntarily disclose the apparent violations. OFAC also considered several mitigating factors, including that: (i) the platform was a small start-up when most of the apparent violations occurred; (ii) the platform has not received a penalty notice from OFAC in the preceding five years; (iii) the platform cooperated with OFAC during the investigation and undertook numerous remedial measures; and (iv) the volume of apparent violations represented a very small percentage of the total volume of transactions conducted on the platform annually.
Providing context for the settlement, OFAC said the “action highlights that online digital asset companies—like all financial service providers— are responsible for ensuring that they do not engage in transactions prohibited by OFAC sanctions, such as providing services to persons in comprehensively sanctioned jurisdictions. To mitigate such risks, online digital asset companies should develop a tailored, risk-based sanctions compliance program.”
OFAC reaches $508 million settlement with British tobacco company on North Korean transactions
On April 25, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $508 million settlement with one of the world’s largest tobacco companies to resolve potential civil liabilities stemming from allegations that the company sent more than $250 million in profits from a North Korean joint venture through U.S. financial institutions by relying on designated North Korean banks and several intermediaries. According to OFAC’s web notice, from 2007 to 2016, the London-headquartered company formed a conspiracy to export tobacco and related products to North Korea, and remitted approximately $250 million in payments from the North Korean joint venture. The payments were allegedly remitted through bank accounts controlled by sanctioned North Korean banks to the company’s Singaporean subsidiary via U.S. banks who cleared the transactions. By causing U.S. financial institutions to process wire transfers containing blocked property interests of sanctioned North Korean banks in order to export financial services and facilitate the export of tobacco, the company violated the Weapons of Mass Destruction Proliferators Sanctions Regulations and the North Korea Sanctions Regulations, OFAC said.
According to OFAC, the settlement is the largest ever reached with a non-financial institution and reflects the statutory maximum penalty due to OFAC’s determination that the company’s conduct was egregious and not voluntarily self-disclosed. In arriving at the settlement amount, OFAC determined, among other things, that the company and its subsidiaries willfully conspired to transfer hundreds of millions of dollars related to North Korea through U.S. financial institutions while being aware that U.S. sanctions regulations prohibited this conduct. The company and its subsidiaries also allegedly “relied on an opaque series of front companies and intermediaries” to conceal their North-Korea-related business, with management having actual knowledge about the alleged conspiracy from the beginning. OFAC also considered various mitigating factors, including that the company has not received a penalty notice from OFAC in the preceding five years, and that the company cooperated with OFAC and agreed to toll the statute of limitations.
Providing context for the settlement, OFAC said that this action demonstrates that “creating the illusion of distance between a firm and apparently violative conduct does not shield that firm from liability.” Moreover, “[s]enior management decisions to approve or otherwise support arrangements that obscure dealings with sanctioned countries and parties can be reflected throughout an organization, compounding sanctions risks and increasing the likelihood of committing potential violations.”
Concurrently, the DOJ announced that the company and one of its subsidiaries have agreed to pay combined penalties of more than $629 million to resolve bank fraud and sanctions violations charges stemming from the aforementioned conduct. According to the DOJ, the subsidiary pleaded guilty to a criminal information charging both entities with conspiracy to commit bank fraud and conspiracy to violate the International Emergency Economic Powers Act. The company entered into a deferred prosecution agreement related to these charges.