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Treasury official warns Turkish companies on engaging with Russian entities
On February 3, Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson, met with the Banks Association of Turkey to discuss international sanctions actions against Russia for its war against Ukraine. Nelson highlighted global illicit finance challenges and stressed the importance of addressing weaknesses within the financial system “to root out financial crime, shine light on the financial shadows that illicit actors exploit, and work toward a more equitable and inclusive global economy.” Nelson commented on potential areas for cooperation between Turkish banks and the broader international finance community, pointing to opportunities for the U.S. and Turkey to work together to mitigate anti-money laundering vulnerabilities in the real estate sector. He also focused on Russia’s “abuse of the global financial system to fund” its war in Ukraine as a main factor in international cooperation for preventing Russia from circumventing sanctions and financial controls “in dozens of countries, including [Turkey].” While Nelson recognized Turkey’s reliance on Russian energy and agriculture, he said that “the marked rise over the past year in non-essential Turkish exports or re-exports to Russia makes the Turkish private sector particularly vulnerable to reputational and sanctions risks.” Engaging with sanctioned Russian entities puts Turkish banks and businesses “at risk of sanctions and a potential loss of access to G7 markets and correspondent relationships,” Nelson stressed, calling upon Turkish financial institutions to conduct “enhanced due diligence” in all transactions with Russian entities and individuals—especially within vulnerable sectors.
OFAC sanctions evasion network supporting Russia’s military-industrial complex
On February 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced it is imposing “full blocking sanctions against 22 individuals and entities across multiple countries related to a sanctions evasion network supporting Russia’s military-industrial complex.” The sanctions, taken pursuant to Executive Order 14024, are part of the United States’ strategy to target sanctions evasion efforts around the globe, shut down key backfilling channels, expose facilitators and enablers, and limit Russia’s access to revenue to fund its war against Ukraine. “Targeting proxies is one of many steps that Treasury and our coalition of partners have taken, and continue to take, to tighten sanctions enforcement against Russia’s defense sector, its benefactors, and its supporters,” Deputy Secretary of the Treasury Wally Adeyemo said. The sanctions are part of Treasury’s ongoing commitment to the Russian Elites, Proxies, and Oligarchs Task Force, which identifies, freezes, and seizes assets of sanctioned Russians around the world, and leverages information sharing between international partners as well as key data from the Financial Crimes Enforcement Network.
As a result of the sanctions, all property and interests in property belonging to the sanctioned persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific OFAC license. Prohibitions “include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.”
OFAC sanctions suppliers of Iranian UAVs used in Russia’s war against Ukraine
On January 6, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions pursuant to Executive Order 13382 against six executives and board members of a U.S.-designated Iranian defense manufacturer allegedly responsible for designing and producing unmanned aerial vehicles (UAVs) that are being transferred by Iran for use in Russia’s war against Ukraine. The director of a key organization responsible for overseeing Iran’s ballistic missile programs has also been sanctioned. OFAC further announced that it is updating the defense manufacturer’s entry on the Specially Designated Nationals and Blocked Persons List to include its new alias. As a result of the sanctions, all property and interests in property 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. Further, “any entities that are owned, directly or indirectly, 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. Persons that engage in certain transactions with the designated individuals or entities may themselves be exposed to sanctions, and “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today pursuant to E.O. 13382 could be subject to U.S. sanctions.”
FinCEN data reveals Russian oligarchs’ financial activity
On December 22, the Financial Crimes Enforcement Network (FinCEN) issued a Financial Trend Analysis on the financial activity of Russian oligarchs. In the analysis, FinCEN examined Bank Secrecy Act (BSA) reports from March 2022 to October 2022 involving Russian oligarchs, high-ranking officials, and sanctioned individuals. FinCEN identified 454 reports detailing suspicious activity and reported that some of the trends in the data by Russian oligarchs included: (i) the movement of funds around the start of the invasion of Ukraine in February 2022; (ii) the purchase of high-value goods or property in 2022; and (iii) based on the movement of funds from accounts in Russia to other countries, an indication of potential changes in longstanding oligarch-linked financial flows related to U.S. properties and companies. FinCEN noted that 78 percent of the 454 BSA reports were filed by U.S.-based depository institutions. Other types of financial institutions—such as holding companies or financial technology companies—submitted roughly 19 percent of reports, mainly on suspicious electronic funds transfers or wire transfers and suspicions concerning the source of funds.
Treasury announces price cap on Russian crude oil
On December 2, the U.S. Treasury Department announced an agreement entered into by the 27 member states of the European Union and the members of the G7 (collectively, the “Price Cap Coalition”), which adopts a price cap on seaborne Russian crude oil in an effort to restrict Russian revenue streams for its war in Ukraine. According to the announcement, beginning next week, the Price Cap Coalition will impose a ban on a range of services, including maritime insurance and trade finance, related to the maritime transport of Russian crude oil unless purchasers buy the oil at or below the $60/barrel cap. Starting February 5, 2023, this ban will also extend to the maritime transport of Russian-origin petroleum products unless they are sold at or below a yet-to-be-announced price cap. As previously covered by InfoBytes, last month OFAC published guidance on the price cap policy for Russian crude oil. According to Treasury’s announcement, the guidance clarifies that the price cap policy’s “‘safe harbor’ for service providers through the recordkeeping and attestation process is designed to shield such service providers from strict liability for breach of sanctions in cases where service providers inadvertently deal in the purchase of Russian oil sold above the price cap owing to falsified or erroneous records provided by those who act in bad faith or make material misrepresentations.” OFAC also published a Determination Pursuant to Executive Order 14071 officially announcing the price cap on December 5.
OFAC sanctions individuals and networks supporting Russia’s invasion
On November 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 14024 against a total of 14 individuals and 28 entities, including a transnational network that procures technology in support of Russia’s military-industrial complex, and “a global network of financial facilitators, enablers, and others associated with two key Kremlin-linked elites whose fortunes are intertwined with the West.” OFAC also identified eight aircrafts as blocked property. “The United States will continue to expose and disrupt the Kremlin’s military supply chains and deny Russia the equipment and technology it needs to wage its illegal war against Ukraine,” Treasury Secretary Janet L. Yellen said in the announcement. “Together with our broad coalition of partners, we will continue to use our sanctions and export controls to weaken Russia’s military on the battlefield and cut into the revenue Putin is using to fund his brutal invasion.” As a result of the sanctions, all property and interests in property belonging to the sanctioned persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific OFAC license.
In conjunction with the sanctions, OFAC issued Russia-related General License (GL) 40C related to civil aviation safety. GL 40C authorizes certain transactions normally prohibited by E.O. 14024 that are “ordinarily incident and necessary to the provision, exportation, or reexportation of goods, technology, or services to ensure the safety of civil aviation involving one or more of the blocked entities” provided the “aircraft is registered in a jurisdiction solely outside of the Russian Federation.”
Treasury official discusses cyber threats to financial sector
On November 1, Deputy Secretary of the Treasury Wally Adeyemo provided an update during the semi-annual joint session of the Financial and Banking Information Infrastructure Committee (FBIIC) and the Financial Services Sector Coordinating Council (FSSCC) on Treasury’s efforts to protect the agency and the financial sector from cyber threats. Adeyemo noted that actions taken to safeguard national security include “modernizing Treasury’s IT systems with an elevated cybersecurity threat focus, as well as ramping up partnerships with the financial and regulatory sectors far ahead of Russia’s unprovoked invasion of Ukraine to ensure swift, coordinated responses to thwart cyber attacks.” He further stressed the importance of fortifying these partnerships and remaining vigilant to heightened threats. Adeyemo also discussed how Russia’s invasion of Ukraine demonstrated the interconnectedness of the global financial sector and why enhancing operational resilience in major global banking hubs and vulnerable regions is a top priority for the Department. He called on FBIIC senior leaders to continue to drive Treasury’s “successful cloud and data protection workstreams forward,” while also building new initiatives focusing on other urgent, systemic risk issues that include the participation of FSSCC partners. “Reporting cybersecurity issues and vulnerabilities early and often enables us to better protect the broader financial sector,” Adeyemo said.
OFAC sanctions Russian military technology procurement network
On October 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 14024 against a Russian military technology procurement network for allegedly procuring military and sensitive dual-use technologies from U.S. manufacturers and supplying them to Russian end-users. The individual and his two companies are designated as part of a joint action with the DOJ and FBI and highlights the U.S. government’s on-going “efforts to hinder Russia’s ability to wage its war of aggression in Ukraine, including by holding accountable those who support Russia’s military by disrupting its illicit defense and technology procurement networks around the world.” The action builds upon an October 14 alert issued by OFAC and the Department of Commerce’s Bureau of Industry and Security and the Department of State, which details the impact of international sanctions and export controls (covered by InfoBytes here). The alert followed the convergence of top officials representing ministries of finance and other government agencies from 33 countries who met to discuss the effects of international sanctions and export controls on Russia’s military-industrial complex and critical defense supply chains.
As a result of the sanctions, all property and interests in property belonging to the sanctioned persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, 50 percent or more in the aggregate by one or more of such persons are also blocked.” U.S. persons are prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific OFAC license.
The same day, the DOJ (with the support of the Department’s Task Force KleptoCapture) unsealed indictments against nearly a dozen individuals and several entities, including the sanctioned Russian national and his two companies, accused of scheming to export military technologies to Russia.
OFAC issues Russian sanctions alert
On October 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published a Russia-related alert, Impact of Sanctions and Export Controls on Russia’s Military-Industrial Complex. The alert, issued by OFAC, the Department of Commerce’s Bureau of Industry and Security, and the Department of State, is intended to inform the public of the impact of sanctions and export control restrictions targeting Russia’s defense capabilities and warn of the risks of supporting Russia’s military-industrial complex. The alert also, among other things, outlined efforts taken by OFAC and the State Department involving Russia since February 2022, such as issuing approximately 1,500 new and 750 amended sanctions listings. The alert also described the strategic intent and impact of actions, highlighting efforts “to degrade Russia’s ability to wage its unjust war against Ukraine and prevent Russia from projecting military force beyond its borders.” OFAC also published new Russia-related Frequently Asked Question (FAQ) 1092, which clarifies that “non-U.S. companies risk exposure to sanctions for providing ammunition or other military goods to Russia or for supporting Russia’s military-industrial complex.”
OFAC, FinCEN take action against virtual currency exchange
On October 11, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), together with the Financial Crimes Enforcement Network (FinCEN), announced two settlements for more than $24 million and $29 million, respectively, with a Washington state-based virtual currency exchange. According to OFAC’s announcement, this is the agency’s largest virtual currency enforcement action to date, and represent the first parallel actions taken by FinCEN and OFAC in this space.
OFAC settlement. OFAC’s web notice stated that between March 28, 2014 and December 31, 2017, the exchange operated 1,730 accounts that processed 116,421 virtual currency-related transactions totaling roughly $263,451,600.13, in apparent violation of OFAC sanctions against Cuba, Ukraine, Iran, Sudan, and Syria. Specifically, due to alleged deficiencies in the exchange’s sanctions compliance procedures, the exchange failed to prevent persons located in the sanctioned jurisdictions from using its platform to engage in more than $263,000,000 worth of virtual currency-related transactions. OFAC claimed that while the IP addresses and physical address information collected on each customer at onboarding should have given the exchange reason to know that the persons were located in jurisdictions subject to sanctions, the exchange did not “screen customers or transactions for a nexus to sanctioned jurisdictions.” Rather, the exchange only screened transactions for hits against lists including OFAC’s List of Specially Designated Nationals and Blocked Persons. In arriving at the settlement amount of $24,280,829.20, OFAC considered various aggravating factors, including that the exchange did not exercise due caution or care for its sanctions compliance obligations and conveyed economic benefit to persons located in jurisdictions subject to OFAC sanctions, thus causing harm to the integrity of multiple sanctions programs. OFAC also considered various mitigating factors, including that the exchange provided substantial cooperation throughout the investigation, most of the transactions were for a relatively small amount and represented a small percentage when compared to the exchange’s annual volume of transactions, and the exchange has undertaken remedial measures intended to minimize the risk of recurrence of similar conduct.
FinCEN settlement. According to FinCEN’s press release, an investigation found that from February 2014 through December 2018, the exchange failed to maintain an effective AML program, resulting in its inability to appropriately address risks associated with its products and services, including anonymity-enhanced cryptocurrencies. The exchange also failed to effectively monitor transactions on its trading platform, and relied “on as few as two employees with minimal anti-money laundering training and experience to manually review all of the transactions for suspicious activity, which at times were over 20,000 per day.” FinCEN claimed that the exchange conducted more than 116,000 transactions valued at over $260 million with persons located in jurisdictions subject to OFAC sanctions, including those operating in Iran, Cuba, Sudan, Syria, and the Crimea region of Ukraine, and failed to file suspicious activity reports (SARs) between February 2014 and May 2017. The exchange also “failed to file SARs on a significant number of transactions involving sanctioned jurisdictions, including the processing of over 200 transactions that involved $140,000 worth of virtual assets—nearly 100 times larger than the average withdrawal or deposit on the Bittrex platform—and 22 transactions involving over $1 million worth of virtual assets,” FinCEN said in its announcement. Under the terms of the consent order, the exchange—which admitted to willfully violating the Bank Secrecy Act (BSA) and its implementing regulations—will pay a $29,280,829.20 civil money penalty. FinCEN stated it will credit the $24,280,829.20 the exchange has agreed to pay for the OFAC violations.
During remarks delivered at the Association of Certified Anti-Money Laundering Specialists, Under Secretary for Terrorism and Financial Intelligence Brian Nelson discussed, among other topics, Treasury’s efforts to counter illicit finance. Nelson highlighted the aforementioned settlements, stressing that failing to comply with BSA/AML requirements and SARs filing obligations “are not something that companies focused on growth can simply put off to a later day.” He also emphasized that Treasury will continue to strengthen ties with interagency partners and international counterparts to identify and pursue potential violations.