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OFAC issues new Russia-related general licenses
On August 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Russia-related General License (GL) 38A and GL 50. GL 38A authorizes transactions related to pension payments to U.S. persons or non-U.S. persons not located in the Russian Federation that are normally prohibited by Executive Order (E.O.) 14024 “provided that the only involvement of blocked persons is the processing of funds by financial institutions blocked pursuant to E.O. 14024.” GL 50 authorizes “the closing of an account of an individual, wherever located, who is not a blocked person” held at financial institutions blocked pursuant to E.O. 14024. GL 50 also permits “the unblocking and lump sum transfer of all remaining funds and other assets in the account to the account holder, including to an account of the account holder held at a non-blocked financial institution.”
2nd Circuit affirms acquittal of former transportation and energy industry executive
On August 12, the U.S. Court of Appeals for the Second Circuit upheld a lower court’s decision to partially acquit a former executive of a French multinational transportation and energy company after a federal jury found him guilty of seven counts related to the Foreign Corrupt Practices Act (FCPA) and four counts of money laundering. The former executive, a British national, was employed by the company’s U.K. subsidiary and involved in a bribery scheme to secure public contracts in Indonesia for the company’s U.S. subsidiary. The 2nd Circuit agreed that the government failed to prove that the former executive was covered by the FCPA as an agent of a domestic concern, but left the money laundering convictions intact.
In 2019, a jury in the U.S. District Court for the District of Connecticut found the defendant guilty of one count of conspiracy to violate the FCPA, six counts of substantive FCPA violations, and four counts of money laundering, for his involvement in a scheme to bribe Indonesian officials in exchange for granting his company’s U.S. subsidiary, a power generation equipment manufacturer, a power plant construction contract. After the guilty verdict, he filed a Rule 29(a) motion for a judgment of acquittal, arguing as to the FCPA counts that the government “failed to prove that he was an agent of [the subsidiary], the relevant domestic concern.” The 2nd Circuit had previously held that accomplice and co-conspirator liability was not available in the case, leaving agency liability. (Covered by InfoBytes here.)
As previously covered by InfoBytes, in 2020, the district court agreed that the evidence at trial did not establish that the subsidiary exercised “control over [the former executive’s] actions sufficient to demonstrate agency” and acquitted him of the FCPA-related counts after determining that the government failed to prove at trial that the defendant was an “agent” of a domestic concern.
On appeal, a divided three-judge panel affirmed the lower court’s decision, concluding that “[t]here was no explicit or implied agency or employee relationship between [the defendant and the company’s U.S. subsidiary] such that the elements of an agency relationship were proven beyond a reasonable doubt.” The majority held that lack of control held by the subsidiary over the defendant was fundamental in determining whether he was acting as an agent of the subsidiary. A principal’s accountability for the actions of an agent depends on its ability to select and control the agent and terminate the agency relationship, as well as an agent’s agreement to act on the principal’s behalf, the majority wrote. “[T]he fact that [the defendant] collaborated with and supported [the subsidiary and a co-defendant] does not mean he was under their control within the meaning of the FCPA,” the majority explained.
OFAC sanctions Liberian officials
On August 15, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13818 against two Liberian government officials under the Global Magnitsky Human Rights Accountability Act. According to OFAC, the sanctioned individuals are involved in ongoing public corruption in Liberia, and the sanctions are intended “to target[] perpetrators of serious human rights abuse and corruption around the world.” As a result, all property, and interests in property of the designated individuals and entities, “and of any entities that are owned, directly or indirectly, 50 percent or more by them, individually, or with other blocked persons, that are in the United States or in the possession or control of U.S. persons, must be blocked and reported to OFAC.” U.S. persons are generally prohibited from engaging in transactions with the designated persons. OFAC further warned that engaging in certain transactions with the designated individuals entails risk of sanctions.
OFAC sanctions “mixer” for laundering over $7 billion in virtual currency
On August 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13694 against a virtual currency mixer accused of allegedly laundering more than $7 billion in virtual currency since 2019. According to OFAC, this amount includes more than $455 million stolen by a previously sanctioned Democratic People’s Republic of Korea state-sponsored hacking group (covered by InfoBytes here). OFAC stated that the designations resulted from the company “having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, a cyber-enabled activity originating from, or directed by persons located, in whole or in substantial part, outside the United States that is reasonably likely to result in, or has materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States and that has the purpose or effect of causing a significant misappropriation of funds or economic resources, trade secrets, personal identifiers, or financial information for commercial or competitive advantage or private financial gain.” Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson, added that the company “repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis,” and stressed that Treasury “will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.” As previously covered by InfoBytes, in 2020, Treasury’s FinCEN penalized a bitcoin mixer $60 million for violating the Bank Secrecy Act.
As a result of the sanctions, all property and interests in property of the sanctioned entity that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC, as well as “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons.” OFAC noted that its regulations prohibit U.S. persons from participating in transactions with designated persons unless authorized by a general or specific license issued by OFAC or exempt.
Treasury further stressed that players in the virtual currency industry should take a risk-based approach for assessing risks associated with different virtual currency services, implementing measures to mitigate risks, and addressing the challenges anonymizing features can present to anti-money laundering/countering the financing of terrorism sanctions obligations. “[M]ixers should in general be considered as high-risk by virtual currency firms, which should only process transactions if they have appropriate controls in place to prevent mixers from being used to launder illicit proceeds,” Treasury said.
Special Alert: NYDFS fines trading platform for BSA/AML, transaction monitoring, and cybersecurity lapses
The New York Department of Financial Services and a trading platform on Aug. 1 entered into a consent order to resolve deficiencies identified during a 2019 examination and a subsequent investigation by the department’s enforcement section. The consent order focused on deficiencies related to Bank Secrecy Act and anti-money-laundering compliance, transaction monitoring, cybersecurity, and related New York certifications of compliance. The company will pay a $30 million civil monetary penalty and retain an independent consultant that will assist with remediating the issues highlighted in the order and report to NYDFS on remediation progress.
The consent order has far-reaching implications for all financial services companies that come under the jurisdiction of the NYDFS.
The trading platform is a wholly owned subsidiary of a financial services company that offers U.S.-based retail investors the ability to trade stocks, options, and crypto currency on a commission-free basis through its broker-dealer subsidiary. The trading platform is licensed by the NYDFS to engage in virtual currency and money transmitter businesses in New York. Of primary concern for the NYDFS was the platform’s alleged reliance on its parent company’s compliance and cybersecurity programs through enterprisewide systems that the NYDFS found to be inadequate. Additionally, according to NYDFS, the platform allegedly had few to no qualified personnel or management involved in overseeing those programs, which NYDFS has implicitly indicated cannot be outsourced.
OFAC sanctions Russian companies and other entities
On August 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced several new sanctions in response to Russia’s invasion of Ukraine. The new sanctions, issued pursuant to Executive Order 14024, target elites, a major multinational company, a sanctions evasion operation, and a yacht used by a sanctioned individual. The action was taken together with the U.S. Department of State, which imposed additional sanctions on entities and individuals, as well as visa restrictions. 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, and “any entities that are owned, directly or indirectly, 50 percent or more” by the targeted persons are blocked and must be reported to OFAC. Additionally, 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 following day, OFAC issued several new Russia-related General Licenses (GLs). OFAC also published three frequently asked questions regarding “Russian Harmful Foreign Sanctions.”
OFAC sanctions Iranian petrochemical network
On August 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13846 against companies used by one of Iran’s largest petrochemical brokers to facilitate the sale of Iranian petroleum and petrochemical products from Iran to East Asia. The designations follow OFAC sanctions announced on July 6 against a network of individuals and entities for facilitating the delivery and sale of hundreds of millions of dollars’ worth of Iranian petroleum and petrochemical products from Iranian companies to East Asia through a web of Gulf-based front companies (covered by InfoBytes here). As a result of the sanctions, all property and interests in property of the sanctioned persons subject to U.S. jurisdiction, as well as any entities owned 50 percent or more by such persons, are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from entering into transactions with the sanctioned persons. Additionally, OFAC warned that “any foreign financial institution that knowingly facilitates a significant transaction for any of the individuals or entities designated today could be subject to U.S. sanctions.”
U.S.-UK financial regulators discuss bilateral issues
On July 26, the U.S. Treasury Department issued a joint statement covering the recently held sixth meeting of the U.S.-UK Financial Regulatory Working Group. Participants included officials and senior staff from both countries’ treasury departments, as well as regulatory agencies including the Federal Reserve Board, CFTC, FDIC, OCC, SEC, the Bank of England, and the UK’s Financial Conduct Authority. The Working Group discussed, among other things, (i) market developments since the Russian invasion of Ukraine; (ii) continuing international and bilateral cooperation; (iii) the international financial sector priorities at the G7, the G20, the Financial Stability Board (FSB), and the International Organisation of Securities Commissions (IOSCO); (iv) the risks associated with the Non-Bank Financial Intermediation (NBFI) sector and interconnectedness with other financial and non-financial actors; and (v) “the mutual desire to promote multilateral cooperation around risk management in global derivatives and banking markets.” The Working Group participants will continue to engage bilaterally on these issues and others ahead of the next meeting, planned for later this year.
OFAC issues Russia-related sanction, general licenses, and FAQs
On July 21, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced Russia-related General License (GL) 45 and GL 46. GL 45 authorizes transactions related to the wind down of certain financial contracts prohibited by Executive Order (E.O.) 14071. GL 46 authorizes transactions in support of an auction process to settle certain credit derivative transactions prohibited by E.O. 14071. OFAC also announced that it published two new Frequently Asked Questions (FAQs) and two amended FAQs on “Russian Harmful Foreign Activities Sanctions.” Additionally, OFAC added a name to the SDN list.
U.S.-EU release statement on Joint Financial Regulatory Forum
On July 20, EU and U.S. participants, including officials from the Treasury Department, Federal Reserve Board, CFTC, FDIC, SEC, and OCC, participated in the U.S. – EU Joint Financial Regulatory Forum to continue their ongoing financial regulatory dialogue. Matters discussed focused on six themes: “(1) market developments and financial stability risks, (2) sustainable finance and climate-related financial risks, (3) regulatory developments in banking and insurance, (4) regulatory and supervisory cooperation in capital markets, (5) operational resilience and digital finance, and (6) anti-money laundering and countering the financing of terrorism (AML/CFT).”
The statement acknowledged that the Russia/Ukraine conflict, as well as “inflationary pressures”, exposes “a series of downside risks to financial markets both in the EU and in the U.S.” The statement notes that financial markets have so far proven to be “resilient” and stressed that “[i]nternational cooperation in monitoring and mitigating financial stability risks remains essential in the current global environment in light of the negative impacts on global energy and commodities markets.” During the Forum, participants also discussed recent developments related to digital finance and crypto-assets, including so-called stablecoins, as well as potential central bank digital currencies. Additionally, participants discussed various issues related to third-party providers; climate-related financial risks and challenges, including sustainability reporting standards; the transition away from LIBOR; and progress made in strengthening their respective AML/CFT frameworks.