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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.
OFAC settles with bank for alleged Foreign Narcotics Kingpin Sanctions Regulations violations
On July 15, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $430,500 settlement with a subsidiary of a national bank for allegedly processing transactions in violation of the Foreign Narcotics Kingpin Sanctions Regulations. According to OFAC’s web notice, between May 2018 and July 2018, the bank allegedly processed 214 transactions totaling $155,189, in violation of OFAC’s Kingpin sanctions. Specifically, OFAC noted that the processed transactions were for an account whose supplemental card holder was designated in connection with illegal drug distribution and money laundering.
In arriving at the settlement amount of $430,500, OFAC considered various aggravating factors, including that the bank “is a large and sophisticated financial institution with a global presence,” and “conferred $155,189.42 in economic benefit to an account associated with a [person] who was designated for involvement in illegal drug distribution and money laundering.” OFAC also considered various mitigating factors, including that the bank cooperated with OFAC throughout the investigation, and has undertaken remedial measures intended to minimize the risk of recurrence of similar conduct.
Treasury clarifies impact of sanctions on agricultural commodities, agricultural equipment, or medicine relating to Russia
On July 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued a Fact Sheet to clarify that the U.S. has not imposed sanctions on the production, manufacturing, sale, or transport of agricultural commodities, agricultural equipment, or medicine relating to Russia. Additionally, OFAC issued General License (GL) 6B to expand agricultural and medical authorizations to now cover transactions related to agricultural equipment that would normally be prohibited by the Russian Harmful Foreign Activities Sanctions Regulations. OFAC emphasized that U.S. sanctions on Russia issued in response to its war against Ukraine “do not stand in the way of agricultural and medical trade.” OFAC referred to guidance issued in April for more details on authorizations under U.S. sanctions related to agricultural and medical transactions, nongovernmental organization activities, and Covid-19 relief, among others, to support people impacted by Russia’s war (covered by InfoBytes here).
OFAC sanctions Mexican cartel facilitator
On July 11, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to the Foreign Narcotics Kingpin Designation Act against an individual engaged in the trafficking of high-caliber firearms from the U.S. to a Mexican drug organization. According to OFAC, the designated individual acted for or on behalf of a violent drug trafficking organization based in Mexico, which is responsible for a significant proportion of drugs trafficked into the U.S. OFAC further noted that the designation “is the result of ongoing efforts by U.S. agencies and the Government of Mexico to disrupt Mexican drug trafficking organizations’ procurement of weapons, including those sourced in the United States.” As a result of the sanctions, all property belonging to the sanctioned persons 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 of blocked or designated persons.
Agencies release customer relationship and due diligence guidance
On July 6, the FDIC, Federal Reserve Board, FinCEN, NCUA, and OCC issued a joint statement concerning banks’ risk-based approach for assessing customer relationships and conducting customer due diligence (CDD). Specifically, the joint statement reinforces the agencies’ “longstanding position that no customer type presents a single level of uniform risk or a particular risk profile related to money laundering (ML), terrorist financing (TF), or other illicit financial activity.” Banks are reminded that they must apply a risk-based approach to CDD and adopt appropriate risk-based procedures for conducting ongoing CDD when developing risk profiles of their customers. Because customer relationships present varying levels of ML, TF, and other illicit financial activity risks, the agencies advised banks to, among other things, (i) understand the nature and purpose of customer relationships; and (ii) “conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.”
Additionally, banks that comply with applicable Bank Secrecy Act/anti-money laundering (BSA/AML) legal and regulatory requirements and effectively manage and mitigate risks related to the unique characteristics of customer relationships, “are neither prohibited nor discouraged from providing banking services to customers of any specific class or type,” the agencies said, adding that “as a general matter” they will not direct banks to open, close, or maintain specific accounts as they “recognize that banks choose whether to enter into or maintain business relationships based on their business objectives and other relevant factors, such as the products and services sought by the customer, the geographic locations where the customer will conduct or transact business, and banks’ ability to manage risks effectively.” Banks are encouraged “to manage customer relationships and mitigate risks based on customer relationships, rather than decline to provide banking services to entire categories of customers.”
The joint statement is applicable to all customer types referenced in the Federal Financial Institutions Examination Council (FFIEC) BSA/AML Examination Manual, as well as to those not specifically addressed in the manual. These include “independent automated teller machine owners or operators, nonresident aliens and foreign individuals, charities and nonprofit organizations, professional service providers, cash intensive businesses, nonbank financial institutions, and customers the bank considers politically exposed persons.” The agencies reiterated that the joint statement does not alter existing BSA/AML legal or regulatory requirements, nor does it establish new supervisory expectations. Moreover, the FFIEC BSA/AML Examination Manual does not establish requirements for banks, nor should the inclusion of sections on specific customer types be interpreted as a signal that certain customer types present uniformly higher risk.
OFAC sanctions Iranian petrochemical network
On July 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13846 against an international 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. The designations follow OFAC sanctions announced June 16 against a network of Iranian petrochemical producers, as well as front companies in the People’s Republic of China and the United Arab Emirates, working to support Iranian petrochemical sales (covered by InfoBytes here). As a result, all property and interests in property of the sanctioned persons subject to U.S. jurisdiction are blocked and must be reported to OFAC, as well as any entities owned 50 percent or more by such persons. 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.”
OFAC amends Venezuela-related general license
On July 7, the U.S. Treasury Department’s Office of Foreign Assets Control issued Venezuela-related General License (GL) 40A, which authorizes certain transactions involving the exportation or reexportation of liquefied petroleum gas to Venezuela that would otherwise be prohibited by Executive Order (E.O.) 13884, as incorporated into the Venezuela Sanctions Regulations. (Covered by InfoBytes here.) Effective July 7, G.L. 40A replaces G.L. 40, which was issued in July 2021.
OFAC issues Notification of Blocked Property to sanctioned Russian oligarch’s trust
On June 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued a Notification of Blocked Property to a Delaware-based trust in which an OFAC-designated Russian oligarch holds a property interest. As previously covered by InfoBytes, in April 2018, OFAC sanctioned seven Russian oligarchs, including the Russian oligarch who holds a property interest, along with 12 companies they own or control, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its Russian bank subsidiary pursuant to the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA) and Executive Orders 13661, 13662, and 13582. According to OFAC, the trust holds assets valued at over $1 billion; therefore, this enforcement action ensures that those assets continue to be blocked and inaccessible to the OFAC-designated Russian oligarch. As a result of the Notification of Blocked Property, the trust is subject to the same prohibitions applicable to the OFAC-designated Russian oligarch. All transactions by U.S. persons or within (or transiting) the U.S. involving any property or interests in property of designated or otherwise blocked persons are prohibited, unless exempt or authorized by a general or specific license issued by OFAC. These 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 amends Global Terrorism Sanctions Regulations
On June 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a final rule amending the Global Terrorism Sanctions Regulations. Specifically, the final rule “authorizes the Secretary of the Treasury to prohibit the opening, and prohibit or impose strict conditions on the maintaining, in the United States, of a correspondent account or payable-through account of any foreign financial institution that the Secretary of the Treasury, in consultation with the Secretary of State, has determined, on or after September 24, 2001 (the effective date of amended E.O. 13224), has knowingly conducted or facilitated any significant transaction on behalf of any person whose property and interests in property are blocked pursuant to amended E.O. 13224.” The final rule is effective July 1.