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FinCEN issues statements on its lists of jurisdictions with AML/CFT/CPF deficiencies
On June 23, FinCEN announced that the Financial Action Task Force (FATF) issued public statements updating its lists of jurisdictions with strategic deficiencies in anti-money laundering (AML), countering the financing of terrorism (CFT), and countering the financing of proliferation of weapons of mass destructions (CPF). FATF’s statements include (i) Jurisdictions under Increased Monitoring, “which publicly identifies jurisdictions with strategic deficiencies in their AML/CFT/CPF regimes that have committed to, or are actively working with, the FATF to address those deficiencies in accordance with an agreed upon timeline,” and (ii) High-Risk Jurisdictions Subject to a Call for Action, “which publicly identifies jurisdictions with significant strategic deficiencies in their AML/CFT/CPF regimes and calls on all FATF members to apply enhanced due diligence, and, in the most serious cases, apply counter-measures to protect the international financial system from the money laundering, terrorist financing, and proliferation financing risks emanating from the identified countries.” FinCEN’s announcement also informs members that FATF removed Malta from its list of Jurisdictions under Increased Monitoring and added Gibraltar, and that its list of High-Risk Jurisdictions Subject to a Call for Action continues to subject Iran and the Democratic People’s Republic of Korea to the FATF’s countermeasures.
FAFT restricts Russia’s membership privileges, takes action against corruption and virtual asset misuse
On June 17, the U.S. Treasury Department announced that the Financial Action Task Force (FATF) concluded another plenary meeting, in which it, among other things, took steps to restrict Russia’s FATF membership privileges. During the meeting, FATF again criticized Russia’s war against Ukraine and issued a statement, stressing that “Russian actions run counter to the FATF core principles aiming to promote security, safety, and the integrity of the global financial system. They also represent a gross violation of the commitment to international cooperation and mutual respect upon which FATF Members have agreed to implement and support the FATF standards.” Treasury Secretary Janet Yellen also stated that she “welcome[s] the serious steps the FATF took to restrict Russia’s presence in its community.” FATF members agreed that Russia can no longer hold any leadership or advisory roles, nor take part in decision making on any standard-setting, peer-review processes, governance, or membership matters. Russia is also prohibited from providing assessors, reviewers, or other experts for FATF peer-review processes. FATF stated it “will monitor the situation and consider at each of its Plenary meetings whether grounds exist for modifying these restrictions.”
FATF also produced policy recommendations for combatting corruption and countering corrupt actors or illicit funds. FATF stated it will continue to fight the abuse of shell companies, trusts, or other legal arrangements employed by bad actors, and intends to seek input on guidance to implement recommendations related to the collection and verification of beneficial ownership information for companies or other legal entities. FATF members will release a white paper for public consultation on important issues concerning “the misuse of trusts and other legal arrangements to facilitate illicit finance,” and will published guidance on ways governments and firms can mitigate money laundering risks within the real estate sector.
Additionally, FATF adopted a report on virtual assets during the meeting, calling “for accelerated compliance by the public and private sectors with the FATF standards, particularly the ‘travel rule,’ for virtual assets and virtual asset service providers.” The travel rule requires virtual asset service providers to collect or send information on the identities of the originator and beneficiary of virtual asset transfers. However, FATF noted that, despite some progress, not all countries have introduced the travel rule, creating significant vulnerabilities for criminal misuse and underscoring the need for universal implementation and enforcement of the travel rule. FATF also approved a new project related to ransomware finance and related money laundering, with an objective of raising global awareness and understanding of how payments for ransomware are made and how these proceeds are often laundered.
OFAC sanctions Iranian petrochemical producers and other supporting entities
On June 16, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against a network of Iranian petrochemical producers, as well as front companies in the People’s Republic of China (PRC) and the United Arab Emirates (UAE), for supporting two entities connected to the sale of Iranian petrochemicals abroad. According to OFAC, the designated network "helps effectuate international transactions and evade sanctions, supporting the sale of Iranian petrochemical products to customers in the PRC and the rest of East Asia.” As a result, all property and interests in property of the sanctioned persons subject to U.S. jurisdiction are blocked, 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 sanctions Nicaraguan persons
On June 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13851 against a state-owned Nicaraguan mining company and a high-ranking official for allegedly engaging in actions or policies that are used to “oppress the people of Nicaragua" and engaging "in activities that pose a threat to the security of the hemisphere.” According to OFAC, the company regulates gold mining through the issuance of land concessions to domestic and foreign companies, which feature several joint ventures with private firms. Furthermore, high-ranking members of the government regime have benefitted greatly from Nicaragua’s increase in gold exports, due in large part to the designated mining company. This oppressive regime has engaged in election rigging, OFAC said, and has deepened its relationship with Russia in its war against Ukraine, while using gold revenue to support its activities. As a result, all property and interests in property of the sanctioned individuals and entities, and any entities that own, directly or indirectly, 50 percent or more of such persons subject to U.S. jurisdiction, are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from entering into transactions with the sanctioned persons.
FinCEN issues warning on elder financial exploitation
On June 15, FinCEN issued an advisory alerting financial institutions about the increase of elder financial exploitation (EFE). EFE involves the illegal or improper use of an older adult’s funds, among other things, and is often perpetrated either through theft or scams. According to the advisory, financial institutions filed 72,000 suspicious activity reports in 2021 related to EFE—an increase of 10,000 reports from 2020. The advisory provides updated typologies since FinCEN issued its first advisory on the issue in 2011, and highlights behavioral and financial red flags to aid financial institutions with identifying, preventing, and reporting suspected EFE. The announcement also refers to the risk-based approach to compliance under the Bank Secrecy Act, which provides that “[f]inancial institutions should perform additional due diligence where appropriate and remain alert to any suspicious activity that could indicate that their customers are perpetrators, facilitators, or victims of EFE.”
OCC seeks comments on BSA/AML risk assessment
On June 8, the OCC issued a notice in the Federal Register seeking comments concerning its information collection titled, ‘‘Bank Secrecy Act/Money Laundering Risk Assessment,’’ also known as the Money Laundering Risk (MLR) System. According to the notice, the MLR System “enhances the ability of examiners and bank management to identify and evaluate Bank Secrecy Act/Money Laundering and Office of Foreign Asset Control (OFAC) sanctions risks associated with banks’ products, services, customers, and locations.” The notice stated that the agency will collect MLR information for OCC supervised community and trust banks, and explained that the annual Risk Summary Form (RSF), which collects data about different products, services, customers, and geographies (PSCs), will include three significant changes in 2022. The changes in the 2022 RSF are: (i) the addition of six new PSCs; (ii) the addition of three new customer types under the money transmitters category; and (iii) the deletion of four existing PSCs. Comments close on August 8.
OFAC sanctions members of Russian extremist group
On June 15, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224, as amended, against two key supporters of a Russian extremist group. The U.S. State Department previously designated the extremist group as a Specially Designated Global Terrorist (SDGT) organization in 2020 for having provided training for acts of terrorism. Concurrent with OFAC’s action, the State Department is also designating an individual for posing a significant risk of committing acts of terrorism. According to Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson, the extremist group “has sought to raise and move funds using the international financial system with the intent of building a global network of violent groups that foster extremist views and subvert democratic processes.”
As a result of the sanctions, all property and interests in property belonging to the sanctioned individuals in the U.S. are blocked and must be reported to OFAC. Additionally, “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.” OFAC noted that U.S. persons are prohibited from participating in transactions with the sanctioned persons unless authorized by an OFAC general or specific license or are otherwise exempt.
OFAC further warned that engaging in certain transactions with the designated individuals entails risk of secondary sanctions, and cautioned that it can also “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 either knowingly conducted or facilitated any significant transactions on behalf of a SDGT, or that, among other things, knowingly facilitates a significant transaction for [the extremist group] or certain persons designated for their connection to [the extremist group].”
OFAC issues Russia-related general licenses and FAQs
On June 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Russia-related General License (GL) 8C, which authorizes (with certain enumerated exceptions) transactions related to energy. According to the GL, all transactions prohibited by Executive Order (E.O.) 14024 involving entities that are related to energy are authorized, through December 5, 2022, under certain circumstances. OFAC also published amended FAQs, which provide further information on GL 8C, and clarify Russian sanction information under E.O. 14024, among other things.
U.S., UK collaborate on privacy-enhancing tech prize challenges
On June 13, the White House announced that the U.S. and UK governments are developing privacy-enhancing technology prize challenges to help address cross-border money laundering. The White House highlighted that the estimated $2 trillion of cross-border money laundering which happens annually could be better detected if improvements were made to information sharing and collaborative analytic efforts. However, research shows that this process “is hindered by the legal, technical and ethical challenges involved in jointly analyzing sensitive information,” the White House said. Privacy-enhancing technologies (PETs) could play a transformative role in addressing the global challenges of financial crime, the White House explained, noting that PETs can allow “machine learning models to be trained on high quality datasets collaboratively among organizations, without the data leaving safe environments.” Moreover, “[s]uch technologies have the potential to help facilitate privacy-preserving financial information sharing and analytics,” thus “allowing suspicious types of behavior to be identified without compromising the privacy of individuals, or requiring the transfer of data between institutions or across borders.”
Opening this summer, the challenges (developed between the White House Office of Science and Technology Policy, the U.S. National Institute of Standards and Technology, the U.S. National Science Foundation, the UK’s Center for Data Ethics and Innovation, and Innovate UK) will allow innovators to develop state-of-the-art privacy-preserving federated learning solutions to help combat barriers to the wider use of these technologies without the uncertainty of potential regulatory implications. Innovators will engage with the U.K.’s Financial Conduct Authority and Information Commissioner’s Office and the Financial Crimes Enforcement Network. Acting FinCEN Director Himamauli Das announced that the agency “is pleased to support this important initiative to advance the development of a building block for protecting the U.S. financial system from illicit finance.”
OFAC clarifies certain Russia-related prohibitions
On June 9, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the publication of new Russia-related FAQs. Among other things, the FAQs provide information on the previously issued Determination Pursuant To Section 1(a)(ii) of E.O. 14071, which prohibits “the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in the Russian Federation” unless licensed or otherwise authorized by OFAC (covered by InfoBytes here). Specifically, FAQ 1063 explains that “[t]he prohibitions imposed by the determination do not distinguish between new and existing trusts and companies.” Additionally, FAQ 1067 provides that “[t]he determination does not prohibit U.S. persons from exporting, reexporting, selling, or supplying, directly or indirectly, software to the Russian Federation.”