InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OFAC reaches settlement with Puerto Rican bank to resolve Venezuela sanctions violations
On May 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $225,937 settlement with a Puerto Rican bank for allegedly violating the Venezuela Sanctions Regulations. According to OFAC’s web notice, the bank allegedly processed 337 transactions totaling $853,126 on behalf of two low level employees of the Government of Venezuela (GoV). The apparent violations allegedly resulted from the bank’s maintenance of four personal accounts operated by these two employees that should have been blocked by Executive Order (E.O.) 13884 (which blocks property and interests in property of the GoV, including “‘any person owned or controlled, directly or indirectly,’ by the GoV, and ‘any person who has acted or purported to act directly or indirectly for or on behalf of’ any such entity”). OFAC stated that the two GoV individuals also did not meet the criteria for authorized transaction exemptions under General License 34A and found that the bank failed to identify the customers for 14 months following the issuance of E.O. 13884.
In arriving at the settlement amount, OFAC considered various aggravating factors, including, among other things, that (i) the bank maintained documentation showing that the two individuals were low-level GoV employees but delayed identifying them; and (ii) the bank has more than $61 billion in assets. OFAC also considered various mitigating factors, including that the bank (i) took remedial action to ensure compliance with OFAC sanctions; (ii) created more robust sanctions-related procedures; (iii) developed additional resources and guidance in connection to sanctions alert review and disposition; (iv) added staff to oversee OFAC sanctions matters; (v) reviewed policies and procedures for identifying, reviewing, and reporting transactions that violate OFAC’s regulations; and (vi) enhanced its sanctions screening trainings. The bank also voluntarily self-disclosed the apparent violations to OFAC and cooperated with OFAC’s investigation.
Providing context for the settlement, OFAC stated that this action “demonstrates the importance of financial institutions conducting timely due diligence…following the issuance of new sanctions prohibitions.”
OFAC sanctions North Koreans and issues Venezuela general license
On May 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13382 against one individual, two banks, and a trading company connected to the Democratic People’s Republic of Korea’s (DPRK) development of weapons of mass destruction (WMD) and ballistic missile programs and to the U.S.-designated DPRK national airline. According to OFAC, the U.S. is “committed to seeking dialogue and diplomacy with the DPRK but will continue to address the threat posed by the DPRK’s unlawful WMD and ballistic missile programs to the United States and the international community.” As a result of the sanctions, all property and interests in property of the sanctioned individuals and entities subject to U.S. jurisdiction are blocked and must be reported to OFAC. OFAC noted that its regulations generally prohibit U.S. persons from participating in transactions with the designated person, including transactions transiting the U.S. OFAC’s announcement further warned that any foreign financial institution that knowingly facilitates significant transactions or provides significant financial services for any of the designated individuals or entities may be subject to U.S. correspondent account or payable-through account sanctions.
The same day, OFAC issued Venezuela- related General License 8J, which authorizes certain transactions involving Petróleos de Venezuela, S.A. (PDVSA) that were previously prohibited under prior Executive Orders to the extent such transactions and activities are “necessary for the limited maintenance of essential operations in Venezuela or the wind down of operations in Venezuela for certain entities,” among other things.
OFAC issues new Russia-related general license, will not renew general license concerning debt or equity dealings with certain Russian financial institutions
On May 25, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Russia-related General License (GL) 13A, “Authorizing Certain Administrative Transactions Prohibited by Directive 4 under Executive Order 14024.” Specifically, GL 13A permits U.S. persons, or entities owned or controlled, directly or indirectly, by a U.S. person “to pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, or certifications” for certain transactions normally prohibited by Directive 4, “provided such transactions are ordinarily incident and necessary to the day-to-day operations in the Russian Federation of such U.S. persons or entities.” GL 13A expires September 30 at 12:01 am EDT.
The day before, OFAC announced that provisions of GL 9C, issued pursuant to the Russian Harmful Foreign Activities Sanctions Regulations (RuHSR), will not be renewed. As previously covered by InfoBytes, GL 9C was issued last month to authorize transactions “ordinarily incident and necessary to dealings in debt or equity” issued before February 24, 2022 involving certain Russian financial institutions that would otherwise be prohibited by the RuHSR. GL 9C expires on May 25 at 12:01 am EDT.
OFAC sanctions Hizballah financial facilitator
On May 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224 against a Lebanese businessman and Hizballah financial facilitator, as well as five of his associates and eight of his companies in Lebanon and Iraq. According to OFAC, the sanctions “illuminate[] Hizballah’s modus operandi of using the cover of seemingly legitimate businesses to generate revenue and leverage commercial investments across a multitude of sectors to secretly fund Hizballah and its terrorist activities.” OFAC also highlighted Hizballah’s practice of building “a web of businesses” with “opaque ownership structures” to “hide its activities and generate funds for its destabilizing activities.” According to Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson, the “designation of this network demonstrates the U.S. government’s commitment to protect Lebanon’s private sector and financial system from Hizballah’s abuse by targeting and exposing the group’s financial activities.”
As a result of the sanctions, all property and interests in property of the designated individuals and entities within U.S. jurisdiction must be blocked and reported to OFAC. OFAC further noted that its regulations “generally prohibit” U.S. persons or persons within the U.S. from participating in transactions with the designated persons unless exempt or authorized by a general or specific OFAC license. OFAC also warned that the agency “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] or, among other things, knowingly facilitates a significant transaction for Hizballah or certain persons designated for their connection to Hizballah.”
OFAC announces Hamas sanctions
On May 24, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against a Hamas finance official as well as an expansive network of three Hamas financial facilitators and six companies that have generated revenue for the terrorist group through the management of an international investment portfolio. According to OFAC, Hamas’s Investment Office, whose leadership oversees the sanctioned network, has assets totaling over $500 million, including companies operating in Sudan, Turkey, Saudi Arabia, Algeria, and the United Arab Emirates (UAE). As a result of the sanctions, all property and interests in property belonging to the sanctioned entities subject to U.S. jurisdiction are blocked and must be reported to OFAC. Additionally, any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked person 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. The designated entities are also subject to secondary sanctions pursuant to Executive Order 13224, which authorizes OFAC to “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.”
Agencies release risk advisory for businesses operating in Sudan
On May 23, the U.S. Departments of Treasury, State, Commerce, and Labor issued an advisory, Risks and Considerations for U.S. Businesses Operating in Sudan, highlighting growing risks to American businesses and individuals associated with conducting business with Sudanese State-Owned Enterprises. According to the advisory, the risks outlined come from recent actions undertaken by Sudan’s Sovereign Council and security forces under the military’s control and could adversely impact U.S. businesses, individuals, other persons, and their operations in the country and the region. The advisory also noted that the U.S. recently imposed sanctions on the Central Reserve Police (CRP) for serious human rights abuse under Executive Order 13818. As previously covered by InfoBytes, OFAC noted that, the “CRP has used excessive force against pro-democracy protesters peacefully demonstrating against the military-led overthrow of the civilian-led transitional government in Sudan.” As a result of the sanctions, all property and interests in property belonging to the sanctioned person subject to U.S. jurisdiction are blocked and must be reported to OFAC. OFAC also noted that its regulations generally prohibit all dealings by U.S. persons that involve any property or interests in property of designated persons.
SEC charges broker-dealer with SAR violations
On May 20, the SEC announced charges against the broker-dealer affiliate of a national bank for allegedly failing to file Suspicious Activity Reports (SARs) in a timely manner in violation of the Securities Exchange Act and Rule 17a-8. According to the SEC’s order, the broker-dealer’s internal anti-money laundering (AML) transaction monitoring and alert system allegedly failed to reconcile the different country codes used to monitor foreign wire transfers due to an alleged failure to test a new version of the system. The broker-dealer also allegedly did not timely file SARs related to suspicious transactions in its customers’ brokerage accounts involving the wire transfers to or from foreign countries that it determined to be at a high or moderate risk for money laundering, terrorist financing, or other illegal money movements. Additionally, in April 2017, the broker-dealer allegedly failed to timely file additional SARs due to a failure to appropriately process wire transfer data into its AML transaction monitoring system in certain other situations. In addition to the $7 million penalty, the institution, without admitting or denying the SEC’s findings, agreed to a censure and a cease-and-desist order.
OCC releases enforcement actions
On May 19, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included is a cease and desist order against an Alaska-based bank for allegedly engaging in Bank Secrecy Act/anti-money laundering (BSA/AML) program violations. The bank allegedly “failed to adopt and implement a compliance program that adequately covers the required BSA/AML program elements, including, in particular, internal controls for customer due diligence and procedures for monitoring suspicious activity, BSA officer and staff, and training.” The order requires the bank to, among other things, establish a compliance committee, submit a BSA/AML action plan, and develop a written suspicious activity monitoring and reporting program.
Counter ISIS Finance Group continues efforts to isolate ISIS from international financial system
On May 17, the U.S. Treasury Department announced the release of a joint statement by members of the Counter ISIS Finance Group (CIFG) of the Global Coalition to Defeat ISIS, which coordinates efforts to isolate the Islamic State of Iraq and Syria (ISIS) from the international financial system and eliminate revenue sources. CIFG held its sixteenth meeting on May 9 to discuss ongoing efforts to combat ISIS financing worldwide. According to the statement, the Coalition is focusing “on disrupting international ISIS funds transfers and dismantling ISIS finance networks that support extremist activities, including terrorist attacks, militant recruitment, and promotion of violent ideology.”
During the meeting, participants discussed that, despite having access to at least 25 million U.S. dollars in reserves, ISIS Core in Syria and Iraq is struggling to meet its financial obligations, as its expenditures exceed its income. CIFG also noted that Africa has emerged as a center of gravity for ISIS, and “the branches and networks in Africa generally have precarious finances and typically rely on local fundraising schemes.” CIFG further stressed the importance to “remain vigilant” to “deepen our understanding of ISIS’s financial operations, emerging financial threats, and activities.”
Treasury says foreign financial institutions risk sanctions if they provide material support to Russia
On May 13, Deputy Secretary of the Treasury Wally Adeyemo warned representatives from several foreign financial institutions about the risks of aiding Russia in evading sanctions imposed by the U.S. and its allies following the country’s invasion of Ukraine. Adeyemo emphasized that institutions may face “sanctions exposure for providing material support to a sanctioned entity,” and stressed that the U.S. Treasury Department’s Office of Foreign Assets Control “expects all financial institutions to do their own due diligence to ensure they are not transacting with a sanctioned person.”