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Treasury releases study on illicit finance in the high-value art market
On February 4, the U.S. Treasury Department published a study examining the high-value art market’s money laundering and terrorist financing risks to the U.S. financial system. The study also identified efforts U.S. government agencies, regulators, and other market participants should explore to mitigate the laundering of illicit proceeds through this industry. Treasury’s Study of the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art found that while there is some evidence of money laundering risk in the high-value art market, there was limited evidence of a nexus between terrorist financing risk and high-value art (which the study theorizes is in part due “to a disconnect between the high-value art market and the physical geographies where terrorist groups are most active”). Participants most vulnerable to money laundering in the art market, the study noted, are financial services companies that offer art-collateralized loans but that are not subject to comprehensive anti-money laundering/countering the financing of terrorism (AML/CFT) requirements. Banks that facilitate payments between customers and art market institutions also present unique money laundering risks, the study found, while asset-based lending can disguise the original source of funds and provide liquidity to criminals. The study further cautioned that entities with large annual sales turnover present higher money laundering risks, and stressed that the emerging digital art market (including non-fungible tokens or NFTs) “may present new risks, depending on the structure and market incentives of certain activity in this sector of the market.”
To address the identified risks, the study recommended the following: (i) supporting “private sector information-sharing programs to encourage transparency among art market participants”; (ii) “updating guidance and training for law enforcement, customs enforcement, and asset recovery agencies”; (iii) using recordkeeping and reporting authorities to support information collection and money laundering activity analyses; and (iv) “applying comprehensive AML/CFT requirements to certain art market participants.” Treasury noted that it will consider “how these measures could mitigate identified money laundering risk, the potential burden on smaller art market participants, privacy considerations, as well as progress on addressing systemic AML/CFT issues, such as the abuse of shell companies.”
OFAC issues Ethiopia sanctions regulations and amendments for civil penalties
On February 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions regulations pursuant to Executive Order 14046 of September 17, 2021, “Imposing Sanctions on Certain Persons with Respect to the Humanitarian and Human Rights Crisis in Ethiopia.” According to the final rule, OFAC “intends to supplement these regulations with a more comprehensive set of regulations, which may include additional interpretive guidance and definitions, general licenses, and other regulatory provisions.” The regulations become effective February 9, upon publication in the Federal Register.
OFAC also announced that it is amending its regulations to implement the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, which adjusts for inflation the maximum amount of the civil monetary penalties that may be assessed under relevant OFAC regulations. The amendments become effective February 9, upon publication in the Federal Register.
FinCEN releases statement on NPRM for beneficial ownership
On February 8, FinCEN disclosed that the comment period from a December 2021 notice of proposed rulemaking (NPRM) related to the reporting of beneficial ownership information (the “Reporting NPRM”) received more than 230 public comments and is now closed. As previously covered by InfoBytes, in December, FinCEN issued a NPRM implementing the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA), which addressed who must report beneficial ownership information, when to report it, and what information they must provide. FinCEN noted that “the next step in the CTA rulemaking series will be FinCEN’s publication of proposed rules on BOI access and disclosure requirements (the 'Access NPRM'), which FinCEN anticipates publishing later this year.” According to FinCEN, some public comments included requests for the opportunity to submit, supplement, or amend their comments on the Reporting NPRM after having the opportunity to review the Access NPRM.
Treasury says banks need to collaborate to combat corruption
On February 3, U.S. Treasury Department Assistant Secretary for Terrorist Financing and Financial Crimes Elizabeth Rosenberg spoke before the Union of Arab Banks Conference to discuss the importance of working with member institutions in the Middle East and Africa to fight corruption. While noting that countering terrorist financing remains a crucial priority, Rosenberg pointed out that terrorist financing is not the only threat affecting the financial system. “In countries across the region, we have seen trends in which some politically exposed persons have sought to hide their ill-gotten gains through transfers to secondary jurisdictions under both themselves as well as family members’ and associates’ names,” Rosenberg said. “This is something that banks have a responsibility, indeed an obligation, to identify and halt,” she added, emphasizing that “[w]e will all be stronger, more secure, if every bank represented here builds and maintains strong compliance programs” designed to “identify and disrupt the onboarding of customers and the processing of transactions involv[ing] bribes or expropriated government funds.” Rosenberg encouraged the banks to share information on corruption with each other and to ensure enhanced due diligence, especially when dealing with politically exposed persons. “Nearly every act of corruption flows through the formal financial system, the system we are all a part of, which means all of us have the ability—and the responsibility—to stop it,” Rosenberg noted, highlighting the “global corruption boom” in recent decades resulting from individuals seeking to conceal assets and ownerships though shell companies or transactions involving art, real estate, and cryptocurrencies. Rosenberg also informed the banks that as part of the Biden Administration anti-corruption strategy, Treasury “will soon require many U.S. and foreign companies to report their true beneficial owners and to update that information when those beneficial owners change.”
OFAC sanctions Indonesian NGO
On February 3, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224 against a non-governmental organization established by an Indonesia-based designated terrorist group for the purpose of providing financial support to extremists in Syria under the cover of humanitarian aid. According to Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson, “[t]he United States is taking this action to expose and disrupt [the terrorist group’s] deceptive efforts to use a purported ‘humanitarian organization’ for illicit purposes as a front for collecting and transferring funds.” Nelson added that “Treasury will continue to work with foreign partners to protect the non-profit sector from abuse by terrorist groups that disguise illicit finance flows as humanitarian activity.” As a result of the sanctions, all property and interests in property of the sanctioned entity subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are generally 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. OFAC further 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.”
OFAC issues counter terrorism FAQs
On February 2, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published seven new Counter Terrorism-related frequently asked questions (FAQs). Among other things, the FAQs note that: (i) cash shipments to Afghanistan may be authorized under General Licenses (GL) 14, GL 18, or GL 19, provided that certain circumstances are met; (ii) nongovernmental organizations and international organizations may provide support to municipal water systems; (iii) both U.S. and non-U.S. companies may ship food to Afghanistan; and (vi) banks may process financial transfers and other transactions associated with food shipments to Afghanistan.
OFAC sanctions officials and entities connected to Burmese military
On January 31, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 14014 against seven individuals and two entities connected to Burma’s military regime. The sanctions coincide with the one-year anniversary of the military coup d’etat of Burma’s democratically elected government, and are part of a joint action taken with the UK and Canada. Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson stated that the U.S. “will continue to target those responsible for the coup and ongoing violence, enablers of the regime’s brutal repression, and their financial supporters.” As a result of the sanctions, all property and interests in property belonging to the identified persons 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 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 individuals, unless exempt or authorized by a general or specific 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 or the receipt of any contribution or provision of funds, goods, or services from any such person.”
Agencies issue Burma advisory
On January 26, OFAC, along with Departments of State, Commerce, Homeland Security, Labor, and the Office of the U.S. Trade Representative, published a business advisory titled Risks and Considerations for Businesses and Individuals with Exposure to Entities Responsible for Undermining Democratic Processes, Facilitating Corruption, and Committing Human Rights Abuses in Burma (Myanmar), which informs the public of the heightened risks associated with conducting business in Burma, specifically business that involves the military regime. According to the announcement, since the military coup in 2021, the military has engaged in serious human rights abuse against the people of Burma. The specific entities and sectors of greatest concern for corruption and other illicit finance risks include, among other things, state owned enterprise and real-estate and construction projects.
OFAC amends Ukraine-related general licenses and publishes FAQs
On January 24, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued General License (GL) 13Q, “Authorizing Certain Transactions Necessary to Divest or Transfer Debt, Equity, or Other Holdings in GAZ Group,” which replaces and supersedes GL 13P. (Covered by InfoBytes here.) Additionally, OFAC issued GL 15K, “Authorizing Certain Activities Involving GAZ Group,” which replaces and supersedes GL 15J. Both licenses were extended through April 27. OFAC also published seven Ukraine-related FAQs.
OFAC sanctions additional Hizballah financiers
On January 21, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions pursuant to Executive Order 13224 against a Hizballah-affiliated financial facilitator, along with members of an international network of facilitators and companies connected to both the designated individual and a Hizballah-linked financial facilitator sanctioned by OFAC on January 18 (covered by InfoBytes here). According to OFAC, the designated persons evaded sanctions efforts in order to help Hizballah gain access to the international financial system and raise funds to support acts of terrorism and other illicit activities. “Today’s action exposes and targets Hizballah’s misuse of the international financial system to raise and launder funds for its destabilizing activities as the Lebanese people suffer during an unprecedented economic crisis in Lebanon,” Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson stated. “Treasury is committed to disrupting Hizballah’s illicit activity and attempts to evade sanctions through business networks while the group doubles down on corrupt patronage networks in Lebanon.”
As a result of the sanctions, all transactions by U.S. persons or in the U.S. that involve any property or interests in property of designated or otherwise blocked persons are generally prohibited. 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.” U.S. persons are generally 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. OFAC further 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.”