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OFAC issues finding of violation to entity for sanctions violations
On October 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the issuance of a Finding of Violation to an international financial entity in Puerto Rico, for violations of the Venezuelan Sanctions Regulations (VSR), and the Reporting, Penalties and Procedures Regulations (RPPR). According to the web notice, OFAC claimed that the entity engaged in three transactions totaling approximately $50,000 in violation of VSR, failed to maintain full and accurate records related to the handling of the blocked accounts in violation of RPPR, and failed to report the blocked accounts accurately. In determining the Finding of Violation, OFAC considered aggravating factors, including that the entity failed to exercise a minimal degree of caution or care when it (i) engaged in transactions involving blocked property without obtaining an OFAC license, even though senior managers at the bank were aware an OFAC license was needed; and (ii) failed to maintain relevant records associated with the bank’s handling of the blocked property, which may have impaired its ability to provide full and accurate information to OFAC. OFAC also considered various mitigating factors, including that the entity has not received a penalty notice from OFAC in the preceding five years, it voluntarily self-disclosed the alleged violations, and it has taken numerous remedial measures.
U.S.-UK sanctions partnership to exchange best practices
On October 17, Andrea Gacki, Director of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), and Giles Thomson, Director of the Office of Financial Sanctions Implementation (OFSI), HM Treasury, announced that in the upcoming months, officials will exchange best practices for enhancing and strengthening the U.S.-UK sanctions partnership. Among other things, OFAC and OFSI officials plan to identify opportunities for pooling expertise, and will explore ways to align the way sanctions are implemented and develop joint products and collaborative guidance to assist stakeholders. Gacki and Thomson noted that work is already underway on developing approaches for addressing shared priorities related to cyber threats, virtual asset misuse, information sharing, and making sure sanctions do not impede humanitarian trade and assistance. Recognizing that financial sanctions are most effective when implemented multilaterally, Gacki and Thomson discussed efforts taken by their respective countries to coordinate and implement sanctions programs, including measures designed to tackle corruption, kleptocracy, and other forms of economic crime. They recognized, however, “that the growing scale of sanctions has increased the complexities of their implementation,” and reiterated their commitment to engage with stakeholders and provide useful sanctions-related information and guidance.
OFAC updates Russia-related general license
On October 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Russia-related General License (GL) 28A, which authorizes certain transactions through January 18, 2023, involving a public joint stock company that are “ultimately destined for or originating from Afghanistan” and that are normally prohibited by Executive Order 14024. OFAC explained that U.S. financial institutions are authorized to operate correspondent accounts on behalf of the company, “or any entity in which [the company] owns, directly or indirectly, a 50 percent or greater interest, provided such accounts are used solely to effect transactions” as authorized by GLA 28A’s specifications. GL 28A replaces and supersedes GL 28 (covered by InfoBytes here).
OFAC sanctions financial facilitators
On October 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order (E.O.) 13224, against a network of financial facilitators who hold leadership roles and are key interlocutors between the group and local companies in Somalia. According to OFAC, the network has engaged in weapons procurement, financial facilitation, and recruitment activities. OFAC further noted that in addition to being leaders within the designated network, these facilitators have had direct contact with other previously designated officials in the network. Concurrent with OFAC’s designations, the U.S. State Department designated five of the network’s leaders pursuant to E.O. 13224, as amended, for their leadership roles within the designated network. As a result of the sanctions, all property and interests in property belonging to the sanctioned 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 also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons. Persons that engage in certain transactions with the individuals or entities designated today may themselves be exposed to designation. Additionally, OFAC warned that engaging with the designated individuals can impose risk of secondary sanction. OFAC also stated that it “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 conducts or facilitates any significant transaction, or provides significant financial services, for any [Specially Designated Global Terrorist].”
OFAC issues Russian sanctions alert
On October 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published a Russia-related alert, Impact of Sanctions and Export Controls on Russia’s Military-Industrial Complex. The alert, issued by OFAC, the Department of Commerce’s Bureau of Industry and Security, and the Department of State, is intended to inform the public of the impact of sanctions and export control restrictions targeting Russia’s defense capabilities and warn of the risks of supporting Russia’s military-industrial complex. The alert also, among other things, outlined efforts taken by OFAC and the State Department involving Russia since February 2022, such as issuing approximately 1,500 new and 750 amended sanctions listings. The alert also described the strategic intent and impact of actions, highlighting efforts “to degrade Russia’s ability to wage its unjust war against Ukraine and prevent Russia from projecting military force beyond its borders.” OFAC also published new Russia-related Frequently Asked Question (FAQ) 1092, which clarifies that “non-U.S. companies risk exposure to sanctions for providing ammunition or other military goods to Russia or for supporting Russia’s military-industrial complex.”
FinCEN provides timing on CTA rulemaking
On October 12, FinCEN acting Director Himamauli Das provided timelines on recent agency efforts to combat financial crime. Speaking during the ACAMS AML Conference, Das pointed to actions taken by bad actors to hide assets behind shell/front companies and evade U.S. sanctions, and highlighted measures, including beneficial ownership information reporting, suspicious activity reporting, and geographic targeting, designed to combat illicit activity. Das also provided an update on recent rulemakings mandated by the Corporate Transparency Act (CTA), including (i) the beneficial ownership reporting rule (which takes effect January 1, 2024, and is covered by InfoBytes here); (ii) the access rule, which would establish protocols for accessing the beneficial ownership database by law enforcement and financial institutions (FinCEN is currently working on the notice of proposed rulemaking and expects to issue it in the near term); and (iii) the Customer Due Diligence rule, which Das said will be revised “no later than one year after the effective date of the reporting rule” as required by the CTA. He added that FinCEN is also developing an “infrastructure to build a secure and confidential database that meets the highest security standards” to ensure only authorized users can access information. This system is expected to be operational by the time the beneficial ownership reporting rule takes effect. Additionally, FinCEN will, among other things, develop guidance and educational materials to assist companies when preparing their beneficial ownership information reports and will continue to regularly update its dedicated resource page on this subject.
OFAC, FinCEN take action against virtual currency exchange
On October 11, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), together with the Financial Crimes Enforcement Network (FinCEN), announced two settlements for more than $24 million and $29 million, respectively, with a Washington state-based virtual currency exchange. According to OFAC’s announcement, this is the agency’s largest virtual currency enforcement action to date, and represent the first parallel actions taken by FinCEN and OFAC in this space.
OFAC settlement. OFAC’s web notice stated that between March 28, 2014 and December 31, 2017, the exchange operated 1,730 accounts that processed 116,421 virtual currency-related transactions totaling roughly $263,451,600.13, in apparent violation of OFAC sanctions against Cuba, Ukraine, Iran, Sudan, and Syria. Specifically, due to alleged deficiencies in the exchange’s sanctions compliance procedures, the exchange failed to prevent persons located in the sanctioned jurisdictions from using its platform to engage in more than $263,000,000 worth of virtual currency-related transactions. OFAC claimed that while the IP addresses and physical address information collected on each customer at onboarding should have given the exchange reason to know that the persons were located in jurisdictions subject to sanctions, the exchange did not “screen customers or transactions for a nexus to sanctioned jurisdictions.” Rather, the exchange only screened transactions for hits against lists including OFAC’s List of Specially Designated Nationals and Blocked Persons. In arriving at the settlement amount of $24,280,829.20, OFAC considered various aggravating factors, including that the exchange did not exercise due caution or care for its sanctions compliance obligations and conveyed economic benefit to persons located in jurisdictions subject to OFAC sanctions, thus causing harm to the integrity of multiple sanctions programs. OFAC also considered various mitigating factors, including that the exchange provided substantial cooperation throughout the investigation, most of the transactions were for a relatively small amount and represented a small percentage when compared to the exchange’s annual volume of transactions, and the exchange has undertaken remedial measures intended to minimize the risk of recurrence of similar conduct.
FinCEN settlement. According to FinCEN’s press release, an investigation found that from February 2014 through December 2018, the exchange failed to maintain an effective AML program, resulting in its inability to appropriately address risks associated with its products and services, including anonymity-enhanced cryptocurrencies. The exchange also failed to effectively monitor transactions on its trading platform, and relied “on as few as two employees with minimal anti-money laundering training and experience to manually review all of the transactions for suspicious activity, which at times were over 20,000 per day.” FinCEN claimed that the exchange conducted more than 116,000 transactions valued at over $260 million with persons located in jurisdictions subject to OFAC sanctions, including those operating in Iran, Cuba, Sudan, Syria, and the Crimea region of Ukraine, and failed to file suspicious activity reports (SARs) between February 2014 and May 2017. The exchange also “failed to file SARs on a significant number of transactions involving sanctioned jurisdictions, including the processing of over 200 transactions that involved $140,000 worth of virtual assets—nearly 100 times larger than the average withdrawal or deposit on the Bittrex platform—and 22 transactions involving over $1 million worth of virtual assets,” FinCEN said in its announcement. Under the terms of the consent order, the exchange—which admitted to willfully violating the Bank Secrecy Act (BSA) and its implementing regulations—will pay a $29,280,829.20 civil money penalty. FinCEN stated it will credit the $24,280,829.20 the exchange has agreed to pay for the OFAC violations.
During remarks delivered at the Association of Certified Anti-Money Laundering Specialists, Under Secretary for Terrorism and Financial Intelligence Brian Nelson discussed, among other topics, Treasury’s efforts to counter illicit finance. Nelson highlighted the aforementioned settlements, stressing that failing to comply with BSA/AML requirements and SARs filing obligations “are not something that companies focused on growth can simply put off to a later day.” He also emphasized that Treasury will continue to strengthen ties with interagency partners and international counterparts to identify and pursue potential violations.
FINRA alerts firms about rising ACATS fraud
On October 6, FINRA issued Regulatory Notice 22-21, alerting member firms to the rising trend of fraudulent account transfers of customer accounts using the Automated Customer Account Transfer Service (ACATS)—an automated system that facilitates the transfer of customer account assets from one member firm to another. FINRA explained that “ACATS fraud is related to the growing threat of new accounts being opened online or through mobile applications using stolen or synthetic identities,” and may occur when the identity of a legitimate customer of a carrying member is stolen by a bad actor to open a brokerage account online or through a mobile app at a receiving member. Bad actors, FINRA warned, may open a new account using stolen information only or through a combination of stolen and false information, and will try to move the ill-gotten assets to an external account at a different financial institution. FINRA reminded members of regulatory obligations that may apply to ACATS fraud, including know-your-customer rules, Bank Secrecy Act/AML requirements, and the Identity Theft Red Flags Rule.
FinCEN extends FBAR filing deadline for natural disaster victims
On October 6, the Financial Crimes Enforcement Network (FinCEN) issued a notice extending the deadline to February 23, 2023 for victims of certain recent natural disasters to file their reports of Foreign Bank and Financial Accounts (FBAR) for the 2021 calendar year (ordinarily due on or before October 15, 2022). The expanded relief is offered to victims impacted by Hurricane Fiona in Puerto Rico, Hurricane Ian in Florida, North Carolina, and South Carolina, and storms and floods in parts of Alaska. If FEMA later designates additional areas as eligible for individual assistance, FBAR filers in those locations will automatically receive the same filing relief. FinCEN also stated that it will work with FBAR filers who live outside the designated disaster areas but may have trouble meeting their filing obligations because their records are located in the affected areas.
OFAC sanctions Iranian leaders
On October 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 13553, against seven senior leaders within Iran’s government and security apparatus for the shutdown of Iran’s Internet access and the ongoing violence against peaceful protesters following the death of a 22-year old who died in the custody of Iran’s Morality Police. OFAC noted that the designations follow the September 22 sanctions against Iran’s Morality Police along with seven senior leaders who oversee Iran’s security organizations (covered by InfoBytes here). Collectively, and with the release of Iran General License D-2 (covered by InfoBytes here), which authorizes exports of additional tools to assist Iranians in accessing the Internet, these sanctions “show the United States’ commitment to free, peaceful assembly and open communication.” As a result of the sanctions, all property and interests in property belonging to the sanctioned 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 also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons. Persons that engage in certain transactions with the individuals or entities designated today may themselves be exposed to designation. Additionally, OFAC warned that “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals designated today could be subject to U.S. sanctions.”