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OFAC sanctions Iranian officials
On November 23, the U.S. Treasury Department Office of Foreign Assets Control (OFAC)) announced sanctions pursuant to Executive Order 13553 against three Iranian security officials related to the Iranian regime’s continued crackdown on ongoing protests throughout the country, including most recently in Kurdish areas. According to OFAC, the Iranian regime has increased its aggressive actions against the Iranian people as part of its ongoing suppression of peaceful protests against a regime that denies human rights and fundamental freedoms to its people. 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 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 persons designated today could be subject to U.S. sanctions.”
OFAC sanctions persons exploiting Guatemala mining sector
On November 18, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13818 against a Russian national and a Belarusian national, as well as three associated entities, “for their role in exploiting the Guatemalan mining sector.” OFAC noted that the designations demonstrate “the U.S. government’s ongoing commitment to impose tangible and significant consequences on corrupt actors in order to protect the U.S. financial system from abuse,” as well as its commitment “to identifying acts of corruption and promoting accountability for corrupt actors and disrupting their access to the U.S. and international financial system.” As a result of the sanctions, all property and interests in property belonging to the sanctioned persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “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 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 announces sanctions tied to Mexican drug cartel
On November 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 14059 against a Mexican drug cartel and its co-leaders for “having engaged in, or attempted to engage in, activities or transactions that materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.” OFAC attributed its actions in part to a “critical” partnership with the Drug Enforcement Administration and the Mexican government. 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.
OFAC settles with virtual currency exchange to resolve IP address screening deficiencies
On November 28, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $362,158 settlement with a global virtual currency exchange for allegedly exporting services to users who appeared to be located in Iran when they engaged in virtual currency transactions on the exchange’s platform. According to OFAC’s web notice, the exchange’s platform allows users to buy, sell, hold, or exchange cryptocurrencies. Users can also trade fiat currency for cryptocurrency on the platform. The exchange’s anti-money laundering and sanctions compliance program screens customers at onboarding and daily thereafter, and reviews information about IP addresses generated at the time of onboarding to prevent users in sanctioned jurisdictions from opening accounts and conducting transactions. OFAC stated, however, that between October 2015 and June 2019, the exchange allegedly processed 826 transactions totaling roughly $1.6 million on behalf of individuals who appeared to be in Iran when the transactions happened. OFAC maintained that because the exchange failed to implement IP address blocking on transactional activity across its platform, “account holders who established their accounts outside of sanctioned jurisdictions appear to have accessed their accounts and transacted on Kraken’s platform from a sanctioned jurisdiction.” As a result, the exchange allegedly violated the Iranian Transactions and Sanctions Regulations.
In arriving at the settlement amount, OFAC determined that the exchange failed to exercise due caution or care for its sanctions compliance obligations by only applying its geolocation controls at the time of onboarding and not with respect to subsequent transactional activity even though it knew customers were located worldwide.
OFAC also considered various mitigating factors, including that the exchange has not received a penalty notice from OFAC in the preceding five years, the exchange voluntarily self-disclosed the alleged violations and undertook significant remedial measures, such as (i) “adding geolocation blocking to prevent clients in prohibited locations from accessing their accounts” on the exchange’s platform; (ii) implementing blockchain analysis tools to assist with sanctions monitoring; (iii) expanding staff and providing compliance training; (iv) adding “additional screening capabilities to ensure compliance with OFAC’s ‘50 Percent Rule,’ including detailed reports on beneficial ownership; (v) contracting a vendor to assist with the identification and nationality verification through the use of artificial intelligence tools; and (vi) implementing automated controls designed to block certain accounts. In addition, the exchange agreed to invest an additional $100,000 in certain sanctions compliance controls as part of the settlement.
Providing context for the settlement, OFAC stated that this action “highlights the importance of using geolocation tools, including IP blocking and other location verification tools, to identify and prevent users located in sanctioned jurisdictions from engaging in prohibited virtual currency-related transactions”—both at the time of onboarding and throughout the lifetime of the account.
OFAC issues Venezuela-related general licenses
On November 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License (GL) 41 following the resumption of talks in Mexico City to alleviate the suffering of Venezuelan people and restore democracy. GL 41 authorizes certain transactions related to the identified corporation and its subsidiaries’ joint ventures in Venezuela involving Petróleos de Venezuela, S.A (PdVSA) or any entity owned directly or indirectly, 50 percent or more, that would otherwise be prohibited by Executive Order (E.O.) 13850, as amended by E.O.s 13857 or 13884. OFAC noted that GL 41 prevents PdVSA from receiving profits from the oil sales by the identified corporation, and only authorizes certain specific activities. Other Venezuela-related sanctions and restrictions imposed by the U.S. remain in place. Concurrent with the issuance of GL 41, OFAC issued GL 8K, “Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Necessary for the Limited Maintenance of Essential Operations in Venezuela or the Wind Down of Operations in Venezuela for Certain Entities,” as well as two new related FAQs. According to the announcement, “U.S. persons are authorized to provide goods and services for certain activities as specified in GL 41,” and “non-U.S. persons generally do not risk U.S. sanctions exposure for facilitating transactions that are authorized by GL 41.”
OFAC sanctions Iranian companies for petrochemicals and petroleum sales
On November 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 13846, against 13 companies in multiple jurisdictions for their involvement in the sale of Iranian petrochemicals and petroleum products to buyers in East Asia on behalf of sanctioned Iranian petrochemical brokers. According to OFAC, the designations are the fifth round of designations targeting Iran’s illicit petroleum and petrochemical trade since June 2022. 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 sanctions or subject to enforcement. 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.”
OFAC issues Russia-related general licenses
On November 21, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the issuance of Russia-related General License (GL) 13C, which authorizes certain administrative transactions normally prohibited by Directive 4 under Executive Order 14024, Prohibitions Related to Transactions Involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation. According to GL 13C, authorized transactions must be “ordinarily incident and necessary to the day-to-day operations in the Russian Federation of such U.S. persons or entities.” GL 13C also provides a list of transactions that are not authorized.
Earlier, OFAC issued GL 54, which authorizes certain transactions “ordinarily incident and necessary to the purchase or receipt of any debt or equity securities” of the identified company that would normally be prohibited by Executive Order 14071, provided the debt or equity securities were issued before June 6, 2022.
Counter ISIS Finance Group wants group isolated from international financial system
On November 18, the U.S. Treasury Department announced the release of a joint statement by 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 seventeenth meeting on November 8-9 to discuss ongoing efforts to combat ISIS financing worldwide. During the meeting, attendees discussed ISIS financing in the Middle East, Europe, Africa, and South and Southeast Asia, as well as “key systemic vulnerabilities in the global anti-money laundering and countering the financing of terrorism (AML/CFT) regime.” CIFG noted that ISIS facilitators prefer informal funds transfer methods, and to a lesser degree, virtual asset service providers most likely “because they offer anonymity, lack oversight across many jurisdictions, charge relatively low service fees, and often conduct quicker transactions than banks and registered money services businesses.” Attendees also exchanged case studies of recent investigations and prosecutions, and discussed other efforts to implement AML/CFT reforms to disrupt ISIS fundraising and financial facilitation networks. With a focus on international cooperation, CIFG members said they will continue to closely work with counterterrorism partners to disrupt ISIS funding sources and methods.
Treasury seeks to mitigate digital asset financial risks
On November 18, Assistant Secretary for Terrorist Financing and Financial Crimes at the U.S. Department of Treasury Elizabeth Rosenberg spoke before the Crypto Council for Innovation. In her prepared remarks, Rosenberg discussed an Action Plan to Mitigate the Illicit Finance Risks of Digital Assets (the “Action Plan”), which, according to Rosenberg, is a roadmap for how the U.S. government, led by Treasury, will bring greater transparency to the digital asset sector. The Action Plan is issued pursuant to President Biden’s Executive Order 14067 “Ensuring Responsible Development of Digital Assets” (covered by InfoBytes here). Rosenburg noted that the Action Plan identifies seven priority actions, including improving global anti-money laundering/countering the financing of terrorism (AML/CFT) regulation and enforcement, strengthening U.S. supervision of the virtual asset service providers sector, and engaging with the private sector. She emphasized that it is “critical” to work with the private sector, and between private sector entities, to detect and counter illicit finance. Rosenberg noted that to deepen Treasury’s insight, the agency released a Request for Comment (RFC) in September, seeking feedback on the Action Plan, the assessment of illicit financing risks, and opportunities to strengthen public-private collaboration.
As previously covered by InfoBytes, the RFC also sought public feedback on AML/CFT regulation and supervision, global implementation of AML/CFT standards, and central bank digital currencies. Rosenberg discussed two issues addressed in the comment letters: (i) a need for regulatory clarity; and (ii) more public-private engagement. Specifically, she noted that “[m]any of the comments acknowledged that in the United States, virtual asset service providers are subject to a regulatory framework for AML/CFT and have sanctions obligations.” She further noted that “industry commenters identified specific areas, such as questions around decentralized finance (DeFi), where they could benefit from additional regulatory clarity or guidance.” Rosenberg also emphasized that Treasury wants to “ensure that safeguards are in place to promote the responsible development of virtual assets to maintain privacy and shield against arbitrary or unlawful surveillance.” She further noted that the goal and intention of Treasury “is not to deter the development of technologies that provide privacy for virtual asset transfers,” and that Treasury “welcome[s] opportunities to further engage with industry on how these technologies can both promote privacy while also mitigating illicit finance risks and complying with regulatory and sanctions obligations.”
OFAC issues guidance on the Russian price cap policy for crude oil; issues Russia-related general licenses
On November 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published a Determination Pursuant to Executive Order (E.O.) 14071 concerning the implementation of a price cap policy for crude oil of Russian Federation origin. The determination states that the prohibitions of E.O. 14071 apply to U.S. persons providing covered services (including (i) trading/commodities brokering; (ii) financing; (iii) shipping; (iv) insurance, including reinsurance and protection and indemnity; (v) flagging; and (vi) customs brokering) as they relate to the maritime transport of Russian Federation crude oil, provided, however, that such covered services are authorized if the Russian oil is purchased at or below the price cap. Additionally, OFAC published guidance on the implementation of a policy for crude oil of Russian Federation origin to provide an overview of the determination and the price cap. OFAC also issued Russia-related General License (GL) 55, GL 56, and GL 57. GL 55 authorizes certain services related to Sakhalin-2; GL 56 authorizes certain services with respect to the European Union; and GL 57 authorizes certain services related to vessel emergencies.