InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
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.”
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.
Treasury requests feedback on cyberinsurance
On October 7, the U.S. Treasury Department published its Annual Report on the Insurance Industry, as required by the Dodd-Frank Act. The report discussed the U.S. insurance industry’s financial performance and its financial condition for the year ending December 31, 2021, and provided a domestic outlook for the industry for 2022. The report also summarized the Federal Insurance Office’s (FIO) activities and addressed certain matters affecting the domestic and international insurance industry.
Earlier, Treasury issued a request for input in the Federal Register on a potential federal insurance response to catastrophic cyber incidents. According to Treasury, “the comments will inform FIO’s work in responding to a recommendation by the U.S. Government Accountability Office that FIO and the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency jointly assess the extent to which the risks to U.S. critical infrastructure from catastrophic cyberattacks warrant a federal insurance response.” The request stated that cyber insurance is a significant risk transfer mechanism, and that the insurance industry has an important role to play in strengthening cyber hygiene and building resiliency. Comments are due November 14.
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.”
OFAC sanctions wildlife trafficking organized crime group
On October 7, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13581 against a Malaysian national, a wildlife trafficking transnational criminal organization, and a Malaysian company for trafficking endangered wildlife and engaging in poaching. According to OFAC, the Malaysian individual specializes in transporting rhino horn, ivory, and pangolins from Africa, generally utilizing routes through Malaysia and Laos and onward to consumers in Vietnam and China. OFAC noted that the designations were made in collaboration with the U.S. Fish and Wildlife Service, the State Department, and the DOJ. As a result of the sanctions, all property and interests in property belonging to the sanctioned targets 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 50 percent or more by one or more designated persons” are blocked. U.S. persons are prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons.
OFAC sanctions arms dealers for supporting Burma’s military regime
On October 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 14014 against three individuals and one entity connected to Burma’s military regime. According to OFAC, the sanctions target persons who profit from the regime’s oppressive actions, including support networks and war profiteers that enable weapons procurement for the military regime. The same day, the State Department also designated the former Burma police chief and deputy Home Affairs minister under Section 7031(c) of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2022, for his involvement in “gross violations of human rights.” 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 generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons unless authorized by a general or specific OFAC license, or are otherwise exempt.
OFAC sanctions North Korean fuel procurement network
On October 7, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13810 against two individuals and three entities for engaging in activities related to the exportation of petroleum to the Democratic People’s Republic of Korea (DPRK), which directly support the development of DPRK weapons programs and its military. OFAC’s actions build upon other U.S. government actions taken against one of the sanctioned individuals and entities, including criminal charges for conspiring to evade economic sanctions of the DPRK and conspiring to launder money. As a result of the sanctions, all property and interests in property of the sanctioned persons 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 persons, 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 persons may be subject to U.S. correspondent account or payable-through account sanctions. Additionally, persons that engage in certain transactions with the designated persons may themselves be exposed to designations.
OFAC sanctions persons in Bosnia and Herzegovina
On October 3, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 14033 against two individuals and one business entity in Bosnia and Herzegovina (BiH). According OFAC, these designations follow OFAC’s September 26 designation of a corrupt state prosecutor in BiH and build on other recent sanctions imposed on individuals and entities in the region (covered by InfoBytes here). Collectively, OFAC noted that “these actions underscore the United States’ willingness to hold accountable those enabling divisive and destabilizing activities in the Western Balkans.” OFAC further noted that one of the designated individuals is one of the wealthiest individuals in BiH and is the longtime owner of a large engineering firm. According to OFAC, the individual and the firm “have been linked to corruption in the construction sector.” The sanctions also target the Prime Minister of the Federation of Bosnia and Herzegovina for “misus[ing] pensioner data for the benefit of his own political party and contrary to BiH law.” As a result of the sanctions, all property and interests in property belonging to the sanctioned individuals and 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 persons are also blocked.” OFAC further noted that “transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt,” which “include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.”
Treasury reissues Libyan Sanctions Regulations
On September 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a final rule reissuing the Libyan Sanctions Regulations, which were previously published in abbreviated form in 2011. The reissuance of the Libyan Sanctions Regulations includes additional interpretive guidance and definitions, general licenses, and other regulatory provisions that will provide further guidance to the public. includes additional interpretive guidance and definitions, general licenses, and other regulatory provisions that will provide further guidance to the public. The rule is effective immediately.
OFAC reissues Central African Republic Sanctions Regulations and Western Balkans Stabilization Regulations
On September 28, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the reissuance of the Central African Republic Sanctions Regulations and the Western Balkans Stabilization Regulations. OFAC noted that the Central African Republic Sanctions Regulations were previously published in abbreviated form in 2014, and the Western Balkans Stabilization Regulations were originally published in abbreviated form in 2002 and last amended in 2011. The reissued regulations include, among other things, additional interpretive guidance and definitions, general licenses, and other regulatory provisions that will provide further guidance to the public. The regulations are effective immediately.