InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OFAC Updates Cuba-Related FAQs
On July 8, OFAC updated its list of frequently asked questions related to Cuba to add two new FAQs regarding the use of U.S. dollars in certain transactions. New FAQ number 43 clarifies that persons subject to U.S. jurisdiction may use the U.S. dollar to conduct transactions in Cuba or with Cuban nationals if the activity is authorized by or exempt from the Cuban Assets Control Regulations (CACR). FAQ 43 further clarifies that under 31 CFR § 515.584(d), commonly known as the “U-turn” general license, U.S. banking institutions are authorized to process transactions originating and terminating outside the United States provided that neither the originator nor the beneficiary is a person subject to U.S. jurisdiction. This means that transactions related to third-country commerce involving Cuba or Cuban nationals may be processed in U.S. dollars through the U.S. financial system via financial institutions located in the United States that serve as intermediary banks. New FAQ 50 relates to correspondent accounts. Pursuant to a general license in the CACR, U.S. depository institutions are permitted to maintain correspondent accounts at financial institutions that are nationals of Cuba, provided such accounts are used only for transactions that are authorized or exempt under the CACR. FAQ 50 explains that such accounts may be maintained in U.S. dollars, and that transactions necessary to establish and maintain such accounts – including processing funds transfers in U.S. dollars - are authorized. Finally, FAQ 50 notes that financial institutions that are nationals of Cuba remain prohibited from opening correspondent accounts at a U.S. financial institution.
OFAC Imposes Civil Penalty for Export of Medical Supplies to Iran
On June 23, OFAC announced a $107,691.30 settlement with a North Carolina-based medical device company for apparent violations of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (the Regulations). Specifically, the company violated § 560.204 of the Regulations by exporting a number of its medical products to its United Arab Emirates distributor throughout April and May 2011 with the knowledge or reason to know that the products were ultimately destined for Iran. The settlement amount reflects OFAC’s consideration of the following aggravating factors: (i) the company acted willfully by exporting products it knew or had reason to know were ultimately destined for Iran, editing its destination control statement at the request of its distributor and continuing to conduct business with its distributor after receiving confirmation that the distributor had reexported the company’s products to Iran; (ii) the company’s former CEO and International Sales Manager knew the products were ultimately destined for Iran; and (iii) the company did not have a sanctions compliance program at the time of the apparent violations. OFAC considered the following as mitigating factors when determining the settlement amount: (i) limited harm was inflicted on U.S. sanctions program objectives because OFAC likely would have granted the company a license to export the medical products to Iran, had the company sought permission to do so; (ii) the company had no prior OFAC sanctions history; (iii) the company took remedial steps, such as establishing an OFAC compliance program; and (iv) the company “cooperated with OFAC’s investigation and agreed to toll the statute of limitations for a total of 513 days.”
OFAC Updates Iran-Related FAQs
On June 8, OFAC updated its Frequently Asked Questions (FAQs) Relating to the Lifting of Certain U.S. Sanctions Under the Joint Comprehensive Plan of Action (JCPOA). In addition to adding nine FAQs related to Foreign Entities Owned or Controlled by U.S. Persons (see, K.14 through K.22), OFAC added two FAQs, C.15 and C.16, regarding Financial and Banking Measures. Specifically, C.15 clarifies that U.S. financial institutions “can transact with, including by opening or maintaining correspondent accounts for, non-U.S., non-Iranian financial institutions that maintain correspondent banking relationships or otherwise transact with Iranian financial institutions that are not on the SDN List.” Non-U.S. financial institutions remain prohibited from routing Iran-related transactions through U.S. financial institutions or involve U.S. persons in such transactions, unless the transactions are exempt from regulation or licensed by OFAC. FAQ C.16 addresses whether or not a non-U.S., non-Iranian entity may engage in transactions with Iranian persons not on the SDN List if one or more U.S. persons serve on the non-Iranian entity’s Board of Directors or senior managers. While the presence of one or more U.S. persons on the Board of Directors or serving as a senior manager does not, according to C.16, necessarily preclude the entity from transacting with Iranian persons not on the SDN List, OFAC stresses that “U.S. persons must be walled off or “ring-fenced” from Iran-related business.” OFAC recommended that non-U.S., non-Iranian entities consider implementing broad recusal policies to wall off U.S. persons for the institution’s Iran-related business.
OFAC Issues Statement Regarding May Kingpin Act Designations
Last month, OFAC designated as Specially Designated Narcotics Traffickers (SDNTs) an alleged Panamanian money laundering organization and its leaders, as well as six associates who, according to OFAC, provided material support and/or acted on behalf of the organization. OFAC also designated 68 companies connected to the organization, including Felix B. Maduro, S.A., Importadora Maduro, S.A., and Maduro Internacional, S.A. (the “Felix Maduro Group”), for being owned or controlled by the designated individuals. According to a June 1 statement, the Government of Panama is working to sever the SDNTs’ ownership and control of the Felix Maduro Group so as “to protect the Panamanian and U.S. financial systems from abuse.” As such, OFAC advised that it would not impose sanctions on non-U.S. persons for engaging in transactions related to the removal of the SDNTs’ ownership, provided certain conditions are met. Additionally, OFAC advised that to the extent such transactions may involve U.S. persons or implicate U.S. jurisdiction, involved parties should apply for a specific license from OFAC.
OFAC Amends Burmese Sanctions Regulations
On May 17, OFAC amended the Burmese Sanctions Regulations, 31 C.F.R. part 537 by adding a general license to authorize most transactions related to U.S. persons residing in Burma that are otherwise prohibited by the Regulations, including paying rent and purchasing goods and services for personal use. In addition, the amendments add general licenses to (i) extend indefinitely General License 20, which authorizes transactions “ordinarily incident to exports to or from Burma that are otherwise prohibited involving an individual or company that is designated or otherwise blocked by OFAC’s sanctions”; and (ii) support trade-related transactions by permitting certain transactions incident to the movement of goods within Burma. OFAC also updated an existing general license to authorize most banking services involving Innwa Bank and Myawaddy Bank (two currently designated financial institutions in Burma) and terminated sanctions on Myanma Economic Bank, Myanmar Foreign Trade Bank, and Myanma Investment and Commercial Bank, which, taken together, authorizes “most transactions involving all Burmese financial institutions.”
OFAC Updates Cuba-Related Frequently Asked Questions
On April 21, OFAC updated its list of frequently asked questions related to Cuba. The updated document includes eight new FAQs clarifying (i) that Section 515.584(d) of the Cuban Assets Control Regulations (CACR) permits authorized U-turn transactions to originate or terminate at foreign branches and subsidiaries of U.S. banking institutions; (ii) due diligence expectations for banks processing an authorized U-turn transaction from a sanctions compliance perspective; (iii) that the importation into the United States of goods previously exported to Cuba for servicing requires a specific license; (iv) requirements regarding the export and reexportation of mixed-origin goods to Cuba; (v) that persons subject to U.S. jurisdiction may provide insurance-related services to persons subject to U.S. jurisdiction and engaging in authorized activity in Cuba; (vi) OFAC license requirements for insurance-related services; (vii) that educational grants, scholarships, or awards may be given to a Cuban state-owned entity; and (viii) the circumstances under which a person subject to U.S. jurisdiction is authorized to purchase or lease real property in Cuba.
OFAC Issues Hizballah Financial Sanctions Regulations
On April 15, OFAC issued new regulations to implement the Hizballah International Financing Prevention Act of 2015. The regulations authorize the Secretary of the Treasury to prohibit U.S. financial institutions from opening or maintaining correspondent or payable through accounts, or to impose strict conditions on the opening or maintenance of such accounts, for foreign financial institutions determined to knowingly: (i) facilitate significant transactions for or on behalf of Hizballah or any person whose property or interests in property are blocked due to a connection with Hizballah; (ii) engage in money laundering to carry out such transactions; or (iii) facilitate or provide significant financial services in relation to transactions described in (i) and (ii). OFAC will publish the names of foreign financial institutions sanctioned under the Hizballah Financial Sanctions Regulations in the Federal Register, and include them in the Hizballah Financial Sanctions Regulations List, a new list maintained on OFAC’s website. The regulations took effect immediately upon issuance.
OFAC Issues Burundi Sanctions Regulations
On April 14, OFAC issued the Burundi Sanctions Regulations, 31 CFR part 554 to implement the November 22, 2015 Executive Order 13712, “Blocking the Property of Certain persons Contributing to the Situation in Burundi.” OFAC issued the regulations in abbreviated form to provide immediate guidance to the public. The regulations provide limited definitional and interpretive guidance, and contain a number of licenses permitting U.S. persons to engage in activities otherwise prohibited by Executive Order 13712, including, among others, providing legal services and emergency medical services to designated persons. Persons designated pursuant to Executive Order 13712, i.e., those whose property and interests in property are blocked, are published in the Federal Register and incorporated into OFAC’s List of Specially Designated Nationals and Blocked Persons with the identifier ‘[BURUNDI].’” OFAC intends to issue a more comprehensive set of regulations in the future, which may include additional interpretive and definitional guidance, as well as additional general licenses and statements of licensing policy.
Pakistani Bank Reaches Agreement with NYDFS to Enhance AML Compliance Controls
Recently, the Federal Reserve and NYDFS announced that a New York branch of a Pakistani bank agreed to strengthen its compliance with BSA/AML requirements and OFAC regulations. The NYDFS’s and the NY Federal Reserve Bank’s recent examination into the bank’s branch found deficiencies related to its risk management and compliance with BSA/AML and OFAC regulations. Pursuant the agreement, the bank must submit written plans to the NYDFS and the NY Federal Reserve Bank on its strategy to improve its BSA/AML/OFAC compliance and its suspicious activity reporting. In addition, the bank must submit quarterly progress reports to the aforementioned regulators.
The recently issued agreement comes after a similar agreement earlier this month in which a New York branch of a Korean bank agreed to enhance its BSA/AML/OFAC compliance.
President Expands North Korean Sanctions
On March 16, the President issued an Executive Order broadening sanctions in response to North Korea’s continuing pursuit of its nuclear and ballistic missile programs. The order blocks the Government of North Korea and the Workers’ Party of Korea; prohibits the exportation of goods, technology and services (including financial services) to North Korea from the United States; prohibits new investment in North Korea by U.S. persons; and establishes nine new criteria for designation as a blocked person. One provision authorizes the Secretary of the Treasury to identify sectors of the North Korean economy to target for asset blocking sanctions. Under this authority, Treasury Secretary Jacob J. Lew determined that persons in the transportation, mining, energy, or financial services sectors of North Korea can be targeted.
Simultaneously, OFAC designated 17 officials or organizations of the Government of North Korea as SDNs, meaning that all of these persons’ property or interests in property in the United States or the possession or control of a U.S. person are blocked. OFAC also identified 20 vessels as blocked.
Finally, OFAC issued nine general licenses permitting certain activities involving North Korea that would otherwise be prohibited by the new Executive Order. These general licenses authorize, among other activities, noncommercial, personal remittances on behalf of individuals normally resident in North Korea; third-country consular funds transfers and transactions related to intellectual property; and support of non-governmental organizations and telecommunications and mail.