InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OFAC Updates Cuban Assets Control Regulations
On March 15, OFAC issued a final rule updating the Cuban Assets Control Regulations (CACR), 31 C.F.R. Part 515. The amendments advance policy changes announced by the Obama administration in 2014 by further facilitating travel to Cuba for authorized purposes, expanding the range of authorized financial transactions, and authorizing business and physical presence in Cuba. Regarding financial transactions, the final rule (i) amends section 515.584(d) to authorize certain U-turn payments through the U.S. financial system; (ii) adds new section 515.584(g) to allow U.S. banking institutions to process U.S. dollar monetary instruments presented indirectly by Cuban financial institutions; and (iii) adds new section 515.584(h) to “authorize banking institutions to open and maintain accounts solely in the name of a Cuban national located in Cuba for the purposes only of receiving payments in the United States in connection with transactions authorized pursuant to or exempt from the prohibitions of this part and remitting such payments to Cuba.”
OFAC’s amendments to the CACR were published in the Federal Register on March 16, 2016 and are effective immediately. OFAC simultaneously released a revised set of FAQs and a fact sheet regarding the changes set forth in the CACR.
OFAC Issues Finding of Violation for Alleged Violations of the Reporting, Procedures, and Penalties Regulations
On March 16, OFAC issued a Finding of Violation to a New York-based international digital payments solutions and technology company for allegedly violating the Reporting, Procedures and Penalties Regulations (RPPR), 31 C.F.R. part 501. According to OFAC, the company failed to report that it held accounts – albeit dormant – in which two Iranian banks on OFAC’s SDN List had an interest. OFAC asserted that, while no company personnel appeared to have knowledge of the conduct that led to the violations, the company had reason to know that it maintained funds associated with the sanctioned Iranian banks because it is “a large and commercially sophisticated company that deals primarily with banks and other financial institutions.” OFAC also noted that the company’s failure to report the accounts resulted in OFAC’s reports to Congress being incomplete, that the failure to record interest on the accounts reduced the value of the blocked accounts, and that the company apparently did not have internal controls sufficient to prevent or identify the violations. On the other hand, OFAC acknowledged that there was no actual knowledge of the violations or a history of similar violations, that the funds did not reach the sanctioned parties, and that the company eventually disclosed the issue and then fully cooperated with the investigation.
OFAC Announces Settlement with London-Based Financial Institution for Alleged Violations of the Zimbabwe Sanctions Regulations
On February 8, OFAC settled with a London-based financial institution for alleged violations of the Zimbabwe Sanctions Regulations, 31 C.F.R. part 541 (ZSR). The financial institution agreed to pay $2,485,890 for processing 159 transactions to or through financial institutions located in the United States for or on behalf of corporate customers of the financial institution’s Zimbabwean subsidiary that were owned, directly or indirectly, 50% or more by a customer identified on OFAC’s SDN List. According to OFAC, the financial institution relied on the subsidiary’s electronic customer records and documentation to perform cross-border transactions screenings and sanctions-related customer screening. Due to deficiencies in the subsidiary’s electronic customer system and its “Know Your Customer” procedures, neither the financial institution nor its subsidiary detected certain customers as blocked persons – under Executive Order 13469 of July 25, 2008 – on the SDN List and “continued to process [U.S. Dollar] transactions for or on their behalf to or through the United States in apparent violation of the ZSR.” OFAC determined that the company did not voluntarily self-disclose the apparent violations, and that the apparent violations constitute a non-egregious case. In determining the settlement amount, OFAC found the following to be mitigating factors: (i) the financial institution had not received a penalty notice or Finding of Violation in five years preceding the earliest date of the transactions giving rise to the apparent violations; (ii) the financial institution took remedial action in response to the apparent violations; and (iii) the financial institution substantially cooperated with OFAC’s investigation. In addition, OFAC “considered the fact that the prohibited entities were not publicly identified or designated and included on the SDN List at the time that Barclays processed transactions for or on their behalf.”
OFAC Issues Finding of Violation for Alleged Violations of Sudanese Sanctions Regulations
On February 4, OFAC announced that a subsidiary of a New Jersey-based manufacturer violated the Sudanese Sanctions Regulations, for a period of 7 months in 2010, by facilitating the exportation of goods to Sudan by coordinating and supervising shipments of goods from an Egyptian branch of the company to Khartoum, Sudan. Pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, OFAC issued a Finding of Violation to the subsidiary based in part on the following “aggravating” factors: (i) acting with reckless disregard for U.S. sanctions requirements by making exports to Sudan when it knew it may be subject to restrictions under U.S. sanctions; (ii) failing to properly take into consideration the implications of OFAC regulations – even though it is part of a corporation with experience in international trade – when it restructured its consumer business and placed a U.S. company in charge of sales to Sudan; and (iii) failing to include in its compliance program training on OFAC regulations for its General Manager, who was responsible for sales to Sudan. OFAC also determined that the subsidiary’s General Manager for Emerging Markets in the Middle East and North Africa was not only aware of but also involved in conduct giving rise to the violations. OFAC issued a Finding of Violation in lieu of a civil money penalty, after considering various mitigating factors, including the subsidiary’s effort to take remedial action, such as implementing additional compliance training and conducting an internal investigation of the violations, the absence of a prior OFAC sanctions history and its cooperation with OFAC’s investigation.
OFAC Issues Amendments to Cuba Sanctions Regulations
On January 26, OFAC announced amendments to the Cuban Assets Control Regulations (CACR) to further implement policy changes announced by the Obama Administration on December 17, 2014. The regulatory changes will, among other things, “remove existing restrictions on payment and financing terms for authorized exports and reexports to Cuba of items other than agricultural items and commodities, and establish a case-by-case licensing policy for exports and reexports of items to meet the needs of the Cuban people, including those made to Cuban state-owned enterprises.” Significantly, under the amendments, U.S. depository institutions will be authorized to provide financing for authorized exports and reexports, including issuing a letter of credit. Prior to the amendments, cash-in-advance or third-country financing were the only financing options available for authorized exports.
OFAC issued new FAQs to address the amended CACR, which were published in the Federal Register on January 27, 2016 and are effective immediately.
Iran Sanctions: Treasury Comments on JCPOA Implementation Day
On January 16, the Department of the Treasury issued a statement regarding Implementation Day under the Joint Comprehensive Plan of Action (JCPOA), the plan reached between the P5+1 (the United States, China, France, Russia, the United Kingdom, and Germany), the European Union, and Iran concerning Iran’s nuclear program. In response to Iran taking the appropriate nuclear-related measures, the United States followed through on lifting nuclear-related “secondary sanctions” on Iran, which included certain financial and banking-related sanctions. To summarize the effect of Implementation Day, OFAC issued guidance and FAQs. As outlined in the FAQs and in addition to lifting the nuclear-related “secondary sanctions,” the United States removed more than 400 individuals and entities from OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List). Still, as Treasury Secretary Lew noted, “other than certain limited exceptions provided for in the JCPOA, the U.S. embargo broadly remains in place, meaning that U.S. persons, including U.S. banks, will still be prohibited from virtually all dealings with Iranian entities.”
OFAC Publishes Cyber-Related Sanctions Regulations
On December 31, OFAC issued regulations to implement Executive Order 13694 of April 1, 2015, “Blocking the Property of Certain Persons Engaging in Significant Malicious Cyber-Enabled Activities.” Effective immediately, the regulations prohibit all transactions prohibited by Executive Order 13694, including dealing in the property or interests in property, that come within the United States, of blocked persons. Among other things, under Executive Order 13694, a party may be blocked if the U.S. government finds the party “to be responsible for or complicit in, or to have engaged in, directly or indirectly, cyber-enabled activities originating from, or directed by persons located, in whole or in substantial part, outside the United States that are reasonably likely to result in, or have materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States” and that have one of the purposes or effects enumerated in the Order. More information on the Executive Order is available here. OFAC’s Specially Designated Nationals (SDN) List will include persons blocked pursuant to the Executive Order and regulation. OFAC intends to supplement the new regulations with a more comprehensive set of regulations, “which may include additional interpretive and definitional guidance, regarding ‘cyber-enabled’ activities, and additional general licenses and statements of licensing policy.”
OFAC Updates SDN and Blocked Persons List
On December 22, OFAC updated its Specially Designated Nationals (SDNs) list to identify additional persons and entities with which U.S. citizens and permanent residents are prohibited from doing business and whose assets or interests in assets must be frozen if they come within the jurisdiction of the U.S. OFAC’s update to the SDN list names 34 individuals and entities under Ukraine-related sanctions and authorities. In addition, OFAC identified – under the Sectoral Sanctions Identifications List – a number of subsidiary companies that are at least 50% owned by two previously-sanctioned banks and/or one previously-sanctioned defense company.
New York DFS Announces Enforcement Action Against Pakistan-Based Bank's New York Branch
On December 17, the New York DFS announced an enforcement action against a New York branch of a Pakistan-based bank. The Federal Reserve Bank of New York (FRBNY) and the DFS recently conducted an examination of the branch and found significant risk management and compliance failures with regard to state and federal laws, rules, and regulations relating to anti-money laundering (AML) compliance. Under the terms of the DFS’s order, the branch agreed to reform its policies and procedures to ensure compliance with AML laws. Per the order, the bank must submit to the DFS, within 60 days of the order, a number of written programs regarding its (i) corporate governance and management oversight; (ii) BSA/AML compliance review; (iii) customer due diligence; and (iv) suspicious activity monitoring and reporting. The branch must also hire an independent third-party approved by the DFS and the FRBNY to review the effectiveness of the bank’s compliance program, and to prepare a written report of its findings, conclusions, and recommendations for the program. Because the branch’s compliance with OFAC regulations was insufficient, the order also mandates that the bank retain an independent third-party to examine its U.S. dollar-clearing transactions between October 2014 and March 2015. Significantly, the order does not require the branch to pay a civil money penalty.
OFAC Authorizes Certain Transactions and Activities to Liquidate Honduras-Based Bank, Replaces Previously Issued General License
On December 8, OFAC announced that it issued a revised General License replacing a previously issued license to a Honduras-based bank, which OFAC designated as a Specially Designated Narcotics Trafficker. The General License authorizes certain transactions and activities to assist with the liquidation and winding down of the bank. The revised General License permits liquidation-related transactions and activities that are otherwise prohibited by the Foreign Narcotics Kingpin Sanctions Regulations through 12:01 a.m. on June 12, 2016, with the following exceptions: (i) the unblocking of any blocked property pursuant the Foreign Narcotics Kingpin Sanctions Regulations; or (ii) transactions or dealings that are limited by Executive Order or are with another individual or entity on OFAC’s List of Specially Designated Nationals or Blocked Persons. U.S. persons involved in the bank’s liquidation process must file a report with OFAC’s Licensing Division to include the parties involved, and the type, scope, and dates of the activities conducted.