On November 4, the Federal Reserve and the New York DFS announced a combined $258 million penalty against a global bank for “violations in connection with transactions on behalf of countries and entities subject to U.S. sanctions.” According to the Fed’s cease and desist order, the bank failed to implement adequate risk management and compliance policies and procedures to “ensure that activities conducted at offices outside the United States complied with applicable OFAC Regulations and were timely reported in response to inquiries by the Federal Reserve Bank of New York.” Specifically, the Fed alleged that, from November 2001 to January 2006, foreign offices of the bank processed funds transfers with parties subject to OFAC Regulations through the bank’s New York-based subsidiary and other unaffiliated U.S. financial institutions without having the information necessary to determine that the transactions were consistent with U.S. law. The Fed’s order requires the bank to develop a compliance program that establishes (i) policies and procedures to ensure compliance with applicable OFAC regulations; (ii) an OFAC compliance reporting system; and (iii) requirements for employee training in OFAC-related issues. Under the terms of the DFS consent order, the bank agreed to hire an independent monitor to conduct a comprehensive review of its BSA/AML and OFAC sanctions compliance program, policies, and procedures.
Federal Reserve and New York DFS Take Action Against Canadian Bank for Deficiencies Relating to AML Compliance
On November 10, the Federal Reserve and the New York DFS announced an enforcement action against a Canadian bank for alleged deficiencies relating to its BSA/AML compliance program. In order to resolve the allegations, the bank agreed to prepare various written policies and procedures, including (i) a written plan that provides for a sustainable governance framework, including improving the management information systems reporting of compliance with BSA/AML requirements, OFAC regulations, and State Regulations; (ii) a revised written BSA/AML compliance program; (iii) a revised written program for conducting customer due diligence; (iv) a written program that ensures that any suspicious activity is timely reported; and (v) a written plan to improve compliance with OFAC regulations. All policies must be submitted for approval within 60 days of the agreement’s issuance date.
On October 29, OFAC granted a General License authorizing nine Belarusian entities to make transactions otherwise prohibited by Executive Order 13405, effective October 30. The General License also authorizes transactions with any entities that are owned 50 percent or more by the nine named entities. U.S. persons must report authorized transactions or series of transactions exceeding $10,000 to the U.S. Department of State no later than 15 days after execution. The General License expires on April 30, 2016, unless extended or revoked.
On October 20, the DOJ, OFAC, the NYDFS, the Manhattan District Attorney’s Office, and the Federal Reserve simultaneously announced that a Paris-based investment bank would pay a total of more than $787 million to settle multiple alleged violations of U.S. sanctions regulations. The OFAC settlement resolves allegations that the investment bank and certain predecessor banks, between August 6, 2003 and September 16, 2008, processed 4,055 transactions – for a total of approximately $337,043,846 – to or through U.S. financial institutions that involved countries and/or persons subject to the sanctions regulations administered by OFAC. The investment bank settled with OFAC for more than $329,500,000, an amount that reflects the agency’s consideration of the following aggravating factors: (i) the investment bank had indications that its actions had the potential to constitute violations of the U.S. law before the earliest date of the apparent violations; (ii) several managers of the investment bank were aware of the conduct that led to the violations; (iii) the investment bank’s conduct resulted in significant harm to various sanctions programs OFAC oversees and their associated policy objectives; (iv) the investment bank’s size and sophistication, along with its global presence; and (v) the investment bank’s failure to maintain proper controls to prevent the violations from occurring and otherwise maintain an adequate compliance program. Read more…
On October 21, following the October 7 designation of a Honduras-based bank as a Specially Designated Narcotics Trafficker, OFAC announced that it granted a General License authorizing certain transactions and activities to help with the liquidation and wind down of the same bank. Pursuant the General License, transactions and activities that are otherwise prohibited by OFAC during a bank’s liquidation process will be permitted through 12:01 a.m. ET on December 12, 2015, with the following exceptions: (i) the unblocking of any party pursuant to the Foreign Narcotics Kingpin Sanctions Regulations; and (ii) transactions or dealings that are limited by Executive Order, or are with an individual or entity, other than the Honduras-based bank, that is on OFAC’s List of Specially Designated Nationals or Blocked Persons. Any 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.
OFAC Issues Finding of Violation to a Bank for Violations of Iranian Transactions and Sanctions Regulations
On October 21, OFAC issued a Finding of Violation to a Chicago-based bank as the successor of a bank that processed six funds transfers totaling approximately $67,000. According to OFAC, the predecessor bank, between February 3, 2011 and March 10, 2011, processed six funds transfers on behalf of its customer “for the purpose of paying an outstanding balance owed to an Iranian entity located in Iran for the purchase of Iranian-origin carpets,” allegedly resulting in a violation of the Iranian Transactions and Sanctions Regulations (ITSR). The bank allegedly failed to remove its customer “from [its] False Hit List or implement any additional measures to prevent or identify possible violations involving the [customer]” after OFAC removed a general license for the importation of Iranian-origin carpets, which became effective September 29, 2010. Read more…
On October 18, the Department of the Treasury released a statement on reaching the formal “Adoption Day” of the Joint Comprehensive Plan of Action (JCPOA), the plan reached between the P5+1, the European Union, and Iran regarding Iran’s nuclear program. Adoption Day is the day JCPOA participants will begin taking steps necessary to implement their JCPOA commitments. According to Treasury Secretary Lew, October 18 marks an “important milestone” as “Iran begins taking its nuclear-related measures and the United States and [its] partners prepare to lift nuclear-related sanctions in response.” Although this action means that the JCPOA’s effective date is October 18, 2015, no sanctions will be lifted until Implementation Day, which will occur after international inspectors confirm that Iran has met its commitments under the JCPOA. As decided in July and outlined in an OFAC press release, licenses with certain credentials will remain in effect in accordance with their terms until Implementation Day. OFAC also issued FAQs concerning Adoption Day. Commenting on the implications of Adoption Day, the White House likewise issued a Statement that it had directed the heads of all relevant executive departments and agencies of the United States to begin preparations to implement U.S. commitments under the JCPOA.
On October 7, OFAC announced the designation of a Honduras-Based bank (the Bank) as a Specially Designated Narcotics Trafficker. According to the Department of the Treasury, this announcement “marks the first time that OFAC has designated a bank pursuant to the [Foreign Narcotics Kingpin Designation Act].” OFAC alleged that the Bank was an integral part of a money laundering operation that “facilitated the laundering of narcotics proceeds for multiple Central American drug trafficking organizations.” In addition to the Bank’s designation, OFAC announced the designation of three Honduran businessmen for supporting, via money laundering and other services, the international trafficking of narcotics for the same Central American criminal organizations. The Government of Honduras informed OFAC on October 10 that the liquidation process for the Bank was in effect. Non-U.S. persons involved in the Bank’s liquidation process will not be subject to OFAC designations or enforcement actions, with the understanding that “they do not undertake such transactions with knowledge that such transactions involve or benefit, directly or indirectly, any individual or entity other than [the Bank] that is listed on OFAC’s List of Specially Designated Nationals or Blocked Persons or that otherwise constitutes a person whose property and interests in property are blocked.” Liquidation transactions involving U.S. persons or financial institutions are prohibited, unless the individual or entity applied for and received OFAC authorization.
On September 18, OFAC issued a final rule amending the Cuban Assets Control Regulations (CACR) to reflect policy changes previously announced by the Obama administration. With respect to financial transactions, the amendments, among other things, (i) permit certain additional persons subject to U.S. jurisdiction to open and maintain bank accounts in Cuba to use for authorized purposes; (ii) removes limitations on donative remittances to Cuban nationals, on certain authorized remittances that authorized travelers may carry to Cuba, and on the amount of remittances that a Cuban national permanently resident in Cuba who is departing from the U.S. may carry to Cuba; (iii) adds a new general license authorizing remittances from Cuba and Cuban nationals to the United States; (iv) adds a new general license authorizing the unblocking and return of certain previously blocked remittances and funds transfers in certain circumstances; and (v) authorizes U.S. depository institutions to maintain accounts for Cuban nationals while the Cuban-national account holder is located outside the United States, provided that the account holder may only access the account while lawfully present in the United States, and removes a cap on payments from blocked accounts held by Cuban nationals in the United States in a nonimmigrant status to use for living expenses. The amendments also relax restrictions previously set forth in the telecommunications and internet sector, on travel between the U.S. and Cuba, and other various activities. Revisions to the CACR take effect on September 21, 2015.
At the same time, OFAC published a set of new and revised FAQs addressing the changes set forth in the updated CACR.
Leading International Financial Services Institution Pays $1.7 Million to Settle Sanctions Liability
On August 27, Treasury’s OFAC announced a settlement agreement requiring a Switzerland-based financial institution to pay slightly over $1.7 million to resolve potential liability over alleged violations of the Global Terrorism Sanctions Regulations, 31 C.F.R. part 594. According to OFAC, over a five-year period ending in 2013, the financial institution processed over 220 securities and other investment transactions involving an individual included on OFAC’s Specially Designated Nationals and Blocked Persons List. As part of the agreement, OFAC highlighted important mitigating factors leading to its reduced settlement amount with the financial institution noting that the bank has in place an adequate global sanctions compliance program, and that the “[institution] took remedial action in response to the apparent violations, including by conducting a thorough internal investigation regarding the apparent violations.”
On August 6, OFAC announced a $271,815 settlement with a New York-based insurance company with an overall focus on marine insurance and related lines of business, professional liability insurance, and commercial umbrella and primary and excess casualty businesses. According to OFAC, from May 8, 2008 to April 1, 2011, the company and its London branch office, “issued global protection and indemnity (“P&I”) insurance policies that provided coverage to North Korean-flagged vessels and covered incidents that occurred in or involved Iran, Sudan, or Cuba—some of which led to the payment of claims.” The company’s willingness to engage with OFAC-sanctioned countries resulted in 48 alleged violations of Foreign Assets Control Regulations, Executive Order 13466 of June 26, 2008, North Korea Sanctions Regulations, Iranian Transactions and Sanctions Regulations, Sudanese Sanctions Regulations, and Cuban Asset Control Regulations. OFAC stated that (i) the company did not maintain a formal compliance program at the time it issued the P&I insurance policies; and (ii) the company’s London office personnel “misinterpreted the applicability of OFAC sanctions regulations.” The final settlement amount reflects the fact that managers and supervisors knew or had reason to know that the majority of the insurance policies and claims payments at issue involved OFAC-sanctioned countries; the company is a commercially sophisticated financial institution; and it did not have a formal OFAC compliance program in place at the time the apparent violations occurred. Mitigating factors included the company’s cooperation with OFAC’s investigation; lack of prior enforcement action; and its remedial action plan to implement a sufficient OFAC compliance program.
On July 30, OFAC issued a “Crimea Sanctions Advisory,” highlighting certain actions that have been used to circumvent or evade U.S. sanctions involving the Crimea region as described in Executive Order 13685. The Advisory provides guidance to U.S. persons and persons engaging in business activities in or through the United States, directing them to implement appropriate internal controls relative to their OFAC sanctions risk profile. Specifically with respect to financial transactions, OFAC noted that “certain individuals or entities have engaged in a pattern or practice of repeatedly omitting originator or beneficiary address information” from SWIFT messages. OFAC advised that U.S. financial institutions should be “cautious” when processing payment instructions that fail to disclose complete address information when engaging in transactions involving an individual or entity that has previously omitted information of Crimean individuals or entities. OFAC offered three examples of risk mitigating measures: (i) ensure that transaction monitoring systems include appropriate search terms corresponding to major geographic locations in Crimea and not simply references to “Crimea”; (ii) request additional information from entities that previously violated or attempted to violate U.S. sanctions on Crimea; and (iii) clearly communicate U.S. sanctions obligations to international partners and discuss OFAC sanctions compliance expectations with correspondent banking and trade partners.
In addition to issuing the Crimea Sanctions Advisory, OFAC updated its Specially Designated Nationals List and Sectoral Sanctions Identifications List with additional designations.
On July 29, OFAC announced that it levied a $82,260 civil penalty against Blue Robin, Inc. for violating certain provisions of the Iranian Transactions and Sanctions Regulations. According to OFAC, from 2009 through 2010, Blue Robin conducted 33 transactions valued at over $200,000, where Blue Robin imported web development services from PersiaBMW, an Iranian company. The services rendered by PersiaBMW were used to develop web-based systems and applications to streamline online business processes and operations for Blue Robin’s customers. In its consideration of the penalty amount, OFAC determined that “Blue Robin acted recklessly because it knew it was importing services from an Iranian company over a period of more than five years, it sent payments through unlicensed money exchangers instead of through traditional commercial banking channels, and it appears that the company did not take any steps to research the legality of funds transfers to Iran or the importation of services from Iran until after it lost contact with its unlicensed money exchanger.” Nevertheless, due to Blue Robin’s self-disclosure and substantial cooperation with OFAC’s investigation, the penalty amount imposed against Blue Ribbon was below the base penalty amount for the violations.
On July 10, OFAC published regulations to implement the Venezuela Defense of Human Rights and Civil Society Act of 2014 and Executive Order 13692. The Act required the President to impose targeted sanctions on certain persons determined to be responsible for significant acts of violence or serious human rights abuses against antigovernment protesters in Venezuela, and to have ordered, or otherwise directed, the arrest or prosecution of certain persons in Venezuela. The Executive Order set forth standards for designating and suspending entry into the United States of corresponding persons in Venezuela. The regulations provide the framework for blocking property or interests in property of persons designated according to the Executive Order. According to OFAC, the regulations are currently in “abbreviated form” and the agency will issue a more comprehensive set of regulations that may provide further interpretive guidance, general licenses, and statements of licensing policy.
On July 14, OFAC released a statement regarding the agreement reached with Iran over its nuclear program. Following months of diplomacy, OFAC stated that the P5 + 1 reached a Joint Comprehensive Plan of Action (JCPOA) with Iran regarding Iran’s nuclear program to ensure that it is exclusively peaceful going forward. Once the International Atomic Energy Agency (IAEA) verifies that Iran has implemented key nuclear-related measures described in the JCPOA (“Implementation Day”), “U.S. sanctions relief will be provided through the suspension and eventual termination of nuclear-related secondary sanctions.” The P5 + 1 and Iran also concluded on July 14 that the sanctions relief provided for in the JPOA of November 24, 2013 would be extended through Implementation Day; until further notice, the JPOA sanctions relief will be the only Iran-related sanctions relief in effect. The White House issued a description of the agreement to demonstrate how the long-term comprehensive nuclear deal with Iran “will verifiably prevent Iran from acquiring a nuclear weapon and ensure that Iran’s nuclear program will be exclusively peaceful going forward.” Finally, as decided on July 14, licenses with the following credentials will remain in effect in accordance with their terms until Implementation Day: (i) Issued by OFAC’s Second Amended Statement of Licensing Policy on Activities Related to the Safety of Iran’s Civil Aviation Industry; and (ii) set to expire on or before July 14, 2015. OFAC stated that the U.S. government will publish detailed guidance related to the JCPOA prior to Implementation Day, and will issue revised guidance on the continued JPOA relief shortly.