On July 25, OFAC updated its list of frequently asked questions related to Cuba to clarify requirements applicable to persons subject to U.S. jurisdiction that are providing carrier or travel services to Cuba pursuant to 31 C.F.R. § 515.572. According to new FAQ 38, where such a person is providing travel or carrier services to a customer traveling to or from Cuba under a specific license, OFAC will consider the collection and retention of the traveler’s specific license number to be equivalent to collecting and retaining a physical or electronic copy of the specific license, as required by § 515.572(b)(1). The carrier or travel services provider must maintain a record of the specific license number or a copy of the license for at least five years. Revised FAQ 39 reiterates that authorized carrier or travel service providers must also retain a certification from each customer traveling to or from Cuba indicating the provision of the Cuban Assets Control Regulations that authorizes travel and the names and addresses of the individual travelers for at least five years from the date of the transaction.
OFAC Issues Two Findings of Violation for Alleged Violations of Foreign Narcotics Kingpin Sanctions Regulations
On August 2, OFAC issued Findings of Violation (here and here) to two insurance companies for alleged violations of the Foreign Narcotics Kingpin Sanctions Regulations, 31 C.F.R. part 598. The findings of violation relate to a non-U.S. insurance company that issued insurance policies to persons subsequently designated as SDNs. The insurance policies were serviced by a U.S. insurance company, which collected insurance premiums from the SDNs and remitted the premiums to the non-U.S. company. Neither company identified the designations until a separate company assumed responsibilities for servicing the policies. OFAC asserted that as large and commercially sophisticated companies providing insurance products and services, they “failed to implement controls and measures to ensure [they] could identify, block and report insurance policies, premiums, or claims payments in which an OFAC sanctioned person(s) had an interest.”
OFAC Issues Finding of Violation for Alleged Violations of the Foreign Narcotics Kingpin Sanctions Regulations
On July 27, OFAC issued a Finding of Violation to a bank for allegedly maintaining accounts on behalf of two individuals on OFAC’s SDN list. On June 12, 2013, pursuant to the Foreign Narcotics Kingpin Designation Act, OFAC added the two individuals to the SDN list based on their involvement in money laundering operations. From June 12, 2013 to June 3, 2014, OFAC alleged that, due to a misconfiguration in the bank’s sanctions screening software, it failed to identify and block accounts belonging to them. OFAC asserted that the bank had reason to know it maintained accounts on behalf of the designated individuals as an aggravating factor under its Enforcement Guidelines, but noted that the fact that “no managers or supervisors appeared to have been aware of the conduct that led to the apparent violations” was a mitigating factor. The Finding of Violation also noted that the bank took remedial action to respond to the violations and cooperated with OFAC by signing a tolling agreement, as well as two extensions to the tolling agreement.
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.
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.”