September 15, 2016

Lessons Learned from OFAC’s Rapidly Increasing Enforcement Response

by Jeremy Paner

school_desks_istock_000023345571largeLast month, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) concurrently announced Findings of Violation against two insurance companies. According to the announcements, AXA Equitable Life Insurance Company issued health insurance policies to designated individuals. A subsidiary of Humana, Inc. serviced these policies as a Third Party Administrator in violation of sanctions regulations.

While there is no direct monetary penalty from a Finding of Violation, businesses are nonetheless advised to modify their compliance programs in response to OFAC’s articulations of compliance expectations. The agency will likely determine that a significant civil monetary penalty is appropriate for similar future apparent violations by other businesses.

OFAC typically issues Findings of Violation to promote certain aspects of compliance. The agency’s increasing issuance of Findings of Violation makes failure to heed these warnings especially reckless. To date, OFAC has only issued nine such penalties, but seven of these announcements occurred in the past year. Continue reading

September 14, 2016

POTUS Lifts Sanctions on the Ivory Coast and Provides Highly Unusual Preview of Upcoming Burmese Sanctions Removal

by Jeremy Paner

white-houseEarlier today, President Obama issued an Executive Order lifting sanctions against Côte d’Ivoire (the Ivory Coast). This removal follows similar action by the United Nations, which in April 2016 lifted international arms, travel and financial measures though UN Security Council Resolution 2283.

U.S. individuals and companies that may have violated the Ivory Coast-related sanctions are not absolved from their apparent violations. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) will continue to investigate and penalize prohibited dealings, even years after the underlying sanctions authority is lifted. For example, in March 2015 OFAC announced a $780,000 settlement to resolve apparent violations of the former Iraq sanctions program that occurred between 2002 and 2003. President Bush lifted the former Iraq sanctions program through a 2004 Executive Order, while the OFAC removed the regulations in September 2010.

Coming Sanctions Relief for Burma

President Obama also announced today “that the United States is now prepared to lift sanctions we’ve imposed upon Burma.” Current U.S. sanctions prohibit the importation of Burmese rubies and jadeite, certain new investment, and dealings with designated individuals and entities. These prohibitions will continue until their removal by Executive Order. OFAC issued an FAQ today to clarify this point. The President’s comments did not specify if all sanctions will be removed. Continue reading

July 26, 2016

No Sanctions Compliance Program? Expect Significant OFAC Penalties

by Jeremy Paner

hammer-1506667-1920x1440Settlement announcements from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) generally reflect the agency’s enforcement prioritization and sanctions compliance expectations.  The two most recent enforcement actions indicate that OFAC continues to target companies that operate without sanctions compliance programs.  Although robust sanctions compliance programs do not provide complete inoculation from sanctions compliance risk, such programs dramatically reduce the likelihood of violations and resulting civil penalties.

OFAC Civil Penalties Against Exporters Lacking Compliance Programs 

On June 23, OFAC announced a $107,691 settlement with HyperBranch Medical Technology, Inc. to resolve apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR) prohibition on the direct or indirect exportation of goods to Iran.  According to the settlement announcement, HyperBranch exported about 4,000 units of various medical supplies to its United Arab Emirates-based distributor that it knew or had reason to know were ultimately destined for Iran.  OFAC considered HyperBranch’s lack of a sanctions compliance program at the time of the apparent violations as an aggravating factor in the calculation of the civil penalty.

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June 14, 2016

U.S. Treasury’s 311 Action Against North Korea Intensifies Pressure on China

by Jeremy Paner

ChinaThe U.S. Department of the Treasury recently announced a finding that North Korea is a jurisdiction of “primary money laundering concern” pursuant to its Section 311 authority, codified at 31 U.S.C. 5318A. Treasury’s Financial Crimes Enforcement Network (FinCEN) also released a notice of proposed rulemaking, which would impose the strongest available “special measure” to address the money laundering risks from North Korea. This action may be misinterpreted as inconsequential because of the separate Office of Foreign Assets Control (OFAC) prohibitions against North Korea. However, it likely signals the beginning of increased domestic and international scrutiny of China’s role in providing North Korea access to the international financial system. The notice of finding sets forth the U.S. government’s position that North Korea accesses the international financial system through its network of China-based cover companies.   Continue reading

May 19, 2016

U.S. Treasury Facilitates Trade with Burma, but Money Laundering and North Korean Risks Remain

by Jeremy Paner

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Earlier this week, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) continued the transition of the Burmese sanctions program from comprehensive prohibitions to targeted, more limited “smart sanctions.”  The revised Burmese Sanctions Regulations contain General Licenses authorizing U.S. persons to reside in Burma and incorporate a separate General License authorizing U.S. businesses to export authorized goods and technology to and from Burma through infrastructure such as ports, toll roads and airports, and pay associated fees that would otherwise be prohibited under the Burmese sanctions.  As noted in a prior entry, OFAC made this original temporary authorization in early December 2015 after U.S. trade with Burma nearly came to a halt following the refusal of several banks to engage in trade finance involving a Rangoon port associated with Asia World Co. Ltd.  The revised sanctions program further increases pressure on Asia World through the designations of six companies in which it owns a 50 percent or greater interest.

In addition to the regulatory amendments and new designations, OFAC removed seven state-owned enterprises and three state-owned banks from the list of Specially Designated Nationals (SDN List).  Along with the bank de-listings, OFAC issued a General License authorizing most transactions involving the four remaining designated Burmese banks.[1]  The designation removals and General License allow U.S. financial institutions to provide Burmese banks with correspondent and payable through accounts, irrespective of the Section 311 Special Measures that remain imposed against Burma.  Continue reading

May 6, 2016

U.S. Designations Targeting a Major Panamanian Money Laundering Organization Not Aided by the Panama Papers Leak

by Jeremy Paner

flag-of-panama-1452444-1279x1705Yesterday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced designations against the Panama-based Waked Money Laundering Organization, including its leaders, network of supporters and associates, and companies. According to press reports, Colombian law enforcement arrested the organization’s leader, Nidal Ahmed Waked Hatum, at a Bogota airport the day prior to the designations.

In total, OFAC added 8 individuals and 68 business entities to the List of Specially Designated Nationals (SDN List) pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act). The United States Government alleged that narcotics traffickers have used these businesses to obscure the source of drug money through a variety of means, including trade-based money laundering, bulk cash smuggling, real estate development, and illicit financial services.  The designation of Balboa Bank & Trust is particularly noteworthy, as it reflects Treasury’s continued willingness to use the Kingpin Act against financial institutions.  As noted in a previous entry, OFAC had not designated a bank pursuant to the Kingpin Act prior to November 2015.

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May 4, 2016

Recent Court Decision Provides Insight Into Enforcement of OFAC Sanctions

by Jeremy Paner

gavel-3-1236445On March 7, the District Court for the District of Columbia issued a Memorandum Opinion granting the government’s Motion for Summary Judgment in the matter of Epsilon Electronics, Inc. v. United States Department of the Treasury, Office of Foreign Assets Control, et al., Civil Action No. 14-2220 (RBW), __ F.Supp.3d __ (D.D.C. 2016).  The case arises from a $4,073,000 civil penalty the Office of Foreign Assets Control (OFAC) assessed against Epsilon Electronics (the plaintiff)  in July 2014 for violations of the embargo on Iran.  According to the announcement of this penalty, the plaintiff violated the Iran Transactions and Sanctions Regulations by shipping car audio and video equipment that it knew or had reason to know would be reexported to Iran.  The opinion dismissing the challenge to this penalty serves as a cautionary tale of how OFAC may assess significant civil penalties with the aid of a few administrative subpoenas and circumstantial evidence provided by financial institutions and simple internet research.

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April 19, 2016

New Sanctions Regulations Threaten Foreign Financial Institutions with Severance from the U.S. Financial System

by Jeremy Paner

scissor-1568316Last Friday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) published regulations that implement the Hizballah International Financing Prevention Act of 2015.  The listing criteria for these regulations echo those  in the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010  (CISADA), which was largely responsible for economically isolating Iran.  Although frequently mischaracterized as extraterritorial in nature, the prohibitions of secondary sanctions are limited to domestic financial institutions.

The Hizballah Financial Sanctions Regulations, 31 CFR 566, prohibit U.S. financial institutions from opening or maintaining certain accounts for foreign financial institutions listed for knowingly providing significant transactions for Hizballah, or any person designated for acting for or on behalf of, or being owned or controlled by that terrorist organization.  OFAC identifies  Hizballah-related designated persons with the text [‘‘Subject to secondary sanctions pursuant to the Hizballah Financial Sanctions Regulations’’] in their respective List of Specially Designated Nationals (SDN List) entries. Continue reading

March 25, 2016

U.S. Treasury Sanctions UK Individuals and Businesses for Dealings with Iranian Commercial Airline

by Jeremy Paner

Yesterday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated UK-based individuals and businesses for their dealings with Mahan Air, a commercial Iranian airline. OFAC designated this airline in 2011 pursuant to its counterterrorism authority for providing support to the IRGC-Qods Force. U.S. individuals and businesses are now generally prohibited from any dealings with these UK designees.  Secondary sanctions also attach to terrorism-related listings.  Foreign financial institutions that knowingly facilitate or conduct significant financial transactions for these designees could be prohibited from maintaining correspondent accounts at U.S. banks.

OFAC has firmly established authority to derivatively designate businesses that provide support or services to designated Iranians, irrespective of the nationality or location of those businesses. The recent lifting of certain secondary sanctions does not limit this authority.  In fact, derivative designations against companies in Europe and Asia will likely increase in the near term.

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March 22, 2016

Increased Sanctions on North Korea Focus on China and Russia

by Jeremy Paner

Last week, President Obama significantly increased sanctions on North Korea through Executive Order 13722, which implements the North Korea Sanctions and Policy Enhancement Act of 2016 (H.R. 757). The Executive Order’s prohibitions and blocking provisions, and designation criteria are substantially more expansive than that Act. Concurrently with the issuance of the Executive Order, OFAC announced the designations of 17 North Korean government officials and organizations, 15 entities, two individuals, and identified 40 blocked vessels under various sanctions authorities.

While neither Congress nor the President imposed secondary sanctions per se, China and Russia should  interpret the Executive Order as a clear warning about their economic ties with North Korea. In the Iran sanctions program, secondary sanctions require that a foreign financial institution “knowingly facilitate or conduct a significant financial transaction” for a particular individual or entity. This evidentiary standard greatly limited the use of those sanctions authorities. The new sanctions against North Korea are clearly aimed at foreign business interests, but unlike secondary sanctions, this new authority does not have an evidentiary impediment to its implementation.

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