February 14, 2017

The Imminent Foreign Terrorist Organization Designation of the IRGC

by Jeremy Paner

Recent press reports indicate that the Trump administration is considering designating the Islamic Revolutionary Guard Corps (IRGC) as a foreign terrorist organization (FTO) pursuant to Section 219 of the Immigration and Nationality Act. (8 U.S.C. §1189(a)).  This apparent deliberation follows recent House (H.R. 380) and Senate (S. 67) introductions of the IRGC Terrorist Designation Act, which directs the Secretary of State to submit to Congress a report on the designation of the IRGC as an FTO.  While this listing may seem redundant in light of the secondary sanctions and numerous designations listing the IRGC on the List of Specially Designated Nationals (SDN List) repeatedly pursuant to various authorities, an FTO designation will significantly alter the current sanctions against Iran.

FTO Designation Criteria

The Secretary of State may designate an entity determined to be (A) a foreign organization; (B) that “engages in terrorist activity or terrorism, or retains the capacity and intent to engage in terrorist activity or terrorism”; if (C) “the terrorist activity or terrorism of the organization threatens the security of United States nationals or the national security of the United States.” (8 U.S.C. §1189(a)(1)) Continue reading

January 14, 2017

OFAC Conditionally Lifts U.S. Embargo on Sudan, but Certain Sanctions Remain

by Jeremy Paner

sudanToday, the U.S. Department of the Treasury’s Office of Foreign Assets Control announced an upcoming General License that will authorize transactions involving Sudan. Current U.S. sanctions regulations form a broad trade embargo that generally prohibits U.S. companies from dealings with Sudan. On Tuesday, January 17, OFAC will issue a General License that will effectively lift the embargo and unblock the Government of Sudan property currently held by U.S. companies and financial institutions. Parties looking for business opportunities involving Sudan should be aware of the remaining restrictions under the state sponsor of terrorism designation and targeted sanctions, in addition to the recordkeeping requirements and potential revocation of this authorization.

State Sponsor of Terrorism List

Sudan remains designated as a state sponsor of terrorism, under section 6(j) of the Export Administration Act (‘‘EAA’’) of 1979. Section 321 of the Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA), Public Law 104–132, makes it a criminal offense for U.S. persons, except as provided in regulations issued by the Secretary of the Treasury, to knowingly engage in financial transactions with the government of any country designated under section 6(j) of the EAA as supporting international terrorism. The General License announced today will authorize U.S. individuals and companies to engage in financial transactions with the Government of Sudan, so this sanction will not restrict U.S. banks from providing financial services.

Other significant sanctions on Sudan resulting from its designation as a state sponsor of terrorism remain. These include prohibitions on U.S. foreign assistance, a ban on defense exports and sales, controls on exports of dual-use items, and a requirement for the U.S. government to actively oppose World Bank and International Monetary Fund loans. Continue reading

November 15, 2016

Divergent State and Federal Approaches to AML and Sanctions Threats from China

by Jeremy Paner

empire-state-buildingOn November 4, the  Friday before the U.S. election, the New York Department of Financial Services (DFS) and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced separate enforcement actions targeted at the AML and sanctions threats emanating from China. While DFS explicitly set forth its allegations against a Chinese state bank, the U.S. Treasury Department indirectly signaled its increased pressure on China. FinCEN and the Office of Foreign Assets Control (OFAC) will likely directly target China in the near future.

Agricultural Bank of China

DFS announced that the Agricultural Bank of China, that country’s third largest bank, entered into a Consent Order to resolve violations of New York law requirements involving its compliance program (3 N.Y.C.R.R. § 116.2), books and records (New York Banking Law § 200-c), and reports to the DFS Superintendent (3 N.Y.C.R.R. § 300.1). The bank agreed to pay $215 million and engage an independent monitor to  implement an effective compliance program and conduct an 18-month look-back into additional potential violations. The bank will likely pay significantly more than the initial $215 million required to maintain its New York banking license. Continue reading

October 14, 2016

United States Lifts Burma Sanctions

burmaby Trip Mackintosh, John Anderson, and the Export Controls/Trade Sanctions practice group

On October 7, 2016, President Obama signed an Executive Order lifting virtually all economic sanctions previously in effect against Burma (aka, Myanmar). This executive action signals an opening of economic activity between the United States and Burma. Perhaps more importantly for Burmese business interests, it removes an impediment to banking and financial services that had slowed non-U.S. investment into Myanmar. The action contrasts with remaining unilateral U.S. embargos that continue to impact non-U.S. interests, notably the sanctions on Iran.

Burma had been subject to targeted sanctions that were directed at members of the State Peace and Development Counsel (the “SPDC”) that governed Burma until 2011. This sanctions regime, implemented by Executive Orders issued per authority of the International Emergency Economic Powers Act (“IEEPA”) and the Tom Lantos Block Burmese JADE Act, and administered by the Office of Foreign Assets Control (“OFAC”), broadly prohibited all financial transactions involving members of the SPDC and/or entities they controlled. Given their prominence in the Burmese market, SPDC and the companies they owned or controlled created material compliance challenges for investors looking at the Burmese economy. Banks, predictably conservative in these circumstances, were reluctant to process payments and engage in services otherwise required for non-Burmese investors. Continue reading

September 27, 2016

U.S. Department of Justice and OFAC Take Action Against Chinese Network of Alleged Sanctions Evaders

by Jeremy Paner

spiderwebYesterday, the U.S. Department of Justice and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced actions against four Chinese nationals and a China-based network of companies alleged to have provided North Korea with access to the U.S. financial system. The announcements followed months of steadily increasing pressure on North Korea and its economic partner, China.

Although the charges were announced yesterday, a New Jersey District Magistrate Judge signed a criminal complaint in August 2016 charging the Chinese nationals and China-based company with conspiracy to evade U.S. sanctions, violations of sanctions regulations, and conspiracy to launder money instruments. The Justice Department’s Asset Forfeiture and Money Laundering Section also filed a civil forfeiture complaint to seize funds contained in 25 bank accounts held for the alleged front company network. OFAC concurrently designated Dandong Hongxiang Industrial Development Company Ltd (DHID), and the Chinese individuals for illicitly providing a designated North Korean bank access to the U.S. financial system.   Continue reading

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.

Continue reading

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

tightrope-walker-1314832

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