Monthly Archives: July 2015

July 27, 2015

Week in Review and Look Ahead

by Jeremy Paner

The U.S. Department of the Treasury was quite active last week in its efforts to tighten sanctions against the Lebanese-based terrorist group Hizballah and the rogue state of North Korea, combat money laundering used to hide terrorism and narcotics finance, and enforce economic sanctions against proliferators of weapons of mass destruction (WMD). The Office of Foreign Assets Control (OFAC), the Financial Crimes Enforcement Network (FinCEN), and the Federal Deposit Insurance Corporation (FDIC) all took action to safeguard the U.S. financial system. Once again, it is apparent that Treasury continues to concentrate and coordinate its actions on Hizballah.

Last week also signaled a recent significant shift at FinCEN that will result in a drastic increase in its 311 actions. Businesses that rely on foreign banks – especially those in Central and South America and the Middle East – should be on notice that they are now much more likely to be cut off from the U.S. financial system.

The Office of Foreign Assets Control  

On July 21, OFAC designated four individuals for their roles in Hizballah’s support of the Assad regime. Three of the individuals were designated pursuant to Executive Order (EO) 13582 for providing high-level military support to the Assad regime in Syria. OFAC designated the fourth designee pursuant to EO 13224 (the counterterrorism authority). In its press release announcing the designations, Treasury describes this person as “Hizballah’s point person for the procurement and transshipment of weapons for the group and its Syrian partners for at least 15 years.”

On July 23, OFAC designated Singapore-based Sanat Shipping Company and its President for providing material support to a shipping company previously designated by the United Nations and OFAC for smuggling arms into North Korea. OFAC made these designations pursuant to EO 13551, which blocks those that send weapons to North Korea. In addition to adding these new listings, OFAC updated the List of Specially Designated Nationals (SDN List) with new aliases used to evade sanctions against a designated North Korean weapons shipper and bank officials.

OFAC announced on July 24 that it reached an agreement with Great Plains Stains (GPS) Co. to settle apparent violations of sanctions imposed against a designated proliferator of WMD. According to the announcement, GPS agreed to pay $214,000 to settle violations arising from its use of a blocked vessel to transport goods from Shanghai to Dubai. Interestingly, OFAC concluded that the violations were non-egregious, irrespective of its finding that GPS willfully stripped references to the blocked vessel from the trade documents and did not follow explicit instructions OFAC provided about the same. The non-egregious determination was probably a result GPS’s inability to pay the $250,000 maximum base penalty per violation which results from egregious violations of WMD-related sanctions that are not self-disclosed to OFAC.

Financial Crimes Enforcement Network

On July 23, FinCEN issued a Final Rule (31 C.F.R. 1010.658) pursuant to Section 311 of the USA PATRIOT Act, imposing “special measure five” against FBME Bank Ltd. (FBME). Although it is a subsidiary of the Federal Bank of Lebanon, a private Lebanese bank, FBME is headquartered in Tanzania and holds the vast majority of its assets in Cyprus. FBME is owned by the same two individuals that own the Federal Bank of Lebanon. FinCEN explains in its Final Rule that FBME has deposited hundreds of thousands of dollars from a Hizballah financier and has an extensive customer base of shell companies. Although FinCEN provides a multitude of bases for the 311 action,  this Hizballah connection clearly led to the bank’s formal severance from the U.S. financial system.

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July 15, 2015

D.C. Circuit Affirms OFAC’s Broad Discretion to Deny De-Listing Requests, but Expect Regulatory Response

by Jeremy Paner, Michael O’Leary

Last Friday, the U.S. Court of Appeals for the D.C. Circuit issued a decision in Zevallos v. Obama et al., No. 14-5059, __ F.3d __ (D.C. Cir. 2015), affirming the  Office of Foreign Assets Control’s (OFAC[’]s) broad discretion to deny petitions for removal or “de-listing” from its List of Specially Designated Nationals (SDN List).

Fernando Zevallos, a Peruvian national, is a convicted drug trafficker and former low-cost airline magnate, who is currently serving a twenty-year prison sentence for narcotics trafficking in Peru.  In 2004, OFAC  designated Mr. Zevallos pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act). Mr. Zevallos petitioned OFAC for removal from the SDN List at least three times between 2004 and 2013.  In rejecting Mr. Zevallos’ request, OFAC relied on media reports regarding his continued narcotics trafficking activity during his incarceration, in addition to information contained in as his federal indictment in Miami.  Mr. Zevallos subsequently brought suit in federal district court in Washington, D.C. claiming that OFAC’s use of “unverified open source materials” such as media reports was improper.  The district court rejected this claim and Mr. Zevallos appealed.

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July 10, 2015

OFAC Designates Leaders of Opposing Forces in South Sudan

by Jeremy Paner

Four years ago today, the Republic of South Sudan became the newest independent state. South Sudan has suffered from tragic internecine violence since gaining its independence. Both the United Nations and the United States have implemented sanctions in response to this internal conflict.

On July 2, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) added two individuals to the List of Specially Designated Nationals (SDN List) pursuant to Executive Order 13664 for threatening the peace, security, or stability of South Sudan, interfering with the ongoing peace process, and for being leaders of groups responsible for the same malfeasance. The OFAC press release for these designations identifies Gabriel Jok Riak as a commander of the South Sudanese military, responsible for grave human rights abuses. OFAC describes Simon Gatwech Dual as the Chief of General Staff of the Sudan People’s Liberation Movement/Army in Opposition, responsible for attacks against civilians and government forces.

In contradistinction with the comprehensive Sudan-related sanctions program, the South Sudan-related sanctions are list-based. The prohibitions under this program are therefore limited to the individuals and entities on the SDN List, including entities owned 50 percent or greater by these designees, pursuant to the so-called “50 Percent Rule.”

The nature of the conflict and OFAC’s willingness to target opposing forces in the civil war means that U.S. businesses must use enhanced due diligence in all dealings with South Sudan.  It is imperative to not only identify all the parties involved, but also avoid any transaction that may benefit SDNs.