Category Archives: OFAC

April 13, 2018

Three Significant Misconceptions Regarding the Russian Oligarch Sanctions

by Jeremy Paner

Last Friday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the designations of a number of prominent Russian oligarchs.  The initial reaction of many companies with investment or business ties with these blocked parties was either panic or nonchalance.  In most cases, those extreme reactions arose from confusion about the scope of the Russia sanctions program, OFAC’s broad discretionary powers, and the enforcement process.

Uniqueness of the Russia Sanctions Program

OFAC currently administers and enforces 28 separate sanctions programs.  Each program is governed by its own regulations, with corresponding definitions, prohibitions, exceptions, and exemptions.  These regulations generally prohibit U.S. companies from dealing with designated parties on the Specially Designated Nationals And Blocked Persons List (SDN List), absent a general or specific license.  U.S. law similarly prohibits non-U.S. companies from involving U.S. companies in their dealings with SDNs, irrespective of the sanctions program.  The extraterritorial effect on non-U.S. companies, however, varies greatly depending on the program and specific designation authority.  Non-U.S. companies should be mindful of two Russia sanctions authorities that substantially expand OFAC’s reach.

Section 226 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) authorizes OFAC to place secondary sanctions on non-U.S. financial institutions that knowingly facilitate significant financial transactions on behalf of designated Russian oligarchs, among other designees.  Non-U.S. banks should be familiar with these correspondent or payable-through account sanctions, which mirror various Iran sanctions authorities.[1]

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April 2, 2018

Nearly 75 Percent of OFAC Penalties Have One Commonality

by  Jeremy Paner

Over the past five years, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has assessed 90 civil monetary penalties worth $2,087,207,524 for apparent violations of economic and trade sanctions.  OFAC assessed these penalties against U.S. and non-U.S. companies operating in a wide range of industries.  The most significant commonality among the penalties is not the alleged egregiousness of the apparent violations, or the compliance practices and failures that gave rise to the violations.  The biggest factor in determining OFAC’s enforcement response to sanctions violations may involve a company’s willingness to submit a truthful, timely, and complete disclosure of its violations.    Continue reading

March 12, 2018

Three Simple Questions to Assess OFAC Compliance Programs

by  Jeremy Paner

In the past, many businesses operated under the misconception that banks were solely responsible for sanctions compliance. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has disabused large companies of this misunderstanding through significant monetary penalties against a broad array of businesses outside the financial industry. Today, both U.S.-based international businesses and non-U.S. companies that conduct business in the United States and/or with U.S. companies generally understand the importance of having a sanctions compliance program commensurate with their risk profile.

Most companies, however, do not adequately consider whether they are getting the most out of their compliance programs. Narrowly tailored compliance programs that only serve to avoid sanctions violations do not provide optimal returns on investment. Fully functioning compliance programs have the potential to generate significant revenue, especially for high-risk businesses. For these businesses, compliance functionality should not be judged exclusively on the business opportunities lost because of sanctions compliance concerns. Continue reading

January 30, 2018

Upcoming Russian Corruption Designations Likely to be Challenged

by  Jeremy Paner

Late last month, the U.S. Government sanctioned a number of alleged human rights abusers and corrupt actors located throughout the world.  The White House and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed these sanctions more than a year after Congress delegated the underlying designation authority pursuant to the Global Magnitsky Human Rights Accountability Act.[1] While the annex to the Executive Order implementing these sanctions lists two Russian individuals, the sanctions do not focus on the alleged corruption and human rights abuses of any particular country or region.  OFAC is likely to concentrate future corruption-related sanctions on Russia following the submission of a Congressionally mandated report due by the end of this month.

Section 241 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) requires the U.S. Department of the Treasury to submit a report to Congress by January 29, providing certain information on allegedly corrupt Russian oligarchs and parastatal entities.  Most importantly, this report will opine on the likely effects of various sanctions, including debt and equity restrictions, blocking parastatal entities, and imposing secondary sanctions.[2]  It appears that Congress will use the conclusions of this report to delegate additional corruption-related sanctions authorities in the near future.  Continue reading

November 29, 2017

U.S. Treasury’s Likely Next Steps Against North Korea

by  Jeremy Paner

Over the past few months, the United States government has relied upon its economic sanctions and anti-money laundering authorities to increase pressure on North Korea and its sponsor China. Treasury’s Office of Foreign Assets Control (OFAC), Financial Crimes Enforcement Network (FinCEN), and the State Department have all recently contributed to this effort. Examples from earlier this month include the redesignation of North Korea as a State Sponsor of Terrorism following Secretary Tillerson’s determination that North Korea “has repeatedly provided support for acts of international terrorism,” FinCEN’s Final Rule imposing prohibitions against China’s Bank of Dandong for its alleged sanctions evasion on behalf of North Korea, and OFAC’s designations and identifications of blocked property pursuant to Executive Order 13810.

Irrespective of the press releases announcing these sanctions, the most significant actions by the U.S. government have likely occurred behind the scenes in partnership with financial institutions and foreign partners. This information sharing with non-U.S. regulators and confidential targeted financial intelligence gathering against North Korean cover companies will likely steadily increase for the foreseeable future.   Continue reading

September 26, 2017

OFAC Takes Action Against the Retail Jewelry Industry

by Jeremy Paner

Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a $334,800 settlement with Richemont North America, Inc., d.b.a. Cartier, to resolve potential civil liability arising from apparent violations of the Kingpin Sanctions Regulations.  According to OFAC, between late 2010 and early 2011, an individual made four purchases of jewelry from Cartier locations in California or Nevada, which Cartier then shipped to Shuen Wai Holding Limited, a designated entity in Hong Kong.

Treasury regulations implementing the Bank Secrecy Act require dealers in precious metals, precious stones, or jewels to establish and maintain anti-money laundering  (AML) programs.[1]  These programs should be part of a larger compliance framework, which enable dealers to identify and prevent sales and shipments involving designated individuals and companies.  Retailers such as Cartier, however, are generally exempt from the AML program requirement.[2]  As a result, retailers that ship products internationally should establish a process to identify prohibited dealings, independently of any legally mandated program requirements.  Continue reading

July 28, 2017

ExxonMobil Challenges OFAC’s First Russia Sanctions Penalty

by Jeremy Paner

Last week, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced its assessment of a $2 million civil money penalty against ExxonMobil for alleged egregious violations of the Ukraine-Related Sanctions Regulations.  According to OFAC, the violations arise from May 2014 dealings ExxonMobil had with Igor Sechin, in his official capacity as the President of Rosneft OAO.  OFAC has previously addressed the sanctions compliance risk arising from entering into contracts in which designated individuals bind undesignated entities, but the agency had not previously punished a company under that scenario.

OFAC designated Sechin in April 2014 under one of the Ukraine/Russia blocking authorities.  As of the date of his designation, OFAC generally prohibited U.S. companies from transacting or dealing with Sechin.  U.S. companies were not prohibited, however, from all dealings with Rosneft.  The Russian state-owned oil company is subject to restrictions involving certain debt and Russian oil projects, but unlike Sechin, the company is not blocked.

While OFAC separately defines the prohibitions applicable in each if its sanctions programs, economic sanctions regulations generally prohibit transacting or dealing with blocked individuals.  For example, Executive Order 13661 and § 589.201 of the Ukraine-Related Sanctions Regulations prohibit companies from both dealing with property of designated individuals and providing or receiving services to or from those persons.  ExxonMobil filed a civil complaint in the Northern District of Texas concurrently with the penalty announcement, which challenges OFAC’s determination that it received prohibited services from Sechin.

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June 29, 2017

U.S. Treasury Announces First Money Laundering Designation Against Mainland Chinese Bank

by Jeremy Paner

Today, the U.S. Department of the Treasury announced significant actions targeting Chinese companies and individuals for their commercial involvement with North Korea.  These actions follow Trump’s vague tweet on June 20, in which he stated “[w]hile I greatly appreciate the efforts of President Xi & China to help with North Korea, it has not worked out.  At least I know China tried!”  In light of today’s designations and proposed rulemaking, that message appears to signal a willingness by the United States to directly target China.  Non-U.S. companies should carefully consider this dramatic policy shift with an understanding of the broad scope of the current sanctions authorities.  The Treasury Department may target North Korea’s commercial partners irrespective of their geographic location.

USA PATRIOT Act Section 311

The most significant action is likely the Notice of Proposed Rulemaking (NPRM) by the  Financial Crimes Enforcement Network (FinCEN) to sever China’s Bank of Dandong from the U.S. financial system under its 311 authority.  Although this is not the first listing of a Chinese bank, it will very likely be the most disruptive.  In 2007, the Treasury Department labeled the Macau-based Banco Delta Asia as a financial institution of primary money laundering concern, and in 2012 listed China’s Bank of Kunlun under an Iran-related sanctions authority.  Continue reading

June 1, 2017

D.C. Circuit Affirms OFAC’s Broad Enforcement Authority, but Demands Increased Transparency in its Decision-Making Process

by Jeremy Paner

Last week, the U.S. Court of Appeals for the D.C. Circuit issued a decision in Epsilon Electronics, Inc. v. U.S. Dept. of the Treasury, Office of Foreign Assets Control et al., No. 16-5118, __ F.3d __ (D.C. Cir. 2017), which largely affirms the lower court’s granting of summary judgement in favor of the government defendant.  The D.C. Circuit Court, however, remanded the matter for consideration of five of the 34 alleged sanctions violations and a recalculation of the total $4,073,000 civil monetary penalty arising from alleged Iran sanctions violations.  This decision continues the recent trend of increased judicial scrutiny of national security-related actions by the Executive branch.  Foreign and domestic companies that are the subjects of OFAC enforcement investigations should consider seeking judicial review of administrative records that do not clearly explain the agency’s consideration of potentially exculpatory information.  Continue reading

April 26, 2017

Designation of Hundreds of Syrians Provides Insight into OFAC and a Reminder of Screening Expectations

by Jeremy Paner

Yesterday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated 271 Syrians accused of serving the Government of Syria as employees of the Scientific Studies and Research Center (SSRC).  OFAC announced this action in response to the April 4 sarin gas attack in Khan Sheikhoun, Syria.  The U.S. government used sanctions to respond to previous chemical weapons attacks.  On January 12, 2017 OFAC announced the designation of six SSRC officials following three separate chlorine gas attacks against civilians.

OFAC is likely to continue designating individuals and entities the U.S. government alleges to be responsible for chemical attacks on civilians.  This could lead to targeting significant Iranian interests that would jeopardize the Joint Comprehensive Plan of Action.  In the meantime, compliance programs should assess their current procedures against OFAC screening expectations. Continue reading