Category Archives: OFAC

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.

Continue reading

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

March 31, 2017

Recent U.S. Government Actions Highlight the Inherent Risk to U.S. and Foreign Companies Doing Business in Lebanon

by Steven Pelak and Jeremy Paner

Last week, the Acting U.S. Attorney for the Southern District of New York announced the settlement of a civil fraud suit against American University of Beirut (AUB) and payment of a $700,000 penalty for alleged False Claims Act (FCA) violations arising from OFAC sanctions violations.  The alleged violations arose from false certifications of economic sanctions compliance made by AUB to the U.S. Agency for International Development (USAID) in connection with U.S. Government grants.  According to the settlement, AUB provided USAID annual certifications that it did not provide “material support or resources” to designated entities or individuals on the Specially Designated Nationals (SDN) List of the Treasury Department’s Office of Foreign Assets Control (OFAC).

As part of the settlement, AUB admitted to a series of sanctions violations involving three separate Hizballah designated entities.  AUB acknowledged that it provided journalism training workshops attended by representatives of two designated Hizballah media entities, and separately promoted a designated Hizballah construction company through its inclusion on a publicly accessible online database.  AUB agreed to pay $700,000 and strengthen its compliance program to resolve the civil action. Continue reading

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