Revised OFAC Rule Requires Rejected Transaction Reporting

/ Global Compliance Solutions Group LLC/

On June 21, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”)(1) issued an interim final rule(2) that included, among others, new requirements for all US Persons to file reports on rejected transactions. In the past the requirement to report on rejected transactions only applied to financial institutions that rejected a “funds transfer” where processing the transaction may violate OFAC’s rules.

Reports on Rejected Transactions

The rule revises § 501.604(3) to:

  • Clarify that the section applies to all rejected transactions (not only to rejected funds transfers)

    • OFAC replaced references to “rejected fund transfers” with references to “rejected transactions” and added a definition for the term “transactions”

    • The term transaction includes transactions related to wire transfers, trade finance, securities, checks, foreign exchange, and goods or services(3);

  • Provide additional details around the information that should be provided to OFAC in connection with reports on rejected transactions;

  • Provide guidance on where/how to report the information on rejected transactions; and

  • Make other technical and conforming changes.

Other Revisions

  • Revising § 501.603(4) to provide more detail regarding information to be reported in connection with blocking reports;

  • Revising § 501.801(5) to include information regarding OFAC’s electronic license application procedures; and

  • Other technical and conforming changes to § 501.602(6), § 501.701(7), and § 501.806(8).

The interim final rule was effective on June 21, 2019 and comments were allowed to be submitted until July 22, 2019.

Contact our Advisory team to learn more about this rule change.

References

  1. US Department of the Treasury - Office of Foreign Assets Control

  2. 84 FR 29055-29062

  3. 31 CFR 501.604

  4. 31 CFR 501.603

  5. 31 CFR 501.801

  6. 31 CFR 501.602

  7. 31 CFR 501.701

  8. 31 CFR 501.806

OFAC Publishes a Framework for Compliance

/ Global Compliance Solutions Group LLC/

On May 2, 2019 the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC)(1) published “A Framework for OFAC Compliance Commitments”(2). The publication is intended to provide OFAC’s perspective, to entities subject to US jurisdiction, on what are essential components of an effective sanctions compliance program.

“OFAC developed this framework in our continuing effort to strengthen sanctions compliance practices across the board…This underlines our commitment to engage with the private sector to further promote understanding of, and compliance with, sanction requirements.” - Andrea M. Gacki, Director of the Office of Foreign Assets Control (3)

Summary

  • OFAC continues to emphasize and “strongly encourage” entities subject to U.S. jurisdiction to take a risk-based approach to sanctions compliance by “developing, implementing, and routinely updating a sanctions compliance program (“SCP”).

  • Regardless of company size, sophistication, products/services, geographic locations, etc…each SCP should incorporate at least these five (5) components: management commitment, risk assessment, internal controls, testing and auditing, and training.

  • In enforcement cases, OFAC will evaluate an entities SCP against the Economic Sanctions Enforcement Guidelines (the “Guidelines”)(4) and when applying the Guidelines will favorably consider an entity that had an effective SCP in place at the time a violation occurred.

A Few Key Points

  • Management Commitment

    • Effective senior management commitment, among others, includes providing adequate resources for compliance and support for the authority of compliance personnel within the organization.

    • Adequate resources includes ensuring there are enough personnel with sufficient expertise dedicated to compliance, and adequate information technology, and other resources, as appropriate.

  • Risk Assessment(5)

    • OFAC recommends a risk-based approach to implementation of a SCP and one of the integral components of this approach is to conduct periodic risk assessments.

    • The assessment should include, among others, a review of customers, vendors, products, services, third-party intermediaries, and geographic locations.

  • Internal Controls

    • An effective SCP should include policies and procedures. These policies and procedures should be enforced and updated when weaknesses are detected or requirements change.

    • Sufficient personnel should be appointed to ensure proper integration of the company’s policies and procedures into the daily operation of the company.

    • The organization should clearly communicate their policies and procedures to all relevant staff.

  • Testing and Auditing

    • An effective SCP include’s a comprehensive and objective testing or audit function that identifies program weaknesses and deficiencies.

    • Any deficiencies identified, including software systems, should be addressed.

  • Training

    • An effective training program is considered an integral component of a successful SCP. The training should be provided to all appropriate employees and personnel on a periodic basis (at a minimum, annually).

  • Root Causes of OFAC Compliance Program Breakdowns - OFAC has identified the following common areas where deficiencies resulted in sanctions compliance failures:

    • Lack of a formal OFAC sanctions compliance program;

    • Misinterpreting, or failing to understand the applicability of, OFAC’s regulations;

    • Facilitating transactions by non-US persons (including through or by overseas subsidiaries or affiliates);

    • Exporting or re-exporting US-origin goods, technology, or services to OFAC sanctioned persons or countries;

    • Utilizing the US financial system, or processing payments to or through US financial institutions, for commercial transactions involving OFAC-sanctioned persons or countries;

    • Sanctions screening software or filter failures;

    • Improper due diligence on customers/clients;

    • De-centralized compliance functions and inconsistent application of their SCP; and

    • Utilizing non-standard payment or commercial practices.

Contact us to learn more about OFAC’s guidance and to find out how GCSG’s Advisory and Audit teams can guide and partner with you to reduce your sanctions compliance risk and protect your company’s bottom line and reputation.

References

Network of Iranian front companies disrupted by OFAC

/ Global Compliance Solutions Group LLC/

On March 26, 2019 the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced(1) it had taken action against a network of 25 individuals and entities that had transferred over a billion dollars to the Islamic Revolutionary Guard Corps (IRGC) and Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL).

The evasion scheme included a layered network of front companies and agents based in Iran, UAE, and Turkey that were set up to evade international sanctions and to gain access to the international financial system. The network exchanged devalued Iranian rials for dollars and euros.

“We are targeting a vast network of front companies and individuals located in Iran, Turkey, and the UAE to disrupt a scheme the Iranian regime has used to illicitly move more than a billion dollars in funds…Central to this network and sanctioned today pursuant to our counter terrorism authority is Iran's IRGC-controlled Ansar Bank and its currency exchange arm, Ansar Exchange, both of which used layers of intermediary entities to exchange devalued Iranian rial ultimately for dollars and euros to line the pockets of the IRGC and MODAFL…” (1)

Five front companies- UAE-based Sakan General Trading, Lebra Moon General Trading, and Naria General Trading, and Turkey-based Atlas Doviz, and the Iran-based Hital Exchange provided $800 million in funds to Ansar exchange.

Now more than ever, it is vitally important that global companies implement third-party due diligence and engagement policies. These policies are often risk-based but should be comprehensive and include at a minimum background investigation diligence and ongoing monitoring of distribution networks and contract agents.

Contact our Due Diligence compliance professionals at GCSG today to learn how we can help you mitigate your third-party risk with our due diligence reports, risk-ranking tool, policy development and implementation support, and international boots-on-the-ground third-party Audits.

References

(1) U.S. Department of the Treasury Press Releases - “United States Disrupts Large Scale Front Company Network Transferring Hundreds of Millions of Dollars and Euros to the IRGC and Iran’s Ministry of Defense.” - March 26, 2019

OFAC Issues Global Magnitsky Sanctions Regulations

/ Global Compliance Solutions Group LLC/

On June 29, 2018 the Department of the Treasury's Office of Foreign Assets Control (OFAC) published a final rule (83 FR 30541-30548) that implements the Global Magnitsky Human Rights Accountability Act (the "Act") and Presidential Executive Order 13818 (the "EO").  

The Act authorizes the US President to impose sanctions on any foreign person determined to be responsible for extrajudicial killings, torture, or other gross violations of human rights, or a government official that is responsible for, complicit in, ordering, controlling, or otherwise directing acts of significant corruption.  The EO declared a national emergency to deal with the threat of serious human rights abuse and corruption around the world.  

The published regulations prohibit all transactions previously prohibited under the EO.

The rule is effective as of June 29, 2018.

Contact the experts at GCSG for more information.

E info@globalcompliancesg.com

References:

OFAC Amends the Iranian Transactions and Sanctions Regulations

/ Global Compliance Solutions Group LLC/

On Thursday, June 28 the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC) amended (1) the Iranian Transactions and Sanctions Regulations (2) in order to implement the President's May 8, 2018 decision (3) to end U.S. participation in the Joint Comprehensive Plan of Action (JCPOA).  The changes include, but are not limited to:

  • Amending the general licenses authorizing the importation into the US (4) of and dealings in, Iranian-origin carpets and foodstuffs, as well as related letters of credit and brokering services, to narrow the scope of the licenses and to allow for the wind down of these activities through August 6, 2018;
  • Adding a new general license to authorize the wind down, through August 6, 2018, of transactions related to the negotiation of contingent contracts for activities, previously approved under General License I (5), related to the export or re-export to Iran of commercial passenger aircraft and related parts and services; and 
  • Adding a new general license (6) to authorize the wind down, through November 4, 2018 of certain transactions, previously approved under General License H (7), related to foreign entities owned or controlled by a US Person (8).
    • Non-US entities that are owned or controlled by a US Person are still subject to the restrictions on US Person involvement during the wind down period (9).  

For more information contact your GCSG experts.

E  info@globalcompliancesg.com

References:

U.S. Sanctions Additional Russian Entities

/ Global Compliance Solutions Group LLC/

On Friday, January 26, 2018, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) sanctioned an additional nine entities, and 21 individuals related to Russia and Ukraine.  In addition, OFAC identified 12 subsidiaries that are 50% or more owned by previously sanctioned Russian companies.  

The action is related to Russia's occupation of Crimea and is intended to pressure Russia to fully implement its commitments under the Minsk agreements.  U.S. Persons (1, 2) are generally prohibited from conducting transactions involving these persons (2).

"The U.S. government is committed to maintaining the sovereignty and territorial integrity of Ukraine and to targeting those who attempt to undermine the Minsk agreements," - Secretary of the Treasury Steven T. Mnuchin (3)

Summary of OFAC Actions Taken

  • Designated 11 Ukrainian separatists - Pursuant to Executive Order (EO) 13660
  • Designated 3 individuals and 4 entities (ZAO Vneshtorgservis, Gaz-Alyans OOO, Doncoaltrade Sp. ZOO and Ugolnye Tekhnologii OOO) who have supported the illicit coal trade - Pursuant to EO 13660
  • Authorized sanctions against 4 individuals and 2 entities (Evro Polis Ltd., Instar Logistics) related to the Russian government - Pursuant to EO 13661
  • Authorized sanctions against one construction entity (VAD, AO) and two associated individuals - Pursuant to EO 13685
  • Designated one individual and 2 entities (Limited Liability Company Foreign Economic Association Technopromexport, PJSC Power Machines) related to Russia's transfer of four turbines to Crimea
  • Identified 12 subsidiaries of Surgutneftegaz as being 50% or more owned by Surgutneftegaz which was added to the Sectoral Sanctions Identification list in September 2014
    • Kaliningradnefteprodukt OOO
    • Kinef OOO
    • Kirishiavtoservis OOO
    • Lengiproneftekhim OOO
    • Media-Invest OOO
    • Novgorodnefteprodukt OOO
    • Pskovnefteprodukt OOO
    • Sngb AO
    • SO Tvernefteprodukt OOO
    • Sovkhoz Chervishevski PAO
    • Strakhovove Obshchestvo Surgutneftegaz OOO
    • Surgutmebel OOO

References and Key Link(s):

U.S. Sanctions NK and Chinese entities supporting Kim Regime

/

On January 24, 2018, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) sanctioned an additional nine entities, 16 individuals, and six vessels related to North Korea's violations of UN Security Council Resolutions (UNSCRs).  

The actions target actors located in North Korea, China, Russia, and Georgia.

"Treasury continues to systematically target individuals and entities financing the Kim regime and its weapons programs, including officials complicit in North Korean sanctions evasion schemes," - Secretary of the Treasury Steven T. Mnuchin (1)

Summary of OFAC Actions Taken

  • Designated 10 representatives of the Korea Ryonbong General Corporation (Ryonbong) and one Workers' Party of Korea official - Pursuant to Executive Order (EO) 13687
  • Designated 5 additional North Koreans with links to North Korean financial networks - Pursuant to EO 13810 or 13687
  • Designated Beijing Chengxing Trading Co. Ltd., Dandong Jinxiang Trade Co., Ltd., and Hana Electronics JVC - Pursuant to EO 13810
  • Designated five North Korean shipping companies (Gooryong Shipping Co Ltd, Hwasong Shipping Co Ltd, Korea Kumunsan Shipping Co, Korea Marine & Industrial Trdg, and CK International Ltd) and blocked six vessels (Goo Ryong, Hwa Song, Kum Un San, Un Ryul, Ever Glory, and UL JI Bong 6) as property of these five companies - pursuant to EO 13810
  • Sanctioned the North Korean Ministry of Crude Oil Industry

Key Link(s):

US Treasury, State, and Commerce - Monetary Penalty Increases Last Two Years

/ Global Compliance Solutions Group LLC/

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the "Act") required federal agencies to adjust their maximum allowable civil monetary penalties ("CMPs") annually.  The initial "catch-up" adjustments occurred in 2016; and now the first annual adjustments have been finalized by the US Department of Commerce's Bureau of Industry and Security ("BIS"), the US Treasury Department's Office of Foreign Assets Control ("OFAC"), and the US Department of State's Directorate of Defense Trade Control ("DDTC").  The chart below provides a reference for the original, 2016 "catch-up", and 2017 annual adjustment penalty amounts. 

BIS Revises Guidance Regarding EAR Enforcement Cases

/ Global Compliance Solutions Group LLC/

On Wednesday, June 22 the Department of Commerce, Bureau of Industry and Security (BIS) published (81 FR 40499-40511) updated guidance (found in Supplement No. 1 to part 766) regarding violations of the Export Administration Regulations (EAR). 

The guidance amends the EAR to make civil penalty decisions more transparent and aligns them with the Treasury Department's Office of Foreign Assets Control (OFAC). 

OFAC criminal penalties can reach 20 years imprisonment and $1 million per violation.  OFAC civil penalties use the transaction value as the starting point and can reach $250,000 or twice the value of the transaction, whichever is greater (Economic Sanctions Enforcement Guidelines). 

The updated guidance does not apply to alleged violations under part 760 of the EAR - Restrictive Trade Practices and Boycotts or to cases that are pending prior to July 22, 2016. 

The effective date of the final rule change is July 22, 2016. 

Key Link(s):