Revised OFAC Rule Requires Rejected Transaction Reporting

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

Network of Iranian front companies disrupted by OFAC

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