FinCEN Issues Proposed Rule to Designate ABLV Bank as Being of Primary Money Laundering Concern

On February 13, 2018, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM), pursuant to Section 311 of the PATRIOT Act, seeking to prohibit the opening or maintaining of a correspondent account in the United States for, or on behalf of, ABLV Bank, located in Riga, Latvia. A final rule may be issued after a 60 day comment period.

The NPRM asserts that ABLV is a “foreign bank of primary money laundering concern.” In particular, FinCEN claims that it has reasonable grounds to believe the following:

ABLV management permits the bank and its employees to orchestrate and engage in money laundering schemes; solicits the high risk shell company activity that enables the bank and its customers to launder funds; maintains inadequate controls over high-risk shell company accounts; and seeks to obstruct enforcement of Latvian anti-money laundering and combating the financing of terrorism (AML/CFT) rules in order to protect these business practices. In addition, illicit financial activity at the bank has included transactions for parties connected to U.S. and UN-designated entities, some of which are involved in North Korea’s procurement or export of ballistic missiles.

According to the NPRM, ABVL does not currently maintain correspondent accounts directly with U.S. banks; rather, it accesses the U.S. financial system through nested U.S. dollar correspondent relationships with other financial institutions that do hold direct U.S. correspondent accounts. If finalized, this action would prohibit such accounts and bar other financial institutions from processing any transactions involving ALBV through correspondent accounts they hold at U.S. financial institutions.  To ensure this requirement is enforced effectively, the final rule would require U.S. financial institutions to conduct due diligence on foreign correspondent account holders and to notify them of this prohibition.  The NPRM states that the following notice will suffice:

Notice: Pursuant to U.S. regulations issued under Section 311 of the USA PATRIOT Act, see 31 CFR 1010.661, we are prohibited from opening or maintaining in the United States a correspondent account for, or on behalf of, ABLV. The regulations also require us to notify you that you may not provide ABLV, including any of its subsidiaries, branches, and offices with access to the correspondent account you hold at our financial institution. If we become aware that the correspondent account you hold at our financial institution has processed any transactions involving ABLV, including any of its subsidiaries, branches, and offices we will be required to take appropriate steps to prevent such access, including terminating your account.

U.S. financial institutions will not be required to obtain certification from any of its correspondent account holders that such access will not be provided in order to comply with the notice requirement.

Four banks as well as the countries of Burma and North Korea are currently subject to 311 sanctions. Eighteen other banks or jurisdictions have been similarly subject to an NPRM that was either never finalized or was subsequently rescinded.

Dual-Use Export Controls Webinar

On Tuesday, February 27 at 11:00 AM EST, Anthony Rapa will be presenting “Introduction to Dual-Use Export Controls: U.S. EAR and EU Dual-Use Regulation”, a webinar hosted by Federal Publications.  As described on the Federal Publications website:

Are you involved in the flow of goods, software, or technical data across borders?  If so, you might be impacted by export controls.  This webinar provides an introduction to U.S. and EU “dual-use” (i.e., commercial / civilian) export control laws and regulations, including an overview of:

  • What activity is subject to export controls
  • Which items are covered
  • The reach of U.S. export jurisdiction (hint: everywhere!)
  • How U.S. and EU rules overlap and differ
  • Export licensing requirements
  • Basic compliance tips

This webinar is the first of a three-part series that will focus on export controls.

You can sign up for the webinar here.

OFAC Publishes FAQs on New Debt and Late Payments Under Venezuelan Sanctions Regime

On February 12, 2018, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) published new frequently asked questions (“FAQs”) regarding the meaning of “new debt” under Executive Order (“EO”) 13808 and the receipt of certain late payments from the Government of Venezuela (“GoV”) and Petroleos de Venezuela, S.A. (“PdVSA”).

EO 13808 prohibits “all transactions related to, provision of financing for, and other dealings in … new debt with a maturity of greater than 90 days” of PdVSA and “new debt with a maturity of greater than 30 days, or new equity, of the Government of Venezuela” by a U.S. person or within the United States. See our previous post.

Newly published FAQ #553 defines new debt to mean “debt created on or after August 25, 2017.” The FAQ further explains that debt created prior to that date does not constitute new debt unless the terms of the debt instrument were changed on or after August 25, 2017.  Under FAQ #511, the term debt includes “bonds, loans, extensions of credit, loan guarantees, letters of credit, drafts, bankers acceptances, discount notes or bills, or commercial paper.” Continue Reading

H-1B Petitions for Foreign Employees: Changes to Policy, Not Process

With widespread media attention on the Deferred Action for Childhood Arrivals (DACA) policy expiration and immigration policy negotiations, it is important not to overlook the start of the H-1B “cap” case season. With no time to waste, employers must determine their need for H-1B cap filings and immediately begin preparation, well ahead of the five-day filing window starting April 2, 2018. Changes to the H1-B program in the past year, while significant, have been limited to policy and practice changes. At present, the various proposals for changes to law and regulation are still just proposals. The H-1B cap filing timing and procedures remain unchanged and, despite the challenges discussed in this advisory, the cap season is still a high priority and necessity for many US employers.

For more information, please see our advisory.

Service on Foreign Governments in US Lawsuits – Handle with Care, and Avoid the Embassy

Proper service of process is vital in litigation involving foreign sovereigns, including litigation to obtain an enforceable judgment. Recently, the Fourth Circuit held that the Foreign Sovereign Immunities Act does not permit service of process by mail to a foreign government’s embassy in the United States. In Kumar v. Sudan, the Fourth Circuit vacated a $34 million default judgment entered against Sudan for damages related to Sudan’s alleged provision of material support to the al-Qaeda operatives who carried out the 2000 bombing of the U.S.S. Cole. The US Supreme Court is currently reviewing the question of service of process on a foreign embassy in another case involving Sudan, Sudan v. Harrison, in which the Second Circuit reached a contrary holding. To read our full advisory, please click here.

Steven K. Davidson, Michael J. Baratz, and Brian Egan authored this advisory.

CFIUS Reform: A Primer on the Key Changes Under Consideration

Key committees in the Senate and House have concluded initial hearings on the bill to reform the Committee on Foreign Investment in the United States (CFIUS), the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA). FIRRMA was introduced in the Senate and House by Senator Cornyn and Representative Pittenger with bipartisan cosponsors on November 9, 2017. CFIUS is the interagency US government body originally created by President Ford in 1975 to review the national security implications of foreign investment activity in the United States. CFIUS reviews foreign acquisitions, mergers, and takeovers of existing businesses in the United States for US national security concerns.

This advisory identifies key issues with the existing CFIUS process that have prompted calls for reform, the mechanisms that FIRRMA would create to address those issues, and some of the main criticisms of FIRRMA that have been registered by congressional witnesses and others thus far.

For more information, please see our advisory.

More Sanctions Ahead After Treasury’s Reports to Congress on Russian Oligarchs, Defense/Intel Sanctions?

The Treasury Department late last night issued several reports to Congress pursuant to mandates in the Countering America’s Adversaries Through Sanctions Act (CAATSA), including under CAATSA Sections 241 (Report on Senior Foreign Political Figures and Oligarchs in the Russian Federation) and 242 (Report on Effects of Expanding Sanctions to Include Sovereign Debt and Derivative Products).  While the headlines on the Section 241 report on Russian oligarchs, senior government officials, and parastatal entities blare “no sanctions imposed,” the details are less reassuring.

In response to a question from Senator Robert Menendez (D-NJ) in testimony before the Senate Banking Committee today, Treasury Secretary Mnuchin stated “There will be sanctions that come out of this,” seemingly referring to the Section 241 report.  Secretary Mnuchin went on later, in response to a separate question from Senator Brian Schatz (D-HI), to describe that intelligence work that went into this report and stated “And now, we will take the basis of that report and look at kind of – as we do in the normal course, where it’s appropriate to put sanctions. . . . So this should in no way be interpreted as we’re not putting sanctions on any of the people in that report.”  While the Secretary’s statements were not entirely clear, they suggest the possibility of sanctions on at least some of the individuals or entities on the Section 241 list as Treasury rolls out additional Russia sanctions going forward. Continue Reading

Implications for Virtual Currency Exchangers of Significant FinCEN Action Against BTC-e

Steptoe’s Jack Hayes, Brian Egan, Ed Krauland, Jason Weinstein, and Alan Cohn co-authored an article for The Banking Law Journal titled “Implications for Virtual Currency Exchangers of Significant FinCEN Action Against BTC-e.” The article discusses a civil monetary penalty assessed by the Financial Crimes Enforcement Network against Canton Business Corporation (BTC-e), one of the world’s largest virtual currency exchanges, as well as a penalty against a Russian national who allegedly controlled, directed, and supervised BTC-e’s operations, finances, and accounts, and the implications of these actions.

Russia Sanctions: Amended OFAC Directive 4 Effective Today

Today is the effective date of the expanded sanctions set out in Directive 4 under the U.S. Russia sanctions program, as amended by the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) on October 31, 2017.  The amendment implemented Section 223 of the Countering America’s Adversaries Through Sanctions Act (CAATSA), signed into law by President Trump last August.  See our previous advisory.

As previously explained, the expanded Directive 4 prohibits U.S. persons from providing goods, services (except financial services), or technology in support of any project worldwide for exploration or production of oil from deepwater, Arctic offshore, or shale in which certain designated Russian entities or their subsidiaries own a 33% or greater ownership interest, or a majority of the voting interests.  OFAC has issued FAQ guidance regarding how to calculate ownership interest where a designated entity owns an indirect ownership stake in a project.

The new restrictions are applicable to projects “initiated” on or after today, January 29.  Continue Reading

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