On October 19, 2023, the U.S. Department of the Treasury’s (“Treasury”) Financial Crimes Enforcement Network (FinCEN) announced a Notice of Proposed Rulemaking (NPRM) that would implement new recordkeeping and reporting requirements on domestic financial institutions and domestic financial agencies, related to transactions that they know, suspect, or have reason to suspect involve convertible virtual currency (CVC) mixing within or involving a non-U.S. jurisdiction. 

FinCEN issued the NPRM pursuant to Section 311 of the USA PATRIOT Act, which provides the Secretary of the Treasury (the “Secretary”) the authority to require domestic financial institutions and domestic financial agencies to take “special measures” where the Secretary finds reasonable grounds to conclude that a class of transactions, institution, account, or foreign jurisdiction is of “primary money laundering concern.”  The NPRM identifies international CVC mixing as a class of transactions of primary money laundering concern, highlighting the use of CVC mixing services by illicit actors including cyber criminals and terrorist groups.  According to FinCEN’s press release, the NPRM represents FinCEN’s first use of Section 311 to target a class of transactions.

Continue Reading FinCEN Proposed Rule Targets Digital Asset Mixers

On October 4, 2023, Deputy Attorney General Lisa O. Monaco, the second-ranking official in the US Department of Justice (“DOJ” or the “Department”), announced a new Safe Harbor Policy for Voluntary Self-Disclosures (“VSDs”) made in connection with mergers and acquisitions (“M&A”) (together, “M&A Safe Harbor Policy”).  The new policy encourages acquiring companies to timely disclose misconduct uncovered during M&A due diligence and harmonizes the DOJ-wide approach to VSDs for M&A transactions.  The implementation of the M&A Safe Harbor Policy is the most recent initiative in the Biden Administration’s efforts to combat corporate crime and has broad implications across DOJ’s Divisions.

Continue Reading DOJ Announces “Safe Harbor” Policy for Mergers & Acquisitions

On September 14, 2023, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the Department of State, and the Department of Commerce’s Bureau of Industry and Security (“BIS”) announced new sanctions designations and export control guidance related to Russia.  These developments are the latest updates in the U.S. government’s ever-evolving response to Russia’s war in Ukraine through economic sanctions and export controls.

Continue Reading U.S. Government Issues New Russia-related Sanctions Designations and Export Controls Guidance

On September 8, 2023, the UK Departments for Business and Trade and International Trade jointly published guidance on the scope of the sanctions on certain Russian iron and steel products processed in a third country that will come into effect under Part 5, Chapter 4CA of The Russia (Sanctions) (EU Exit) Regulations 2019 (“Russia Regulations”) on September 30, 2023 (“Guidance”).  The measure seeks to reduce circumvention of sanctions on the covered Russian iron and steel products by limiting market participants’ ability to conceal the Russian origin of these items through third country processing.  The Guidance confirms that there will be no exceptions or transitional period in relation to the goods covered by the prohibition that was introduced in The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2023 in April 2023, making it important for impacted companies to promptly assess the Guidance to determine the likely impact of the sanctions on their business activities and put in place controls to ensure compliance with the new restrictions timely.

Continue Reading UK Publishes Guidance on the Scope of Sanctions Targeting Russian Iron and Steel Products Processed in Third Countries

On September 6, 2023, the Financial Conduct Authority (“FCA”), the UK regulator for financial services firms and markets, published a review of its assessment of sanctions systems and controls in place at financial services firms in the UK.  The review sought, in particular, to assess firms’ response to the rapid expansion in the size, scale, and complexity of sanctions following Russia’s invasion of Ukraine.  The FCA’s review considered sanctions compliance systems and controls at over 90 firms spanning various aspects of the financial services sector, including payments, retail banking, wholesale banking, wealth management, insurance, and electronic money.  The objective of the review was to assess the adequacy and effectiveness of firms’ systems and controls in addressing sanctions risks and their ability to respond promptly to changes in the UK’s sanctions regime.

Continue Reading FCA Publishes Findings of its Assessment of UK Financial Services Firms’ Sanctions Systems and Controls

On August 18, 2023, the UK High Court issued a judgment in the first sanctions designation challenge pursuant to the UK’s Russia sanctions regime under Section 38 of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”).  The challenge was brought by Eugene Shvidler (“Mr. Shvidler”), a UK-US dual national businessman, following an unsuccessful ministerial review in which Mr. Shvidler sought to reverse his UK designation.  The High Court rejected the challenge on the grounds that the decision to maintain Mr. Shvidler’s designation was proportionate and non-discriminatory.  Mr. Justice Garnham’s judgment addressed both the threshold for a UK listing and the balance that must be struck between the rights of a designated person and the public interest when assessing a designation decision under Section 38 of SAMLA, points which will have broader relevance to future UK delisting cases.

Continue Reading UK High Court Rejects First Delisting Challenge Under the UK’s Russia Sanctions Regime

On August 31, 2023, OFSI made its first use of the disclosure enforcement power granted to it pursuant to the Economic Crime (Transparency and Enforcement) Act 2022 (“ECA”) in relation to a case involving Wise Payments Limited (“Wise”) making funds available to a company owned or controlled by a UK designated person contrary to the Russia (Sanctions) (EU Exit) Regulations 2019 (“Russia Regulations”).  The exercise of OFSI’s disclosure power was accompanied by a blog post from OFSI Director, Giles Thomson, as well as the publication of an update to the OFSI Enforcement and Monetary Penalties for Breaches of Financial Sanctions Guidance (“Monetary Penalties Guidance”) outlining how OFSI intends to make use of the disclosure power and the process associated with its exercise of the power.  Among other things, the updated Monetary Penalties Guidance sets out an evolution of OFSI’s categorization of breach cases that includes additional categories to reflect this new enforcement tool and make good on OFSI’s commitment to proportionate enforcement action for breaches of financial sanctions following the introduction of strict civil liability in June 2022.

Continue Reading OFSI Makes Use of Disclosure Enforcement Power for the First Time Against UK Fintech Company

After months of anticipation, a federal judge has finally ruled in the closely watched case of Joseph Van Loon, et al. v. Department of Treasury, et al.  This important case addressed challenges to the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) decision to impose sanctions on Tornado Cash as a Specially Designated National and Blocked Person (SDN).  The judge granted summary judgement in favor of OFAC, finding it had sufficient legal authority to designate Tornado Cash, and denied summary judgement on the plaintiffs’ claims.  Shortly after that ruling, OFAC announced the SDN designation of Roman Semenov, one of three alleged co-founders of Tornado Cash, and the Department of Justice (DOJ) charged Semenov and Roman Storm, another Tornado Cash founder, with multiple alleged criminal violations related to anti-money laundering (AML) and economic sanctions laws. 

All three actions are critical developments that contain key insights on how the US government views the AML and sanctions obligations of decentralized protocols and individuals associated with those protocols.  The developments make clear that, at least in certain scenarios, individuals involved in the creation of a DeFi platform can be held responsible for the activities conducted on that platform where such conduct violates US economic sanctions or AML laws, or constitutes sanctionable activity under applicable executive orders. 

Continue Reading Critical Tornado Cash Developments Have Significant Implications for DeFi AML and Sanctions Compliance

Effective August 18, 2023, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) issued amendments to the Commerce Control List (CCL) (15 CFR Part 774) of the Export Administration Regulations (EAR) to formalize changes based on Nuclear Supplier Group (NSG) commitments to prevent nuclear proliferation and the development of nuclear-related weapons of mass destruction.

Continue Reading BIS Promulgates CCL Changes Based on Nuclear Supplier Group Commitments

On August 10, 2023, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), in coordination in the United Kingdom and Canada, designated the former governor of Lebanon’s central bank, Riad Salameh (“Salameh”) and four close associates, pursuant to Executive Order (“E.O.”) 13441.  According to OFAC’s press release, Salameh was designated for alleged “corrupt and unlawful actions [that] have contributed to the breakdown of the rule of law in Lebanon” and his close associates were designated for “having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, Salameh.”  The designations are noteworthy in that they were undertaken pursuant to OFAC’s determinations under sections 1(a)(i)(A) and (B) of E.O. 13441 – which provide authority for OFAC designations in response to actions “contribut[ing] to the deliberate breakdown in the rule of law in Lebanon”, among other sanctionable activities – rather than E.O. 13818 (the “Global Magnitsky Act E.O.”), which authorizes the imposition of sanctions against individuals and entities involved in serious human rights abuses, corruption, or other malign activities, including any person determined to “degrade the rule of law,” on a worldwide basis. 

Continue Reading OFAC Sanctions Former Governor of Lebanon Central Bank and Associates