UBS Financial Services Agrees to Pay $14.5 Million to Resolve Anti-Money Laundering Violations

By Jillian Norton and Brian Egan on Posted in Anti-Money Laundering

On December 17, 2018, the Financial Crimes Enforcement Network (“FinCEN”) announced that UBS Financial Services, Inc. (“UBS”) had entered into a consent agreement to resolve violations of the Bank Secrecy Act (BSA). UBS is a global firm providing financial services in over 50 countries, including the U.S.  As part of this agreement, UBS will pay $14.5 million in civil penalties to U.S. regulators — $5 million of which will be paid to the U.S. Department of the Treasury, while the remainder will be made concurrent with penalties imposed by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

According to FinCEN, UBS willfully violated anti-money laundering (AML) program requirements and failed to conduct ongoing due diligence on correspondent accounts for foreign financial institutions for more than a decade. Violations included: failure to develop and implement an appropriate risk-based AML program that adequately addressed the risks associated with accounts that included both traditional brokerage and banking-like services; failure to implement appropriate policies and procedures to ensure the detection and reporting of suspicious activity; failure to hire and retain sufficient AML compliance staff to meet its obligations under the BSA, resulting in a backlog of cases that hindered UBS’s ability to investigate and report suspicious activity;  and failure to adequately monitor foreign currency-denominated wire transfers conducted through commodities accounts and retail brokerage accounts.  These practices violated UBS’s obligations as a brokerage firm providing bank-like services to develop and implement an adequate AML program. Continue Reading

Sanctions Compliance Risk Increases for Cryptocurrency Companies

By Evan Abrams, Alan Cohn and Jack Hayes on Posted in Economic Sanctions, Iran Sanctions, Venezuela Sanctions

Sanctions compliance considerations have always been important for cryptocurrency companies, but several recent US government actions suggest regulators are increasingly focused on the intersection between digital currencies and economic sanctions.  This increased focus highlights the importance of sanctions compliance for blockchain-related companies, particularly for those considered to be US persons.

This intensified focus has been building for a number of months.  For example, in March of 2018, President Trump issued an Executive Order imposing certain sanctions on the Venezuelan government-issued digital currency known as the petro.

Last week, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) took another step to ramp up sanctions against malign actors using digital currency.  OFAC designated two Iranian individuals who helped exchange bitcoin ransomware payments into Iranian rials on behalf of Iranians involved in the SamSam ransomware attack.  In making those designations, OFAC listed specific digital currency wallet addresses associated with the designated individuals, marking the first time it has done so. 

For more information, please see the full blog post on Steptoe’s Blockchain Blog.

EU Framework for Screening of Foreign Direct Investments (Informally) Approved by the European Parliament and Council

By Yves Botteman, Daniel Barrio Barrio and Alexandra Guillaume on Posted in CFIUS Foreign Investment Reviews & FOCI Mitigation, International Arbitration and Investment

On November 20, 2018, the European Parliament, the Council and the Commission reached a political agreement on the proposed EU framework for the screening of foreign direct investments (FDIs).

The proposal, which was put forward by the Commission in September 2017, aims to protect key strategic industries and assets in Europe while maintaining the EU’s appeal to foreign investors.

While other countries such as Australia, Canada, China, India, Japan and the US, as well as 12 of the 28 EU Member States already have FDI screening mechanisms in place, this is the first time such a mechanism has been introduced at the EU level.

For more information, please see the full blog post on Steptoe’s Antitrust & Competition Blog.

Administration Moves Toward Strengthening Export Controls and Investment Restrictions on “Emerging Technologies”

By Brian Egan and Judy Wang on Posted in CFIUS Foreign Investment Reviews & FOCI Mitigation, Export Control Reform, Export Controls

Yesterday the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) took its first step towards a potentially significant expansion of U.S. export controls by publishing a Federal Register notice soliciting public comments on how the U.S. government should regulate the export of “emerging technologies.” Under the Export Controls Reform Act of 2018 (ECRA), “emerging and foundational technologies” will be subject to additional export controls and will trigger heightened foreign investment reviews for U.S. companies that produce or develop these technologies.  Commerce has requested public comments on the “criteria for defining and identifying emerging technologies” by December 19, 2018.  Commerce will begin a separate comment process regarding “foundational technologies” at a later date.

Export Controls

BIS regulates the export of “dual-use” and less sensitive military items through the Commerce Control List (CCL) and the Export Administration Regulations (EAR). Section 1758 of the ECRA, enacted in August 2018 as a part of the National Defense Authorization Act for Fiscal Year 2019, requires BIS to establish “appropriate controls” for the export, re-export, or in-country transfer of “emerging and foundational technologies” that “are essential to the national security of the United States” but are not yet subject to U.S. export controls.  While Commerce will have the discretion to set the level of export controls for any identified emerging and foundational technologies, at a minimum it must require a license for the export of these technologies to countries subject to a U.S. arms embargo. (Section 126.1 of the International Traffic in Arms Regulations (ITAR) identifies several countries, including China, currently subject to an arms embargo by the United States.) Continue Reading

Treasury Sanctions 17 Saudi Officials, though not the Crown Prince, in the Killing of Jamal Khashoggi

By Jillian Norton and Brian Egan on Posted in Economic Sanctions

On November 15, OFAC imposed economic sanctions against 17 Saudi officials for their participation in the killing of Jamal Khashoggi. Khashoggi, a journalist and “royal insider-turned-critic of Saudi policy”, was murdered at the Saudi Arabian consulate in Istanbul, Turkey on October 2, 2018. Among the men designated in yesterday’s action are Saud Al-Qahtani—a top aide to Saudi Crown Prince Mohammed bin Salman—and Saudi Consul General Mohammed Alotaibi. These individuals were designated pursuant to Executive Order 13818, which builds upon and implements the Global Magnitsky Human Rights Accountability Act targeting perpetrators of serious human rights abuse and corruption.

Yesterday’s designations were announced hours after Saudi Arabia’s public prosecutor said the death penalty was being sought for five out of eleven suspects charged in Khashoggi’s murder in Saudi Arabia. The economic sanctions do not target the Riyadh government or the Crown Prince, who the Saudi foreign minister said had “absolutely nothing to do” with the murder. Nonetheless, U.S. officials have continued to press the Saudi government for a full investigation. Continue Reading

New “Troika of Tyranny” Cuba Sanctions – More Bark Than Bite

By Peter Jeydel on Posted in Cuba Sanctions, Economic Sanctions

Effective tomorrow the State Department is updating its Cuba Restricted List (press release here) to add 26 new subentities (along with amending the entries for 5 previously-listed subentities).  National Security Advisor John Bolton had previewed this action in a speech in Miami in which he labeled Cuba, Venezuela and Nicaragua the “Troika of Tyranny” and said the U.S. government would be designating “over two dozen additional entities owned or controlled by the Cuban military and intelligence services to the restricted list of entities with which financial transactions by U.S. persons are prohibited.”  Bolton had ominously warned that this “Troika” had “finally met its match” and that all three countries “will feel the full weight of America’s robust sanctions” under this new policy.  Bolton suggested that the Administration would implement a tough new sanctions policy against Cuba, quipping, in contrast to the Obama Administration, that “Our concern is with sanctions, not selfies.”

So what has been the follow up to this strident policy pronouncement?  So far, it has been to add several hotels and other seemingly minor entities to a sanctions list that itself has little practical impact in many cases.  What this list does under the U.S. sanctions regulations, as we’ve previously advised, is limit the ability of U.S. persons to use certain carve-outs from the Cuba embargo but only when engaging in “direct financial transactions” with one of the listed entities, including “by acting as the originator on a transfer of funds whose ultimate beneficiary is” on the list “or as the ultimate beneficiary on a transfer of funds whose originator is” on the list.  Because the Cuban embargo already prohibits U.S. persons from engaging in most types of activity with Cuba, in many instances being on this list does not give rise to additional sanctions restrictions.  There is also an impact under U.S. export controls, and these listed entities will generally not be eligible to receive goods, software or technology subject to U.S. jurisdiction.      Continue Reading

Export Control Hiring Practices Continue to Challenge Employers

By Liz LaRocca, Erin Bass, Ed Krauland and Jack Hayes on Posted in Export Controls, Immigration

Two recent settlements between employers and the U.S. Department of Justice (DOJ) emphasize the complex interplay between U.S. immigration and export control laws in the hiring process.  The settlements serve as a reminder to employers of the potential employment discrimination pitfalls for companies attempting to comply with export control laws. 

In late August 2018, the DOJ’s Immigration and Employee Rights Section (IER) reached a settlement agreement with international law firm Clifford Chance US LLP, which the DOJ accused of violating the Immigration and Nationality Act (INA) by refusing to consider employment-authorized non-US citizens and dual citizens for a document review project.  Just two months earlier, the DOJ found that engineering company Setpoint Systems, Inc. violated the INA by limiting certain positions to U.S. citizens only.  In both cases, the unlawful employment practices stemmed from a mistaken understanding of the requirements of the International Traffic in Arms Regulations (ITAR).

For more information, please see the full post on Steptoe’s Labor & Employment Blog.

U.S. Reimposes Sanctions and Then Some, as Iran Warns of “War Situation”

By Jillian Norton and Brian Egan on Posted in Economic Sanctions, Iran Sanctions

On November 5, 2018, the U.S. government reimposed the remaining sanctions on Iran that were previously lifted under the Joint Comprehensive Plan of Action (JCPOA) in 2016.  Treasury’s Office of Foreign Assets Control (OFAC) added over 700 Iranian entities, individuals, vessels, and aircrafts to the list of Specially Designated Nationals and Blocked Persons (“SDN List”), including scores of previously unlisted targets.  According to a statement from Treasury, these sanctions are “designed to disrupt the Iranian regime’s ability to fund its broad range of malign activities, and places unprecedented financial pressure on the Iranian regime to negotiate a comprehensive deal that will permanently prevent Iran from acquiring a nuclear weapon, cease Iran’s development of ballistic missiles, and end Iran’s broad range of malign activities.”

The new or reimposed SDN designations include nearly 250 persons and associated blocked property that had appeared on the so-called “EO 13599 list,” 50 additional Iranian banks and their subsidiaries, and over 400 additional affiliated targets in a range of sectors, including Iran’s shipping, energy, and aviation sectors, among others. OFAC has published a complete list of designated entities here.  Under the existing sanctions framework, foreign financial institutions and persons that facilitate or engage in transactions with designated entities are themselves potentially subject to U.S. sanctions restrictions. Continue Reading

US Sanctions Venezuelan Gold Sector

By Peter Jeydel on Posted in Economic Sanctions, Venezuela Sanctions

Today the President issued a new Executive Order targeting Venezuela, which is noteworthy in three respects:

1) It shows the US government wants to continue to increase the pressure on the Maduro regime through sanctions, but is continuing to act incrementally rather than imposing more sweeping restrictions that had been rumored in the past to be under consideration, such as broader oil sector sanctions.

2) It may have a significant impact on any companies dealing in the Venezuelan gold sector or dealing in gold sourced from Venezuela.  Press reports indicate that a significant portion of Venezuelan gold is exported to refiners in Turkey.  OFAC issued Frequently Asked Questions to provide additional guidance to those operating in these areas.

3) It authorizes the Treasury and State Departments to designate additional sectors of the Venezuelan economy for future sanctions, an authority similar to that which exists under the current Russia sanctions program. 

No sanctions designations of individuals or entities were announced concurrent with the publication of this Executive Order, so for the time being this remains simply a framework for potential future sanctions.

Treasury Creates CFIUS Pilot Program and Releases Interim Regulations as Initial Step Toward Implementing FIRRMA Reforms

By Brian Egan, Judy Wang and Evan Abrams on Posted in CFIUS Foreign Investment Reviews & FOCI Mitigation

As a first step to implementing the wide-ranging Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) that was enacted in August 2018, the U.S. Department of the Treasury on October 10, 2018 issued an interim rule to launch a “pilot program” to expand the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) to review certain “critical technology” transactions.  Treasury also issued temporary regulations that make limited changes to the existing CFIUS regulations, mostly to implement changes that became effective immediately upon passage of FIRRMA.

Pilot Program Interim Rule

A number of the provisions of FIRRMA that expand CFIUS’s jurisdiction do not become effective until Treasury passes implementing regulations or February 2020, whichever comes first.  Treasury is not expected to finalize the relevant implementing regulations for several months.  However, FIRRMA also authorized Treasury to create temporary “pilot programs” to allow for faster implementation of parts of the legislation that did not become effective immediately upon enactment. Continue Reading

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