European Commission Adds US Territories to “Dirty Money” List in Departure from FATF

By Jeff Beatrice, Brian Egan, Alexandra Melia, Evan Abrams, Alexander Hamels and Jillian Norton on Posted in Anti-Money Laundering

On February 13, the European Commission adopted a new list of “high-risk” jurisdictions that the Commission identified as posing significant threats to the European Union’s financial system as a result of strategic deficiencies in their anti-money laundering and counter-terrorism financing (AML/CFT) frameworks. In addition to countries like North Korea, Iran, and Syria, the list also includes four US territories.  In response, the US Department of Treasury expressed “significant concerns about the substance of the list,” which diverges from the list published by the Financial Task Force (FATF), as well as the “flawed process” by which the list was developed. As a result of the new list, banks in the EU will be required to exercise enhanced due diligence when dealing with customers and financial institutions from the listed countries and territories.

According to the Commission, the new list reflects the broadened criteria for the identification of high-risk jurisdictions under the EU’s Fifth Anti-Money Laundering Directive, which now includes “the availability of information on the beneficial owners of companies and legal arrangements” including trusts. In creating this list, the Commission “developed its own methodology to identify high-risk countries, which relies on information from the Financial Action Task Force, complemented by its own expertise and other sources such as Europol.” EU Justice Commissioner Věra Jourová stated that the list is aimed at ensuring that “dirty money from other countries does not find its way [into the EU’s] financial system,” and urged the listed countries “to remedy their deficiencies swiftly.” Continue Reading

Secretary Pompeo: More Russia Sanctions Are Coming … Sometime

By Brian Egan, Peter Jeydel and Evan Abrams on Posted in Economic Sanctions, Russia/Ukraine Sanctions

On February 13, 2019, the State Department provided a summary of Secretary of State Mike Pompeo’s recent phone call with Russian Foreign Minister Sergey Lavrov, which stated that “Secretary Pompeo reiterated the U.S. determination to hold Russia accountable for its use of a chemical weapon in Salisbury, UK through sanctions as required by the CBW Act.”  The sanctions Secretary Pompeo referenced are the second round of sanctions slated to be imposed on Russia under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act) for that country’s use of a nerve agent against a former Russian spy and his daughter in the United Kingdom.  The decision to impose the second round of CBW Act sanctions was announced in November of last year, but there has largely been radio silence from the administration over the past few months with respect to a timetable for imposition or the type of sanctions to be imposed.  While the summary of Secretary Pompeo’s call did not provide any additional detail on those questions, it is notable as it indicates that despite the months of delay the administration is still expressing an intent to move ahead with the sanctions. Continue Reading

PdVSA Sanctions Designation Has Significant Implications for US Business

By Steptoe International on Posted in Economic Sanctions, Venezuela Sanctions

As we have previously written, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated the Venezuelan state-owned oil company Petróleos de Venezuela, S.A. (PdVSA) as a Specially Designated National (SDN) on January 28, 2019. This action will have a significant impact on US persons and businesses involved in any dealings with PdVSA or its subsidiaries. The designation also applies to any entity owned 50% or more by PdVSA, including companies with a significant US presence such as CITGO Holding, Inc. (CITGO). Accordingly, as of January 28, US persons are prohibited from engaging in all transactions with or otherwise involving PdVSA or any of its majority-owned subsidiaries and are required to block the property or interests in property of PdVSA and such subsidiaries unless a general or specific license applies.

For additional information on this action and associated general licenses, please see our advisory.

OFAC Enforcement Action Highlights Sanctions Risk in Supply Chain

By John London on Posted in Economic Sanctions, Export Controls, Sanctions Enforcement

On January 31, 2019, OFAC announced a $996,080 settlement with e.l.f. Cosmetics, Inc. (“ELF”) for violations of the North Korea Sanctions Regulations arising from the importation of 156 shipments of false eyelash kits that contained materials that were sourced from North Korea and that were purchased from suppliers in China.

In January 2017, ELF discovered that approximately 80% of its false eyelash kits contained materials from North Korea, and ELF voluntarily disclosed the violation to OFAC. Among other aggravating factors, OFAC alleged that funds for the materials came under the control of the North Korean government and that ELF was a large and commercially sophisticated company engaged in a substantial volume of international trade with a “non-existent or inadequate” sanctions compliance program.

Ultimately, OFAC found that the violations were non-egregious and provided substantial mitigation against the $2,213,510 base penalty level. OFAC credited a number of specific steps that ELF undertook to prevent the risk of future violations: Continue Reading

Trump Administration Designates PdVSA, Issues General Licenses

By Evan Abrams and Jillian Norton on Posted in Economic Sanctions, Venezuela Sanctions

On January 28, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the designation of Venezuelan state-owned oil company Petróleos de Venezuela, S.A. (PdVSA) as a Specially Designated National (SDN).  The designation was made pursuant to Executive Order (EO) 13850 (Blocking Property of Additional Persons Contributing to the Situation in Venezuela).  That order initially applied only to the Venezuelan gold sector, but as part of the Treasury Department’s actions, Treasury Secretary Steven Mnuchin determined “that persons operating in Venezuela’s oil sector are subject to sanctions pursuant to E.O. 13850,” allowing for the designation of PdVSA.

As is the case with all SDNs, all property and interests in property of PdVSA in the possession or control of a US person or within the United States must be blocked and US persons are generally prohibited from dealing with the company.  Such prohibitions also extend to entities owned 50% or greater by PdVSA.  Given the sizable role that PdVSA and its subsidiaries play in the US economy and petroleum industry, OFAC issued 8 new general licenses (GLs) with the goal of limiting potential disruption from the designation. Continue Reading

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

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