FinCEN Issues New Advisory on BSA/AML Obligations Related to Virtual Currency

By Jillian Norton, Evan Abrams, Jack Hayes, Brian Egan and Jeff Beatrice on Posted in Anti-Money Laundering, Sanctions Enforcement

On May 9, 2019, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published long-awaited guidance addressing how FinCEN regulations apply to what the agency calls “convertible virtual currency” (CVC), which covers most types of cryptocurrencies and crypto-tokens. The guidance focuses on:

  • Platforms engaged in exchange transactions involving securities, commodities, or futures contracts and fiat currency, CVC, or other value that substitute for currency;
  • Natural persons providing CVC money transmission as person-to-person (P2P) exchangers;
  • CVC wallets (differentiating among hosted, unhosted, and multiple signature wallet providers);
  • CVC provided through electronic terminals, kiosks, or automated teller machines;
  • CVC services provided through decentralized (software) applications (DApps), including anonymizing services;
  • Payment processing services;
  • Internet casinos;
  • Initial Coin Offerings (ICOs) and the status of creators of CVC;
  • DApp developers, users conducting financial activities, and DApps conducting CVC transactions; and
  • Mining pools and cloud miners.

Continue Reading

DOJ Revamps Corporate Compliance Program Guidance, Broadens Application

By Steptoe International on Posted in FCPA / Anti-Corruption

The US Department of Justice (DOJ) Criminal Division announced the publication of updated Guidance on Evaluating Corporate Compliance Programs (2019 Guidance) on April 30, 2019. As discussed in our 2017 FCPA Mid-Year Review, the original guidance, published on February 8, 2017 (2017 Guidance), essentially set forth a list of 11 topics and over 100 detailed questions that the Fraud Section of the DOJ’s Criminal Division stated it would consider when evaluating the effectiveness of a company’s compliance program in the context of corporate criminal investigations. The DOJ’s evaluation of the effectiveness of a company’s compliance program has long been listed as a factor relevant to charging decisions under the Principles of Federal Prosecution of Business Organizations in the US Attorney’s Manual (now known as the Justice Manual), as well as to a company’s eligibility to receive a reduction in criminal fines calculated under the US Sentencing Guidelines (USSG); it is also important to the DOJ’s assessment of whether a monitor is warranted.

In substance, the principles set forth in the 2019 Guidance do not significantly depart from prior available compliance program guidance, but the 2019 Guidance reorganizes and expands in some respects upon the DOJ’s 2017 Guidance. Importantly, while the 2017 Guidance applied only to the Criminal Division’s Fraud Section, in which the FCPA Unit is housed, the 2019 Guidance appears to apply to the Criminal Division more broadly. In this and other respects, the 2019 Guidance appears to signal that the DOJ’s assessment of corporate compliance programs will take on added importance in the resolution of a wider array of corporate criminal matters moving forward.

For more information, please see our advisory.

Sweeping New Metals Sector Sanctions on Iran with 90-Day Wind-Down Period

By Peter Jeydel on Posted in Economic Sanctions, Iran Sanctions

President Trump issued an executive order (EO) on May 8, 2019 imposing broad new sanctions against Iran’s metals industries that go beyond pre-existing sanctions on that sector.  President Trump issued a statement about the EO, which came on the one year anniversary of the US withdrawal from the Iran nuclear deal, calling Iran’s iron, steel, aluminum, and copper sectors “the regime’s largest non-petroleum-related sources of export revenue,” said to constitute 10% of Iran’s “export economy.”  The President said this EO “puts other nations on notice that allowing Iranian steel and other metals into your ports will no longer be tolerated.”  But the scope of the EO is actually quite a bit broader than that – it puts within the crosshairs of US sanctions enforcement not just third-country importers of Iranian metals products, but also exporters in Europe, Asia and elsewhere that provide raw materials and other inputs, along with industrial machinery and other capital goods used in the production of Iranian metals.  As usual, banks, insurers, shippers, traders, investors and other intermediaries and stakeholders in these industries would also be at risk.  It appears that the Trump Administration is continuing along a path of rising escalation, with President Trump noting in his statement that “Tehran can expect further actions unless it fundamentally alters its conduct.”

The EO provides for any person to be listed as a Specially Designated National (SDN) if they are determined: Continue Reading

New Jersey Software Company Settles with OFAC for Accepting Late Payments from Rosneft

By Jillian Norton, Peter Jeydel and Ed Krauland on Posted in Economic Sanctions, Russia/Ukraine Sanctions, Sanctions Enforcement

On April 25, 2019, OFAC announced that Haverly Systems, Inc. (“Haverly”), a New Jersey software company, had agreed to pay $75,375 to settle apparent violations from 2014 related to Haverly’s collection of payments from JSC Rosneft (“Rosneft”), a Russian oil major on OFAC’s Sectoral Sanctions Identifications (“SSI”) list. The key issue was OFAC’s finding that Haverly accepted the payments from Rosneft outside of the then-applicable 90-day window and thereby dealt in the restricted “new debt” of Rosneft. This appears to be the first time OFAC has published a settlement involving violations of the SSI list Directives, and underscores the importance for companies subject to U.S. jurisdiction of monitoring invoicing and payments with SSI list entities and their subsidiaries. Non-U.S. companies may also face “secondary sanctions” risk under Section 228 of CAATSA, on which we have previously advised, for certain types of transactions with SSI list designees. See also our previous advisory on OFAC’s SSI list sanctions, along with our previous discussion of the CAATSA-mandated changes to those sanctions.

Pursuant to Directive 2 under Executive Order 13662 and § 589.201 of OFAC’s Ukraine-Related Sanctions Regulations, U.S. persons are prohibited from transacting or otherwise dealing in “new debt” of longer than certain stated maturity periods of SSI list designees or any entities of which they own 50% or more. At the time of this apparent violation, the relevant maturity period was 90 days.[1] “Debt” is defined broadly to include any “extensions of credit.” OFAC has stated in FAQ guidance that open payment terms, such as the time permitted to pay commercial invoices, also fall within the scope of “new debt.” Continue Reading

E-2 Investor Visas Available to Israeli Nationals

By Liz LaRocca, Dana Delott and Zvi Hahn on Posted in Immigration

Beginning May 1, 2019, Israeli citizens may apply for E-2, investor, visas. This long-awaited US immigration option for Israelis is the culmination of lengthy efforts by both the United States and Israel toward the goal of reciprocal US/Israeli investor visa options. This treaty-based, temporary, category creates options for Israelis to make business investments in the US in any industry and operate the businesses developed through investment. The new visa option is a welcomed development for a country known as the “start-up” nation. The E-2 visa will surely energize Israeli nationals with an entrepreneurial spirit to bring this business drive to the United States.

For more information, please see our advisory.

Recent Unverified List (UVL) Designations in China and Elsewhere – What is the UVL?

By Peter Jeydel on Posted in Export Controls

On April 11, 2019, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) added 50 names to the Unverified List (UVL) (of which 37 are located in China and 6 in Hong Kong), while also removing 10 names.  The UVL list is found at Supplement No. 6 to Part 744 of the U.S. Export Administration Regulations (EAR).  BIS said that it added these 50 names “on the basis that BIS could not verify their bona fides because an end-use check could not be completed satisfactorily for reasons outside the U.S. Government’s control.”  By “bona fides,” BIS means that it could not confirm whether items previously exported to these parties were used the way the exporting party said they would be used, or was unable to confirm information about the actual end-user in those transactions.  In other words, the U.S. Government is concerned about possible diversion of the exported products to unauthorized end-users or end-uses, because it cannot obtain enough information about the UVL parties or about the ultimate disposition of the items that were sent to them. 

BIS’s export control regulations, the EAR, may impose licensing requirements for any one of three reasons: 1) the item and destination country, 2) the end-user, and 3) the end-use.  The U.S. Government periodically conducts end-use checks to confirm that items exported under BIS’s regulatory authority are being used as stated by the exporter of the item subject to the EAR.  These are typically in the form of either a pre-license check (PLC) occurring before the export takes place, or a post-shipment verification (PSV) occurring afterwards.  If BIS is unable to confirm whether items that were certified upon export as being destined to a particular party for a particular application are in fact to be used by that party for the stated application, BIS may add one or more of the parties who received the export to the UVL and impose restrictions on future exports to the party(ies). Continue Reading

US Decision Not to Renew Iran Oil Waivers Could Have Cascading Effects on Iran Sanctions – If Fully Implemented

By Peter Jeydel on Posted in Economic Sanctions, Iran Sanctions

Secretary of State Mike Pompeo’s announcement yesterday that the U.S. Government will not renew any of the significant reduction exemptions (SREs), previously granted to eight countries under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA), could significantly impair Iran’s ability to conduct international trade.  If fully implemented, this move would create a new, high level of risk for those engaging in continued trade in oil and related products with Iran. It also could directly impact ancillary activity such as shipping and insurance.  Moreover, any such move could have indirect effects on other, non-oil sectors that rely on third country banking arrangements to fund trade with Iran.  Although there are broad provisions of U.S. law restricting the President’s authority to impose sanctions for trade with Iran in agricultural commodities, food, medicine, and medical devices, even this trade could be indirectly impacted by reduced availability of funds and banking channels.  No sanctions restrictions have ever been imposed under the NDAA, although the firmness of U.S. policy in this area may now be put to the test, as the current SRE waivers are set to expire on May 2, 2019.

At the same time, even though the U.S. Government will not renew the eight existing SRE waivers, the actual imposition of sanctions under the NDAA could still be delayed.  This blog post provides some brief background on the NDAA and the SRE waivers, what the consequences of non-renewal of these waivers may be, and how the Trump Administration may use other provisions of law to delay action in this area in order to sidestep confrontations with China, India, Turkey or other major Iranian trading partners were they to refuse to back down in the face of U.S. sanctions threats as the “moment of truth” approaches. Continue Reading

Podcast Discussion of Recent CFIUS Fine and Forced Divestment

By Peter Jeydel on Posted in CFIUS Foreign Investment Reviews & FOCI Mitigation

 

On April 15, Steptoe associate Peter Jeydel commented about recent CFIUS developments on Steptoe’s Cyberlaw Podcast, including the forced divestment of a Russian investor out of Cofense, a US cybersecurity company, and an unprecedented $1M fine for failure to implement a mitigation agreement.

To listen to Pete’s comments, please press play above. To listen to the entire episode, please visit Steptoe’s Cyberlaw Podcast on the Steptoe Cyberblog.

We Finally Have an Export Control Statute – What Does It Mean for Industry?

By Brian Egan and Peter Jeydel on Posted in Export Control Reform, Export Controls

Steptoe’s Brian Egan and Peter Jeydel authored a Feature Comment in The Government Contractor, a Thomson Reuters publication, discussing the provisions of the Export Control Reform Act of 2018 that are most likely to have a lasting impact on industry. US and international companies should take careful note of the enduring changes to export controls enforcement set out by this statute and prepare for its consequences, including possible changes to China-focused export controls.

To read the full piece, please click here.

Implications of the Designation of Iran’s IRGC as a Foreign Terrorist Organization

By Peter Jeydel on Posted in Economic Sanctions, Iran Sanctions

Yesterday, Secretary of State Mike Pompeo announced his intent to designate Iran’s Islamic Revolutionary Guard Corps (IRGC) as a Foreign Terrorist Organization (FTO), noting that this is the first time the US government has designated part of another government as an FTO. The announcement explains: “This action underscores that the Iranian regime’s use of terrorism makes it fundamentally different from any other government. Iran employs terrorism as a central tool of its statecraft; it is an essential element of the regime’s foreign policy.” The related State Department fact sheet notes that the designation will occur on April 15, upon publication in the Federal Register. While this long-anticipated move could increase the risk to non-US persons of doing business with Iran, at least in certain sectors or with certain partners, its primary effect at least in the short-term will probably be to add yet another deterrent to commerce with Iran rather than leading to a significant increase in legal actions against entities continuing to engage with Iran.

The US government already maintains strict sanctions on dealings with the IRGC and its agents, including secondary sanctions targeting activity with the IRGC that has no jurisdictional link to the US. Although the FTO designation does provide that US financial institutions must block all transactions involving an FTO or its agents and report them to OFAC, in practice the FTO designation does not lead to any additional “blocking” requirement under US law, because the IRGC as a whole is already listed as a Specially Designated National (SDN) under Executive Order 13224 (i.e., as a Specially Designated Global Terrorist (SDGT)). So there are already broad sanctions in place both for US persons and non-US persons in dealing with the IRGC or its agents.  Continue Reading

LexBlog