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
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.
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
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
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 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.
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.
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.
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
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
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