On March 1, 2024, the federal district court in the Northern District of Alabama declared in the case of National Small Business United v. Yellen that the Corporate Transparency Act (“CTA”) exceeds the Constitution’s limits on Congress’s power. The court enjoined the Department of the Treasury and Financial Crimes Enforcement Network (“FinCEN”) – the agency responsible for implementing the CTA – from enforcing the CTA against the plaintiffs in this case. While the ruling enjoins enforcement only against the plaintiffs in the specific case, the rationale used by the court is a broad rejection of the constitutionality of the statute, rather than a more tailored “as applied” rationale. Following the ruling, FinCEN issued a statement clarifying it will only cease enforcement with respect to the specific plaintiffs in the case, rather than with respect to all reporting companies. Those plaintiffs include Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association (“NSBA”), and members of the NSBA as of March 1, 2024 (collectively, the “Plaintiffs”). As of now, the CTA and its beneficial ownership information (“BOI”) reporting requirements remain in effect for all other entities that are required to report BOI to FinCEN under the CTA.Continue Reading Federal Court Finds Corporate Transparency Act Unconstitutional: Navigating Implications for Reporting Companies

On February 23, 2024, the United States issued a broad set of new Russia-related sanctions and export controls in response to the second anniversary of Russia’s invasion of Ukraine and the February 16, 2024, death of opposition leader, Aleksey Navalny, in Russian custody.

The Treasury Department’s Office of Foreign Assets Control (OFAC), the Commerce Department’s Bureau of Industry and Security (BIS), and the State Department all issued new designations.  The agencies also issued an inter-agency advisory warning non-Russian companies from doing business in or with Russia.Continue Reading US Government Imposes New Russia Sanctions, Designating Over 500 Parties and Issuing Interagency Russia Business Advisory

As of January 1, 2024, the Corporate Transparency Act (CTA) is effective, impacting millions of entities. On September 30, 2022, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published a final rule to implement the beneficial ownership information (BOI) reporting provisions of the CTA, which was enacted as part of the Anti-Money Laundering Act of 2020 within the National Defense Authorization Act for Fiscal Year 2021.  Note that since the final rule was published, which was the subject of a prior blog post, FinCEN has made several modifications.

The CTA is intended to protect US national security and the US financial system by preventing and combatting fraud, corruption, money laundering, and terrorist financing, among other illicit activities, by parties seeking to hide money and other assets in the United States via shell companies and other opaque legal structures. The law aims to provide essential information to national security, intelligence, and law enforcement agencies by requiring certain business organizations and entities to report information to FinCEN about the beneficial owners and controllers of such organizations and the individuals who have filed an application with specified government authorities to form the entity or register it to do business. The FinCEN rule implementing the CTA’s BOI reporting provisions describes who must file a beneficial ownership information report, what information must be reported, and when a report is due.

The CTA has widespread application, and it is expected that an estimated 33 million entities are now subject to the new BOI disclosure rule.Continue Reading Beneficial Ownership Reporting Requirements Under the Corporate Transparency Act Are Now In Effect

On December 22, 2023, President Biden issued a new Executive Order (“EO”) 14114 “Taking Additional Steps With Respect to the Russian Federation’s Harmful Activities” which amended EOs 14024 and 14068. These amendments introduce the authority to impose secondary sanctions with respect to foreign (i.e., non-US) financial institutions determined to have engaged in any significant transaction for or on behalf of certain entities designated under EO 14024, or to have engaged in any significant transaction or provided any service involving the Russian military-industrial base (which is broadly defined). The amendments also expand upon the ban on the importation and entry into the United States of Russian-origin fish and seafood, alcoholic beverages, non-industrial diamonds, and gold.Continue Reading New Secondary Sanctions Target Non-US Banks That Engage in Transactions with Russia’s Military-Industrial Base

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

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

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

Overview

On August 9, 2023, the White House issued a long-awaited Executive Order, entitled Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern (“EO 14105”). The EO establishes a new national security regulatory regime, implemented principally by the US Department of the Treasury (“Treasury”), in consultation with other federal agencies including the US Department of Commerce, that will require the notification of, as well as prohibit, certain investment activity by US persons in named “countries of concern,” currently China.

EO 14105 does not restrict all US person investment activity regarding China, and is tailored to focus on specific products, technologies, and capabilities involving: (1) semiconductors and microelectronics (including advanced integrated circuits and supercomputers); (2) quantum information technologies (e.g., computers, sensors, networking, and systems); and (3) certain artificial intelligence systems (e.g., with certain military, intelligence, or surveillance end uses).Continue Reading Biden Administration Announces New Outbound Investment Regime Targeting China