On August 8, 2022, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the imposition of sanctions on the decentralized digital asset mixer Tornado Cash. The action marks the first time OFAC has targeted an on-chain decentralized protocol. To date, OFAC has not issued any guidance specific to decentralized finance (DeFi) as part of its broader sanctions guidance for the “virtual currency” industry, but the Tornado Cash action lays down an important marker and makes clear that OFAC will target projects or protocols engaged in illicit activity regardless of their centralized or decentralized status. (Our prior blog post on OFAC’s general virtual currency guidance is available here).
Continue Reading OFAC Designates Tornado Cash in First Action Against a Decentralized Platform
Key Takeaways from the 2021 CFIUS Annual Report
On August 2, 2022, the Committee on Foreign Investment in the United States (“CFIUS” or “Committee”) released its statutorily required Annual Report to Congress for Calendar Year 2021. CFIUS is the inter-agency body charged with conducting national security reviews for certain foreign investments in the United States. While the CFIUS process is generally confidential, the annual report provides aggregate data on certain CFIUS activities and offers industry a window into current Committee trends.
Continue Reading Key Takeaways from the 2021 CFIUS Annual Report
New Joint Alert Puts Export Compliance Focus on Financial Institutions
On June 28, 2022, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Joint Alert entitled “FinCEN and the U.S. Department of Commerce’s Bureau of Industry and Security Urge Increased Vigilance for Potential Russian and Belarusian Export Control Evasion Attempts” (“Joint Alert”). The Joint Alert marks the first time FinCEN and BIS have collaborated on an alert of this nature and has important implications for both financial institutions and exporters/international trade parties.
Continue Reading New Joint Alert Puts Export Compliance Focus on Financial Institutions
US Sanctions on Russia Continue to Grow
Between April 5 and April 17, 2022, the US government took several steps to ratchet up economic sanctions, export controls, and other restrictive trade measures targeting Russia and Belarus.
President Biden issued a new Executive Order prohibiting US persons from engaging in new investment in Russia, and also establishing a framework through which US persons could in the future be prohibited from providing certain services to any person in Russia.
The US Treasury Department’s Office of Foreign Assets Control (OFAC) designated a darknet market and cryptocurrency exchange, several Russian banks and their subsidiaries, and a number of companies allegedly assisting the Russian military by adding them to the Specially Designated Nationals and Blocked Persons (SDN) List pursuant to Executive Orders (EOs) 14024 and 13694. OFAC also published seven new and amended general licenses, including authorizations related to the recent designations of Public Joint Stock Company Sberbank of Russia (Sberbank), Joint Stock Company Alfa-Bank (Alfa-Bank), and Public Joint Stock Company Alrosa (Alrosa).
Separately, the US Commerce Department’s Bureau of Industry and Security (BIS) announced new, stringent export controls so that all items subject to the US Export Administration Regulations, except items designated “EAR99,” require a license for export, reexport, or transfer (in country) to or in the Russian Federation and Belarus.
What US Financial Institutions Need to Know about FinCEN’s Russian Sanctions Evasion and Ransomware Guidance
On March 7, 2022, the Financial Crimes Enforcement Network (FinCEN) of the US Department of the Treasury published guidance (Guidance) for US financial institutions warning about: (1) efforts of foreign actors to evade expanding US economic sanctions and trade restrictions related to the Russian Federation and Belarus and (2) increased risk of malicious cyber-attacks and related ransomware campaigns, following the invasion of and continued military action in Ukraine. The Guidance provides instructive red flags and related advice for all US financial institutions to evaluate, and provides information of particular relevance for Money Services Businesses (MSBs) and other FinCEN-regulated institutions undertaking transactions in what the agency calls “convertible virtual currency” (CVC).
Most notably, FinCEN strongly encourages US financial institutions that have information about CVC flows, including exchangers or administrators of CVC to: (1) be mindful of efforts to evade expanded US sanctions and export controls related to Russia and Belarus, summarized by Steptoe here; (2) submit Suspicious Activity Reports (SARs) as soon as possible regarding such conduct; (3) undertake appropriate risk-based due diligence of customers, and where required, enhanced due diligence; (4) voluntarily share information with other financial institutions consistent with Section 314(b) of the USA PATRIOT Act; and (5) consider using tools to identify assets that must be blocked or frozen under applicable sanctions.
FinCEN Issues Proposed Rule on Reporting of Corporate Ownership
On December 7, 2021, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), published a proposed rule to implement the Corporate Transparency Act (CTA), which was enacted as part of the Anti-Money Laundering Act of 2020 within the National Defense Authorization Act for Fiscal Year 2021. The proposed rule is intended to implement the CTA’s beneficial ownership reporting provisions, but does not yet have the force and effect of law. In short, the proposed rule would require certain business organizations and entities to report affirmatively information to FinCEN about the beneficial owners and controllers of such organizations and the individuals who have filed an application with state or tribal authorities to form the entity or register it to do business. Below we summarize a number of the proposed rule’s key provisions, for which interested persons may submit public comments before February 7, 2022.
Continue Reading FinCEN Issues Proposed Rule on Reporting of Corporate Ownership
OFAC Sanctions DRC Associates of Sanctioned Billionaire in Conjunction with New Strategy on Countering Corruption and Global Magnitsky Designations
On December 6, 2021, the US Treasury Department’s Office of Foreign Assets Control (OFAC) named one individual and 12 entities in the Democratic Republic of the Congo and Gibraltar as Specially Designated Nationals (SDNs) pursuant to the Global Magnitsky Sanctions program under Executive Order (EO) 13818.
The newly designated SDNs are part of a network of individuals and companies alleged to have provided material “support to sanctioned billionaire Dan Gertler,” who was designated under EO 13818, in December 2017, for allegedly engaging in significant corruption in the DRC mining and oil sectors. There are now 46 persons designated under EO 13813 in connection with Gertler.
FinCEN Launches Rulemaking Process for All-Cash Real Estate Deals
On December 6, 2021, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM) seeking public comment on how FinCEN should regulate “all-cash” residential and commercial real estate transactions in the United States to address money laundering risks.
The ANPRM coincided with the publication of the Biden administration’s US Strategy on Countering Corruption, which highlights the real estate sector’s vulnerability to money laundering, particularly in regard to proceeds of foreign corruption. The Strategy also suggests the White House could work with Congress to adopt new regulations for other financial “gatekeepers” such as lawyers, accountants, and trust service providers who may facilitate transactions involving illicit property.
Continue Reading FinCEN Launches Rulemaking Process for All-Cash Real Estate Deals
FDIC and OCC Join President’s Working Group on Financial Markets in Calling for New Stablecoin Legislation, Oversight
On November 1, 2021, the President’s Working Group on Financial Markets (PWG), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a joint report that, among other things, calls on Congress to adopt legislation to enable federal oversight of stablecoin issuers, custodial wallet providers that hold stablecoins, and others (e.g., certain DeFi products, services, and arrangements related to stablecoins).
Continue Reading FDIC and OCC Join President’s Working Group on Financial Markets in Calling for New Stablecoin Legislation, Oversight
Changes Ahead? US Treasury Publishes Outcomes of Sanctions Policy Review
On October 18, 2021, the US Treasury Department published a report of its 2021 Sanctions Review of economic and financial sanctions implemented by the Office of Foreign Assets Control (OFAC) since September 11, 2001. The next day, Deputy Secretary of the Treasury Wally Adeyemo delivered a summary of the report in testimony before the US Senate Committee on Banking, Housing, and Urban Affairs.
The review, which incorporates feedback from public and private stakeholders, together with Adeyemo’s testimony underscores the Treasury Department’s concern that the effectiveness of US sanctions could erode over time as non-US actors seek alternatives to the US financial system, including digital currencies and alternative payment platforms outside of US jurisdiction. The report observes that not only adversaries but also “some allies” are reducing their use of the US dollar in cross-border transactions, implying that unilateral US actions are contributing to the risk that US sanctions could become less effective. To counter this trend, the report lays out a five-point plan to “modernize sanctions” by enhancing the Treasury Department’s policy framework and processes for imposing, enforcing, and revising US sanctions.
Continue Reading Changes Ahead? US Treasury Publishes Outcomes of Sanctions Policy Review