Sanctions Enforcement

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On February 18, 2021, the US Department of the Treasury’s Office of Foreign Assets control (OFAC) announced a $507,375 settlement with BitPay, Inc. (BitPay).  This civil settlement resolved apparent violations of multiple sanctions programs related to digital currency transactions, and is the second OFAC enforcement case brought against a business in the blockchain industry.  This case follows OFAC’s December 2020 civil enforcement action against another blockchain industry company, BitGo, Inc. (BitGo), for alleged violations of multiple US sanctions programs related to digital currency transactions.  See our prior blog post on the BitGo action here.

BitPay, based in Atlanta, Georgia, offers a payment processing solution for merchants to accept digital currency as payment for goods and services.  The apparent sanctions violations relate to digital currency transactions on the BitPay platform between individuals located in Cuba, North Korea, Iran, Sudan, Syria, and the Crimea region of Ukraine (annexed by Russia) and merchants in the United States and elsewhere.  OFAC acknowledged that BitPay screened its customers, the merchants, against US sanctions lists, but stated that BitPay had reason to know that purchasers dealing with the merchants were located in comprehensively sanctioned jurisdictions because the company had location information, including Internet Protocol (IP) address data, about those persons.  This case was not voluntarily disclosed, but OFAC found that the violations were not egregious.

According to OFAC, BitPay allowed persons in comprehensively sanctioned jurisdictions to conduct approximately $129,000 worth of digital currency transactions with BitPay’s merchant customers.  As described in OFAC’s enforcement release, between approximately June 10, 2013, and September 16, 2018, BitPay processed 2,102 transactions from individuals with IP addresses located in the sanctioned jurisdictions.  The transactions related to BitPay’s payment processing service.  BitPay allegedly received digital currency payments on behalf of its merchant customers from those merchants’ buyers, who were located in sanctioned jurisdictions.  BitPay then converted the digital currency into fiat, and then relayed that currency to its merchant customers.

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Continue Reading OFAC Announces Second Enforcement Action Targeting a Digital Asset Company

In a Federal Register notice dated February 5, 2021, the US Department of State provided notice that the Secretary of State has determined that six individuals sanctioned by the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) on January 15, 2021 fulfilled the criteria for being designated as Specially Designated Nationals (SDNs) under Section 4(a)(iii) of Executive Order (EO) 13936, which authorizes the Treasury and State Departments to impose blocking sanctions in relation to certain events in Hong Kong.

The State Department issued similar notifications on January 22, 2021 (here and here) with respect to a total of 18 individuals designated as SDNs under EO 13936 on December 7 and November 9, 2020. No such determination appears in the Federal Register for 11 individuals designated under EO 13936 on August 7, 2020.

The Secretary of State’s recently issued determinations do not alter OFAC’s SDN designations, which took effect on January 15, 2021, December 7, 2020, and November 9, 2020, respectively, nor has the State Department added the individuals to its report under Section 5(a) of the Hong Kong Autonomy Act.

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Continue Reading US State Department Issues Notices on Prior Hong Kong Sanctions Designations

OFAC’s January 4, 2021 civil settlement with France-based Union de Banques Arabes et Françaises (“UBAF”) provides another case study of the agency’s expansive view of its jurisdiction over transactions occurring outside the United States, when the US financial system is involved even indirectly.  This case is particularly noteworthy coming after OFAC’s recent settlement with British Arab Commercial Bank, which we previously analyzed.  A key lesson from the UBAF settlement is that OFAC’s jurisdiction may extend to transactions conducted outside the United States – including internal transfers on the books of a non-US bank – that are “closely correlated” with subsequent transactions involving the US financial system.  In light of this case, non-US persons operating outside the United States should consider reviewing their OFAC risk if their activity may rely on the US financial system even indirectly.

This case focused on UBAF’s trade finance business, and specifically its business with Syrian financial institutions.  Between August 2011 and April 2013, OFAC determined that UBAF operated accounts in USD and other currencies for US-sanctioned Syrian financial institutions, “and indirectly conducted USD business on behalf of these institutions through the US financial system.”  The key word is “indirectly.”   Below is a brief discussion of each of the types of transactions that OFAC focused on in this settlement and how OFAC asserted jurisdiction over these transactions that relied on the US financial system “indirectly.”

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Continue Reading OFAC Asserts Jurisdiction over French Bank’s Internal Transfers and Foreign Exchange Transactions

On December 30, 2020, the US Department of the Treasury’s Office of Foreign Assets control (OFAC) announced a $98,380 settlement with BitGo, Inc. (BitGo).  This civil settlement, regarding apparent violations of multiple sanctions programs related to digital currency transactions, is the first published OFAC enforcement action against a business in the blockchain industry.

BitGo, based in Palo Alto, California, is an “institutional digital asset custody, trading, and finance” company.  The apparent sanctions violations relate to 183 instances in which BitGo failed to prevent individuals and/or entities located in Crimea, Cuba, Iran, Sudan, and Syria from using its non-custodial secure digital wallet management service.  All of these jurisdictions were subject to comprehensive embargoes under OFAC regulations during at least part of the time that the transactions occurred.  OFAC stated that BitGo had reason to know that users in these comprehensively sanctioned jurisdictions were using its services through Internet Protocol (IP) address data collected for security purposes, and allegedly had failed to implement controls to prevent users in such jurisdictions from accessing its services.

According to OFAC, between approximately March 10, 2015, and December 11, 2019, BitGo processed 183 digital currency transactions totaling $9,127.79 using its hot wallet management service for users in the comprehensively sanctioned jurisdictions who had signed up for hot wallet accounts.

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Continue Reading OFAC Announces First Ever Enforcement Action Targeting a Digital Asset Company

The US Treasury Department, or presumably, its Office of Foreign Assets Control (“OFAC”), is expected to issue a report by mid-December under Section 5(b) of the Hong Kong Autonomy Act (“HKAA”) identifying “foreign financial institutions” (“FFIs”) that have knowingly conducted significant transactions with “foreign persons” previously identified by the US State Department under Section 5(a) of the HKAA on 14 October 2020. FFIs identified in the Section 5(b) Report will face a menu of ten sanctions, ranging from prohibitions on serving as a repository of US government funds to travel bans against corporate officers.

Prior to identification in the Section 5(b) Report and imposition of those sanctions, OFAC “will reach out to an FFI to inquire about its conduct,” according to FAQ 848 issued by OFAC in conjunction with the State Department’s 5(a) report.

While awaiting issuance of the Section 5(b) Report, and in addition to identifying any connection to individuals previously identified by the State Department, FFIs should consider how to respond if they receive an outreach from OFAC. Such an outreach, like any inquiry or request for information from OFAC, must be handled expeditiously and strategically. Inaccuracies or omissions in the response or the failure to respond at all could form the basis of enforcement action separate and apart from the conduct OFAC is reviewing under the HKAA. It will certainly set the tone for interactions with OFAC going forward.

In this note, we provide guidance on how to handle requests from OFAC under the HKAA, and more broadly to other informational outreach, based on our considerable experience in managing similar US government requests for clients in Asia.

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Continue Reading Responding to the US Treasury Department’s Information Requests: The Hong Kong Autonomy Act and Beyond

In its 2019-2020 Annual Report (the Report), the UK’s sanctions office (the UK Office of Financial Sanctions Implementation (OFSI)) revealed that, between April 2019 and March 2020, it had received 140 voluntary disclosures of potential sanctions violations related to transactions worth a total of £982 million.  This represents a record number of reports, and an…

On August 25, 2020, the US Department of Commerce’s Bureau of Industry and Security (BIS) published a final decision by the Undersecretary, affirming an Administrative Law Judge’s (ALJ) imposition of a US $ 31.4 million civil monetary penalty on Nordic Maritime Pte. Ltd., a Singapore-based marine seismic company, and its chairman (together, the “Respondents”), for knowingly exporting highly controlled equipment to Iran. This final decision follows the Undersecretary’s previous decision vacating and remanding the initial penalty as disproportionate to that imposed in similar cases (Remand Order). Our previous blog post discussing this unusual action is available here.

By way of background, the ALJ, in his initial recommended decision and order (RDO) dated February 7, 2020, found the Respondents liable for violating the Export Administration Regulations (EAR), and recommended a civil monetary penalty of US $ 31.4 million. The Respondents then appealed the ALJ’s decision to the Undersecretary, whose first decision, including the Remand Order, was published in March 2020. In that decision, the Undersecretary affirmed the ALJ’s findings on liability, but vacated the penalty and remanded it back to the ALJ for reexamination because the “analysis of damages in the RDO [was] incomplete.” The Undersecretary also listed a number of cases settled with proportionally lower penalties to guide the ALJ on remand. The ALJ then ordered additional briefing focused on the penalty amount, and reinstated the original penalty with a fuller justification in a subsequent RDO dated July 15, 2020. The Undersecretary affirmed the US $ 31.4 million civil monetary penalty in its entirety.

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Continue Reading BIS Undersecretary Affirms USD 31.4 Million Penalty on Singaporean Company for Iran Sanctions Violations

According to public statements of high-ranking representatives, the EU is considering whether to impose new economic sanctions against Turkey. The measures discussed include targeting certain Turkish industry sectors, such as the energy industry.

On November 11, 2019 the Council of the EU  adopted a sanctions framework set forth in Council Regulation 2019/1890 and Council Decision 2019/1894, and subsequently designated two executives of the Turkish oil company TPAO on February 27, 2020, in response to Turkish hydrocarbon drilling activities in what the EU views as Cypriot territorial waters. The sanctions that are currently in place consist of a travel ban to the EU, an asset freeze for persons and entities, as well as a prohibition to satisfy claims for their benefit. In addition, EU persons and entities are forbidden from making funds and economic resources available to those listed.

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Continue Reading EU Mulls New Economic Sanctions Against Turkey

On August 27, 2020, the US Department of Defense (“DoD”) published a second tranche to its list of “Communist Chinese military companies,” pursuant to Section 1237 of the of the National Defense Authorization Act for Fiscal Year 1999 (the “DoD List”).

The announcement follows the DoD’s June 24, 2020, publication of a letter to Senator Tom Cotton enclosing a list of twenty companies headquartered in the People’s Republic of China (“PRC”) which DoD determined are operating directly or indirectly in the United States and are “Communist Chinese military companies.”

(Click here for Steptoe’s blog post following the June 24, 2020 publication of the DoD letter.)

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Continue Reading Update: US Department of Defense Publishes Update to List of “Communist Chinese Military Companies”

On June 24, 2020, the US Department of Defense (“DoD”) sent a letter to Senator Tom Cotton enclosing a list of twenty companies headquartered in the People’s Republic of China (“PRC”) which DoD determined are operating directly or indirectly in the United States and are “Communist Chinese military companies.”  Titled “Qualifying Entities Prepared in Response to Section 1237 of the National Defense Authorization Act for Fiscal Year 1999 (PUBLIC LAW 105-261),” the “DoD List” includes some Chinese companies frequently associated with the Chinese military, and others that may not have been previously associated with the Chinese military.

For companies doing business with the US government, the US government may consider the inclusion of any of the listed companies in a government contractor’s supply chain as a “supply chain risk” that must be assessed, particularly in connection with information technology.  DoD contractors are already prohibited by their contracts from acquiring certain items and services from “any Communist Chinese military company.”

While not a sanctions list itself, the DoD List may lead to sanctions actions by the US government, as well as reactions from business partners assessing the risk of further action against the listed companies by the US government, particularly for listed companies that are not currently subject to US sanctions.  Pressure from Congress may continue for the administration to continue to update this list, and to impose restrictions on the companies on this list.

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Continue Reading US Department of Defense Publishes List of “Communist Chinese Military Companies” Operating Directly or Indirectly in United States Pursuant to Section 1237 of the National Defense Authorization Act for Fiscal Year 1999 (the “Act”)