A Gibson Dunn National Security Presentation:
2012 Year-End OFAC Update
January 17, 2013
Judith Alison Lee
Marcellus McRae
James Doody
MCLE Certificate Information
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2012 YEAR-END OFAC UPDATE—TOPIC OUTLINE
• Legislation
• Executive Orders
• Regulations
• Other Developments
• Major Enforcement Actions
• Looking Forward
LEGISLATION
Iran Threat Reduction and Syria Human Rights Act (Pub. L. No.
112-158, 126 Stat. 1214) (“ITRSHRA”)
(Signed August 10, 2012)
• §218 expands sanctions against Iran to prohibit activity by foreign
subsidiaries of U.S. entities
• Requires divestment of foreign subsidiary that does business or
termination of business with Iran
• §219 imposes further reporting requirements on issuers that file
annual or quarterly reports
LEGISLATION
Russia and Moldova Jackson-Vanik Repeal and Sergei Magnitsky
Rule of Law Accountability Act (Pub. L. No. 112-208)
(Signed December 14, 2012)
• Rolls back Cold War-era trade restrictions, granting Russia and
Moldova permanent normal trade relations with the U.S.
• Imposes travel and financial sanctions on human-rights violators
and those involved in the death of Sergei Magnitsky
LEGISLATION
National Defense Authorization Act for Fiscal Year 2013 (Pub. L.
No. 112-239, 126 Stat. 1632 ) (“NDAA 2013”)
(Signed January 3, 2013)
• Further targets sectors critical to Iran’s energy industry
• Blocks entities of proliferation concern: operators of ports in Iran;
entities in energy, shipping, and shipbuilding sectors
• Targets bartering transactions
• Requires the president to report on bartering; vessels entering
controlled seaports, and airports into which
Iranian-controlled air carriers fly
LEGISLATION
The Countering Iran in the Western Hemisphere Act of 2012
(Pub. L. No. 112-220)
(Signed December 28, 2012)
• Secretary of State required assess threat posted by Iran’s “growing
hostile presence and activity in the Western Hemisphere”
• Include information concerning presence, activities and operations
of Government of Iran, IRGC, IRGC’s Qods Force and Hezbollah in
Western Hemisphere
• Plan to address efforts by foreign persons, entities, and
OFAC YEAR-END REVIEW—TOPIC OUTLINE
• Legislation
• Executive Orders
• Regulations
• Other Developments
• Major Enforcement Actions
• Looking Forward
EXECUTIVE ORDERS
IRAN
Executive Order 13,599 Blocking Property of the Government of
Iran and Iranian Financial Institutions
• Blocks all property and interests in property of the Government of
Iran, including the Central Bank of Iran
• Blocks all Iranian financial institutions
• Blocks all property and interests in property of persons owned,
controlled by, directly or indirectly acting or purported to act on
behalf of any person whose property and interests in property are
blocked pursuant to this order
• General Licenses A and B exclude certain transactions from E.O.
13,599 sanctions
EXECUTIVE ORDERS
IRAN
Executive Order 13,622 Authorizing Additional Sanctions with
Respect to Iran
• Parallel to E.O. 13,599
• Authorizes sanctions on foreign financial institutions that have
knowingly facilitated transactions involving Iran’s petroleum or
petrochemical sector or with the NIOC or NICO
• FFI may be prohibited from opening or maintaining correspondent or
payable through accounts in the U.S.
EXECUTIVE ORDERS
IRAN & SYRIA
Executive Order 13,606 Blocking the Property and Suspending
Entry into the United States of Certain Persons with Respect to
Grave Human Rights Abuses by Governments of Iran and Syria
via Information Technology (“GHRAVITY E.O.”)
• Blocks the property of parties involved in human rights abuses by the
governments of Iran and Syria
• Prohibits any transaction by a U.S. person or within the U.S. that
“evades or avoids, has the purpose of evading or avoiding, causes a
violation of, or attempts to violate the regulations established in the
order”
EXECUTIVE ORDERS
IRAN & SYRIA
Executive Order 13,608 Prohibiting Certain Transactions with and
Suspending Entry Into the United States of Foreign Sanctions
Evaders with Respect to Iran and Syria
• Imposes penalties on any foreign person who:
“violates, attempts to violate, conspires to violate, or causes a
violation of any license, order, regulation, or prohibition pursuant
to a number of Executive Orders concerning Iran and Syria”
“facilitates deceptive transactions for or on behalf of any
person subject to United States sanctions concerning Iran or
Syria”
is owned or controlled by, or is directly or indirectly acting for or
on behalf of any person determined to meet the criteria above
EXECUTIVE ORDERS
IRAN & SYRIA
Executive Order 13,608-cont’d
• Allows Treasury to identify a foreign company as a sanctions evader
if it facilitates a deceptive transaction, even if it was unaware of the
identity of the sanctioned individual or entity
• Provides for harsh penalties, including the prohibition of all direct or
indirect transactions or dealings involving such persons
U.S. persons are not required to block the property of foreign
persons listed under the order
EXECUTIVE ORDERS
IRAN & SYRIA
Executive Order 13,628 Authorizing the Implementation of Certain
Sanctions Set Forth in the Iran Threat Reduction and Human
Rights Act of 2012 and Additional Sanctions with Respect to Iran
• Implements parts of ITRSHRA and CISADA
• Closes the foreign subsidiary loophole
EXECUTIVE ORDERS
YEMEN
Executive Order 13,611 Blocking Property of Persons Threatening
the Peace, Security, or Stability of Yemen
• Blocks the property of persons who:
“have engaged in acts that directly or indirectly threaten the
peace, security, or stability of Yemen”
are political or military leaders of an entity that has engaged in
such acts
have materially assisted, sponsored, or provided financial,
material, or technological support for such acts
are owned or controlled by, or are directly or indirectly acting for
or on behalf of any person determined to meet the criteria above
EXECUTIVE ORDERS
BURMA
Executive Order 13,619 Blocking the Property of Persons
Threatening the Peace, Security. or Stability of Burma
• Blocks the property of persons who:
undermine or obstruct the political reform process;
are responsible for or complicit with human rights abuses; or
have supplied arms from North Korea to Burma
EXECUTIVE ORDERS
SOMALIA
Executive Order 13,620 Taking Additional Steps to Address the
National Emergency With Respect to Somalia
• Blocks the property of persons who:
threaten peace, security or stability;
threaten Djibouti Agreement
misappropriate Somali public resources
responsible for or complicit in acts of violence targeting civilians
import or export of charcoal
OFAC YEAR-END REVIEW—TOPIC OUTLINE
• Legislation
• Executive Orders
• Regulations
• Other Developments
• Major Enforcement Actions
• Looking Forward
OFAC REGULATIONS
IRAN
Iranian Financial Sanctions Regulations (“IFSR”)
31 C.F.R. Part 561
• Implements:
Section 1245(d) of the National Defense Authorization Act for FY
2012 (“NDAA”)
Section 104(c) of Comprehensive Iran Sanctions, Accountability,
and Divestment Act of 2010 (“CISADA”)
• Incorporates ITRSHRA amendment to CISADA to expand
sanctionable activity
OFAC REGULATIONS
IRAN-cont’d
Iranian Transactions and Sanctions Regulations (“ITSR”)
31 C.F.R. Part 560
• Iranian Transactions Regulations reissued as Iranian Transactions
and Sanctions Regulations
• Extends restrictions to foreign entities owned or controlled by U.S.
persons
• Conforms to the IFSR definition and amends as follows:
“The term entity owned or controlled by the Government of Iran
includes any corporation, partnership, association, or other
entity in which Iran owns a 50 percent or greater interest or a
controlling interest, and any entity which is otherwise controlled
by that government.”
OFAC REGULATIONS
YEMEN
Yemen Sanctions Regulations
31 C.F.R. Part 552
• Implements Executive Order 13,611 and blocks those that
“have engaged in acts that directly or indirectly threaten the
peace, security, or stability of Yemen;”
“be a political or military leader of an entity that has engaged in
such acts;”
“have provided support to any person whose property and
interests in property are blocked pursuant to these regulations;”
and
“be owned or controlled by, or to have acted or purported to act
for or on behalf of, directly or indirectly, any person whose
OFAC REGULATIONS
CÔTE D'IVOIRE, DARFUR, & DEM. REP. OF CONGO
“Financial, Material, or Technological Support”
31 C.F.R. Part 543 (Côte d'Ivoire), 31 C.F.R. Part 546 (Darfur), and
31 C.F.R. Part 547 (Democratic Republic of Congo)
• Definition of “Financial, Material, or Technological Support”
“any property, tangible or intangible, including but not limited to
currency, financial instruments, securities, or any other
transmission of value; weapons or related materiel; chemical or
biological agents; explosives; false documentation or
identification; communications equipment; computers; electronic
or other devices or equipment; technologies; lodging; safe
houses; facilities; vehicles or other means of transportation; or
goods.”
OFAC REGULATIONS
TRANSNATIONAL CRIMINAL ORGANIZATIONS
Sanctions Regulations Final Rule: Reporting, Procedures and
Penalties
31 C.F.R. Part 590
• Continues OFAC’s implementation of Executive Order 13,581 of July
24, 2011, “Blocking Property of Transnational Criminal
Organizations”
• Prohibits all transactions which violate E.O. 13,581
• Provides that any U.S. person holding funds subject to § 590.201,
which prohibits transactions in violation of E.O. 13,581, must hold or
place such funds in a blocked, interest-bearing account located in
the United States
OFAC YEAR-END REVIEW—TOPIC OUTLINE
• Legislation
• Executive Orders
• Regulations
• Other Developments
• Major Enforcement Actions
• Looking Forward
OTHER DEVELOPMENTS
BURMA
General License 16
• Authorizes the export and re-export of financial services to Burma
• Supersedes and replaces General Licenses 14C and 15
• Excluded parties include: Ministry of Defense, Office of
Procurement; state or non-state armed groups; blocked persons
General License 17
• Authorizes new investment in Burma
• Excluded parties include: Ministry of Defense, Office of
OTHER DEVELOPMENTS
IRAN
Interpretive Guidance and Statement of Licensing Policy on
Internet Freedom in Iran (May 20, 2012)
• Amends § 560.540 of the Iranian Transactions Regulations, which
authorizes the exportation of services incident to the exchange of
personal communications over the Internet to persons in Iran
• Provides illustrative guidance to the types of services allowed under
the ITR
• Clarifies OFAC’s Statement of Licensing Policy (“SLP”) and
concludes that specific licenses may be issued on a case-by-case
basis for other types of software and services incident to the sharing
OTHER DEVELOPMENTS
SYRIA
• General License 4A authorizes the export or re-export of items to
Syria from the United States to any person whose property is
blocked if such items are authorized by the Department of
Commerce
• General License 15 authorizes certain patent, trademark, copyright,
and intellectual property transactions that would otherwise be
OTHER DEVELOPMENTS
CUBA
Comprehensive Guidelines for License Applications to Engage in
Travel-Related Transactions Involving Cuba (May 10,2012)
• Updates 31 C.F.R. § 515.565(b)(2) (educational exchanges not
involving academic study pursuant to a degree program)
OTHER DEVELOPMENTS
TRADE SANCTIONS REFORM & EXPORT ENHANCEMENT ACT
3Q FY 2012 Update
• 3Q (April-June) FY 2012
OFAC:
received 371 license applications
issued 536 license determinations, 207 of which were for cases
received during this quarter
issued 328 licenses, 79 license amendments, 44
“return-without-action” letters, and 1 denial letter
issued licenses for 305 products bound for Iran and 23 for Sudan
issued the majority of licenses for medical devices and medicine
OFAC YEAR-END REVIEW—TOPIC OUTLINE
• Legislation
• Executive Orders
• Regulations
• Other Developments
• Major Enforcement Actions
MAJOR ENFORCEMENT ACTIONS
ING Bank, N.V.
• OFAC determined that ING Bank:
violated the Cuba sanctions by processing 20,452 wire transfers worth a combined $1.65 billion
violated the Burma sanctions by processing 41 wire transfers worth a combined $15.47 million
violated the Sudan sanctions by processing 44 wire transfers worth a combined $1.98 million
violated the Iranian Transaction Regulations by processing one wire transfer worth $153,000 and one transferable export letter of credit worth $1.2 million for a Romanian aircraft engine
MAJOR ENFORCEMENT ACTIONS
ING Bank, N.V.–cont’d
• Mitigating factors: ING Bank voluntarily disclosed the alleged violations of the Cuba, Burma, Sudan, Libya sanctions, and one of the alleged violations of the Iran sanctions ING Bank voluntarily adopted a consolidated sanctioned countries policy and an
export compliance program • Aggravating factors:
ING Bank did not voluntarily disclose the other apparent Iranian Transactions Regulations violation: the processing of the transferable export letter of credit for the purchase of a Romanian aircraft engine
ING Bank did not consistently cooperate with OFAC with regard to explicit requests for information; requested information was ultimately provided only after multiple submissions with heavy redactions
• Settlement:
The allegations were settled for $619,000,000
MAJOR ENFORCEMENT ACTIONS
Genesis Asset Managers, LLP
• OFAC alleged that GAM US violated the ITR when, under an agency agreement, its UK-based subsidiary, purchased approximately $3 million worth of shares in an equity fund that invests exclusively in Iranian securities
• OFAC determined that the alleged violation was not egregious • Mitigating factors:
OFAC had not penalized GAM US for similar violations
GAM US substantially cooperated with OFAC’s investigation by responding promptly to requests for information and voluntarily self-disclosing the alleged violation
GAM US may not have fully understood its OFAC obligations under U.S. law • Aggravating factors:
GAM US failed to exercise a minimal degree of caution or care GAM US did not have an OFAC compliance program in place • Settlement:
MAJOR ENFORCEMENT ACTIONS
Sandhill Scientific, Inc.
• OFAC alleged that Sandhill violated the ITR and OFAC’s Reporting, Procedures and Penalties Regulations when it:
exported medical equipment to Dubai with knowledge or reason to know that the goods were intended for a company in Iran with which Sandhill had an exclusive distribution agreement
failed to provide documents responsive to two administrative subpoenas issued by OFAC
• “Egregious” violation because:
the export appears to have resulted from willful and reckless conduct
Sandhill deliberately concealed the fact that the goods were destined for Iran Sandhill did not fully cooperate with the investigation
Sandhill did not have any compliance program in place and did not take remedial actions
Settlement:
MAJOR ENFORCEMENT ACTIONS
Essie Cosmetics, Ltd.
• OFAC alleged that Essie and a former corporate officer (“Individual”) violated the ITR when they knowingly sold and exported nail care products worth approximately
$33,299 to an Iranian distributor
• OFAC determined that the violations were egregious because: No voluntarily self-disclosure
Intentional effort to evade sanctions
• These alleged violations carried a base penalty of $750,000 • Mitigating factors:
Essie and Individual had no history of prior OFAC violations Cooperated with the ICE investigation
Signed Non-Prosecution Agreements with the United States Attorney’s Office for the Southern District of New York; agreed to forfeit $200,000 to DHS
MAJOR ENFORCEMENT ACTIONS
Online Micro, LLC
• OFAC alleged that Online and one of its owners (“Owner”) violated the ITR by
exporting computer-related goods from the United States – through Dubai – to Iran between 2009 and 2010
• No voluntarily disclosure; OFAC considered the violations to be egregious
• Criminal charges for Online and Owner and a subsequent criminal plea agreement with the Office of the United States Attorney for the District of Columbia, as well as a settlement agreement with the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”)
Online and Owner each pleaded guilty to one count of criminal conspiracy,
forfeited $1,899,964, and accepted suspended BIS Export Denial Orders, which would prohibit them from exporting any goods for a ten-year period if they do not remain in compliance with the terms of their agreement
• OFAC deemed its settlement with Online and Owner in the amount of $1,054,388 satisfied by Online and Owner’s acceptance of the penalties specified above
MAJOR ENFORCEMENT ACTIONS
National Bank of Abu Dhabi
• OFAC alleged that NBAD violated SSR when it removed Sudan-related references in 45 transactions – worth approximately $4.39 million – that were routed through
financial institutions located in the United States between Nov. 2004 and Dec. 2005 • OFAC determined that the apparent violations constituted a non-egregious case • The base penalty for the alleged violations was $4,276,000
• Mitigating factors:
NBAD cooperated substantially throughout OFAC’s review NBAD took prompt and appropriate remedial action
OFAC had not penalized NBAD for a violation in the previous five years • Settlement:
MAJOR ENFORCEMENT ACTIONS
Brasseler USA
• Allegation concerning three transactions valued at $5,241 • Base penalty: $21,000
• Settlement: $18,900 • Aggravating factors
concealed Iranian customers’ identities management involvement
no compliance program • Mitigating factors
cooperation
likelihood that OFAC would have licensed the transactions no previously subject of OFAC enforcement action
MAJOR ENFORCEMENT ACTIONS
Sogda Limited, Inc.
• Allegedly violated the ITR by engaging in seven export transactions transshipped through Bandar Abbas
• Base penalty $570,000; settlement $128,250 • Mitigating factors:
instituted OFAC compliance program no prior enforcement history
MAJOR ENFORCEMENT ACTIONS
Standard Chartered Bank
• Alleged violations of: Burmese Sanctions Regulations, Iranian Transactions
Regulations, Sudanese Sanctions Regulations, Libyan Sanctions Regulations and the Foreign Narcotics Kingpin Sanctions Regulations
• 919 wire transfers totaling more than $133 million
• Base penalty: $209,747,769; Statutory maximum penalty: $427,852,032 • Most of the violations were determined to be “egregious”
recklessness
certain employees and senior managers’ awareness of the relevant conduct significant harm to the U.S. sanctions programs
SCB’s sophistication as a financial institution
SCB’s failure to maintain adequate compliance policies and procedures Substantial civil penalty to deter future violations
MAJOR ENFORCEMENT ACTIONS
Standard Chartered Bank-cont’d
• Mitigating factors some of the alleged violations could have been eligible for an OFAC license no OFAC actions within the preceding five years
all of the alleged violations were voluntarily self-disclosed cooperation
appropriate remedial action • Settlement--$132 million
global settlement involving OFAC, the U.S. Department of Justice, the New York County District Attorney’s Office, and the Federal Reserve Board of Governors.
MAJOR ENFORCEMENT ACTIONS
HSBC Holdings plc
• 2,335 wire or funds transfers totaling approximately $430 million in violation of: Cuban Assets Control Regulations, the Burmese Sanctions Regulations, the Sudanese
Sanctions Regulations, the former Libyan Sanctions Regulations, and the Iranian Transactions Regulations
• Egregious:
failure to exercise a minimal degree of caution
senior management and other employees’ awareness of conduct significant harm to the U.S. sanctions program
sophistication of HSBC Group as a financial institution
failure to maintain adequate compliance policies and procedures • Base penalty: $1,159,872,734
MAJOR ENFORCEMENT ACTIONS
HSBC Holdings plc-cont’d
• Mitigating factors: some of the alleged violations could have been eligible for an OFAC license had not been the subject of OFAC actions within the preceding five years cooperation
remedial action
comprehensive nature of the settlement
MAJOR ENFORCEMENT ACTIONS
HSBC Holdings plc-cont’d
• Settlement $375 million
maintain policies and procedures
provide OFAC with copies of its submissions to the Federal Reserve Bank of Chicago regarding its OFAC compliance review
if it determines that HSBC Group has willfully and materially breached its settlement obligations, to declare the settlement null and void
MAJOR ENFORCEMENT ACTIONS
Bank of Tokyo-Mitsubishi UFJ, Ltd.
• Alleged violation of Burmese Sanctions Regulations, the Iranian Transactions Regulations, the Sudanese Sanctions Regulations, the Cuban Assets Control Regulations, and Executive Order 13382
• Identified at least 97 funds transfers through United States banks between April 3, 2006 and March 16, 2007 with an approximately total value of $5,898,943
• Aggravating factors
concealment of U.S. sanctions targets’ involvement in transactions reckless disregard displayed for the sanctions programs
general manager knew or had reason to know about the concealment procedures that were implemented
MAJOR ENFORCEMENT ACTIONS
Bank of Tokyo-Mitsubishi UFJ, Ltd.-cont’d
• Mitigating factors: BTMU’s implementation of significant remedial measures to improve compliance lack of a prior history of OFAC violations
substantial cooperation with the investigation
providing OFAC with additional details about the apparent violations-• Settlement $8,571,634
OFAC YEAR-END REVIEW—TOPIC OUTLINE
• Legislation
• Executive Orders
• Regulations
• Other Developments
• Major Enforcement Actions
Today’s Presenters
Judith Alison Lee
202-887-3591
James Doody
202-887-3716
Marcellus McRae
213-229-7675
Andrea Farr
202-955-8680
MCLE Certificate Information
Most participants should anticipate receiving their certificate of
attendance in 2 to 3 weeks following the webcast.
Virginia Bar members should anticipate receiving their certificate of
attendance in 6 weeks following the webcast.
Questions regarding MCLE information should be directed to Jeanine
McKeown (National Training Administrator) at 213-229-7140 or
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