Earlier this month, BIS’ Office of Boycott Compliance announced a Settlement Agreement with Mitsui Plastics, Inc., a domestic concern doing business in New York, to settle its potential civil liability for nine alleged violations of the Export Administration Regulations (EAR).

Charges Details Summary Enforcement Action
§ 760.2(d) Furnishing Information about Business Relationships with Boycotted Countries or Blacklisted Persons In connection with the sale and/or transfer of goods from the U.S. to Bahrain, Mitsui, on two occasions “furnished information concerning another person’s business relationships with another person who is known or believed to be restricted from having any business relationship with or in a boycotting country.” Civil Monetary Penalty of $28,600
§ 760.5 Failing to Report the Receipt of a Request to Engage in a Restrictive Trade Practice or Foreign Boycott Against a Country Friendly to the United States Also in connection with the sale and/or transfer of goods from the U.S. to Bahrain, Mitsui, on seven occasions “received a request to take an action which would have the effect of furthering or supporting a restrictive trade practice or unsanctioned foreign boycott. Mitsui failed to report its receipt of these requests to the Department…”

BIS published a Final Rule in the January 26 Federal Register adding 21 persons to the Entity List, Supplement No. 4 to part 744 of the Export Administration Regulations (EAR).

The Entity List identifies entities and other persons reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States. The EAR imposes additional license requirements on, and limits the availability of most license exceptions for, exports, re-exports, and transfers (in-country) to those listed.

These twenty-one persons will be listed on the Entity List under the destinations of Bulgaria, China, Kazakhstan, Russia, Syria, and the United Arab Emirates (U.A.E.).

Among the 21 are a number of entities from China, Kazakhstan, Russia, and the U.A.E. They are:

Country Name
China Chengdu Spaceon Technology Co., Ltd., along with the alias “Tianao Electronics Co. Ltd.”
Kazakhstan/Russia Abtronics
UAE Advanced Aerospace Industries
UAE Deira General Marketing
UAE DGL Clearing and Forwarding LLC
UAE Emitech Middle East FZC
UAE Eurotech DMCC
UAE Foremost International FZE
UAE Jazirah Aviation Club
UAE Modest Marketing LLC
UAE Pearltrainer FZE
UAE Sky Gulf Consultancy and Researches LLC
UAE Stealth Telecom FZC

In addition, this rule amends the EAR by removing three entities from the Entity List. This rule removes one entity listed under the destination of Taiwan and two entities listed under the destination of the U.A.E. from the Entity List. All three of the removals are the results of requests for removal received by BIS pursuant to the section of the EAR used for requesting removal or modification of an Entity List entry and a review of information provided in the removal requests.

Finally, this final rule modifies two existing entries on the Entity List. This rule modifies one entry under China and one entry under Pakistan to provide additional or modified addresses and/or names for these persons

 

 

Office of Foreign Assets Control (OFAC)

  • On November 17, American Express Company (AMEX) agreed to pay $204,277 to settle its potential civil liability for 1,818 alleged violations of the Cuban Assets Control Regulations (CACR). The violations occurred between 2009 and 2014, at which time a wholly-owned subsidiary of AMEX, Alpha Card Group, owned 50 percent of BCC Corporate SA (BCCC), a Belgium-based credit card issuer and corporate service company. Alpha Card and BCCC failed to implement controls to prevent its credit cards from being used in Cuba. AMEX and BCCC voluntarily self-disclosed the violations. OFAC determined this was a non-egregious case.
    • Aggravating factors included:
      • Personnel within both Alpha Card and BCCC had reason to know of the conduct that led to the apparent violations.
      • Despite Alpha Card’s business model prior to its acquisition of BCCC in March 2009, in which it dealt exclusively with AMEX-related products (and therefore had insight into all the parties involved in any transactions throughout the network), none of the companies involved appear to have appreciated the possibility or risk that BCCC-issued credit cards could be used in Cuba, and the company should have taken steps to assess the level of sanctions risk, and related controls, for BCCC-issued credit cards.
      • The apparent violations resulted in harm to U.S. sanctions program objectives at the time they occurred.
      • AMEX is a large and commercially sophisticated financial institution.
      • During OFAC’s investigation, AMEX and BCCC provided certain information on multiple occasions that was verifiably inaccurate or incomplete, including material omissions.
    • Mitigating factors included:
      • BCCC has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the apparent violations.
      • Upon discovering the apparent violations, AMEX took swift and appropriate remedial action.
      • AMEX and BCCC voluntarily self-disclosed the apparent violations to OFAC.
      • BCCC signed a statute of limitations tolling agreement and tolling agreement extensions.
  • On November 28, OFAC issued a Finding of Violation to Dominica Maritime Registry, Inc. (DMRI) of Fairhaven, Massachusetts, for a violation of the Iranian Transactions and Sanctions Regulations (ITSR). On July 4, 2015, the company executed a binding Memorandum of Understanding, which OFAC determined to be a contingent contract, with the National Iranian Tanker Company (NITC), an entity of the Government of Iran. The company did not voluntarily disclose the violation. OFAC ruled it a non-egregious case.
    • Aggravating Factors:
      •  DMRI failed to exercise a minimal degree of caution or care by executing a contingent contract with an entity it knew was listed on the SDN List at the time of the violation.
      • DMRI executives had actual knowledge of, and actively participated in, the conduct the led to the violation, and were aware of NITC’s status when DMRI executed the contingent contract.
      • DMRI undermined the policy objectives of the ITSR by dealing in the blocked property of a Government of Iran entity identified on the SDN List.
    • Mitigating factors included:
      • DMRI had not received a penalty notice or Finding of Violation from OFAC in the five years preceding the date of the transaction giving rise to the violation.
      • DMRI is a small company.
      • DMRI took remedial actions, including engaging trade counsel to assist it in understanding its obligations under U.S. sanctions laws, updating its OFAC compliance procedures, and undertaking a process to establish an OFAC compliance training program for all employees.
    • OFAC determined a Finding of Violation was the appropriate enforcement response because DRMI is a small company, the scope of the contract at issue was limited, and there was no performance on the contract.

Bureau of Industry and Security (BIS)

  • On November 20, BIS announced a Settlement Agreement with Pilot Air Freight, LLC (a.k.a. Pilot Air Freight Corp.) of Lima, Pennsylvania, to settle potential civil liability for one alleged violation of the Export Administration Regulations (EAR). In February 2015, Pilot allegedly aided or abetted an attempted unlicensed exported to IKAN Engineering Services in Pakistan, an entity on BIS’ Entity List. The item was an ultrasonic mill cutting machine controlled for Anti-Terrorism reasons, and valued at more than $250,000.
    • Pilot was assessed a civil penalty of $175,000.
    • The company agreed to complete two external audits of its export controls compliance program.

For more information, contact: Jeff Snyder, Edward Goetz

Department of Justice

  • On October 4, a retired U.S. Army colonel was charged with one count of conspiracy to violate the Foreign Corrupt Practices act (FCPA) and the Travel Act and one count of conspiracy to commit money laundering in an indictment filed in the District of Massachusetts. The indictment is connected to his alleged role in a scheme involving a planned $84 million port development project in Haiti.

Office of Foreign Assets Control (OFAC)

  • On October 5, OFAC announced BD White Birch Investment LLC (White Birch USA) of Greenwich, Connecticut, agreed to pay $372,465 to settle its potential civil liability for three alleged violations of the Sudanese Sanctions Regulations. The company facilitated the sale and shipment of Canadian-origin paper from Canada to Sudan in 2013.
    • Aggravating factors included:
      • “(1) White Birch USA exhibited reckless disregard for U.S. sanctions requirements by failing to exercise a minimal degree of caution or care with regard to the apparent violations;
      • (2) White Birch Canada personnel appear to have attempted to conceal the ultimate destination of the goods from its bank (a U.S. financial institution serving as the confirming bank on a letter of credit) with respect to two of the apparent violations;
      • (3) multiple White Birch USA personnel, including individuals in supervisory or managerial positions, had actual knowledge of and were actively involved in, or had reason to know of, the conduct that led to the apparent violations;
      • (4) White Birch USA is a large and commercially sophisticated company;
      • (5) White Birch USA’s compliance program was either non-existent or inadequate at the time of the apparent violations; and
      • (6) White Birch USA did not initially cooperate with OFAC’s investigation into the apparent violations, particularly when it submitted materially inaccurate, incomplete, and/or misleading information to OFAC.”
    • Mitigating factors included:
      • “(1) White Birch USA has no prior OFAC sanctions history, and has not received a penalty notice or Finding of Violation in the five years preceding the earliest date of the transactions giving rise to the apparent violations; and
      • (2) White Birch USA has reported to OFAC that it has taken remedial steps in response to the apparent violations, including by updating the company’s employee manual to include additional information concerning economic sanctions, implementing new compliance policies, and administering company-wide OFAC compliance training.”

For more information, contact: Jeff Snyder, Edward Goetz

Bureau of Industry and Security

  • On August 31, BIS announced a Settlement Agreement with Narender Sharma and his company Hydel Engineering Products (Hydel/Sharma), both of Rumpur Bushahr, India. Hydel/Sharma was charged with one count of Conspiracy to Export Items from the U.S. to an Iranian Government Entity without Authorization. The purpose of the conspiracy was to sell and export U.S.-origin waterway barrier debris systems and related components to Iran via third countries. The company was assessed a penalty of $100,000 and agreed to a five-year denial of export privileges, suspended for a five-year probationary period.
  • On September 25, BIS announced a Settlement Agreement with Millitech, Inc., of Northampton, Massachusetts to settle 18 alleged violations of the Export Administration Regulations (EAR). Millitech is alleged to have engaged in prohibited conduct when it exported multiplier chains, controlled under Export Control Classification Number (ECCN) 3A001.b.4, to China and Russia without a license. The company was assessed a civil penalty of $230,000.

Department of Justice and Securities and Exchange Commission

  • Telia Company AB, a Stockholm-based international telecommunications company, entered into a deferred prosecution agreement in connection with a criminal information filed on September 21 in the Southern District of New York charging the company with conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). Its Uzbek subsidiary, Coscom LLC, pled guilty to the same charge. Telia agreed to pay a total criminal penalty of $274,603,972 to the U.S., including a $500,000 criminal fine and $40 million forfeiture on behalf of Coscom. Separate settlements were made with the Securities and Exchange Commission and the Public Prosecution Service of the Netherlands in related proceedings. The total amount of criminal and regulatory penalties paid to U.S., Dutch, and Swedish authorities will be $965,773,949.
    • In its press release, the DOJ stated, “According to the companies’ admissions, Telia and Coscom, through various managers and employees within Telia, Coscom and affiliated entities, paid approximately $331 million in bribes to an Uzbek government official, who was a close relative of a high-ranking government official and had influence over the Uzbek governmental body that regulated the telecom industry. The companies structured and concealed the bribes through various payments including to a shell company that certain Telia and Coscom management knew was beneficially owned by the foreign official. The bribes were paid on multiple occasions between approximately 2007 and 2010, so that Telia could enter the Uzbek market and Coscom could gain valuable telecom assets and continue operating in Uzbekistan. Certain Telia and Coscom management also contemplated structuring an additional bribe payment in late 2012, after Swedish media began reporting about Telia’s corrupt payments in Uzbekistan, Swedish authorities began a criminal investigation and Telia opened an internal investigation.”

Directorate of Defense Trade Controls

  • On September 11, DDTC announced Bright Lights USA, Inc. settled 11 allegations that it violated the International Traffic in Arms Regulations (ITAR) with unauthorized exports of defense articles, including the export of technical data to a proscribed destination. Bright Lights voluntarily disclosed the alleged violations and agreed to pay a civil penalty of $400,000. DDTC did not seek disbarment because the company cooperated with the Department’s review, expressed regret, and took steps to improve its compliance program.
    • Among other things, between 2010 and 2012, the company exported ITAR-controlled technical data under Categories II, IV, and VII without authorization. Four of these were to China. The company also misclassified items under the Export Administration Regulations and exported them without a license to non-prohibited destinations.

Office of Foreign Assets Control

  • On September 26, OFAC announced Richemont North America, Inc., doing business as Cartier, agreed to pay $334,800 to settle its potential civil liability for four alleged violations of the Foreign Narcotics Kingpin Sanctions Regulations (FNKSR). Between 2010 and 2011, Cartier exported four shipments of jewelry to an entity on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List).

For more information, contact: Jeff Snyder, Edward Goetz

Bureau of Industry and Security (BIS)

  • Export Violations
    • On August 18, BIS announced a Settlement Agreement with Cryofab, Inc. of New Jersey. On two different occasions in 2012, the company engaged in conduct prohibited by the Export Administration Regulations (EAR). Cryofab exported gas storage containers and related tools and accessories from the U.S. to an Indian entity, the Bhabha Atomic Research Center (BARC), listed on the Entity List. The company was assessed a penalty of $35,000 and agreed to an external audit of its export controls compliance program covering the 12-month period beginning on the date of the order.
  • Alleged Antiboycott Violations
    • On August 22, BIS announced a Settlement Agreement with Carrier Saudi Services Company Ltd. (CSSC), a controlled-in-fact affiliate of Carrier Corporation, a U.S. firm for four alleged violations of Part 760 of the EAR, Restrictive Trade Practices or Boycotts. The company was charged with two violations of “Refusal to Do Business” and two violations of “Failing to Report the Receipt of a Request to Engage in a Restrictive Trade Practice or Foreign Boycott Against a Country Friendly to the United States”. All four violations came as a result contracts from 2012. CSSC agreed to pay a $12,000 civil penalty.
    • On August 22, BIS announced a Settlement Agreement with CH Robinson Freight Services, Ltd. (CHR) for 17 alleged violations of Part 760 of the EAR. The company was charged with ten violations of “Furnishing Information about Business Relationships with Boycotted Countries or Blacklisted Persons” and seven “Failing to Report the Receipt of a Request to Engage in a Restrictive Trade Practice or Foreign Boycott Against a Country Friendly to the United States”. All 17 violations occurred between 2012 and 2015 and were transactions involving the sale and/or transfer of goods or services (including information) from the U.S. to the UAE. CHR agreed to pay a $12,000 civil penalty.

Office of Foreign Assets Control (OFAC)

    • On August 10, OFAC announced IPSA International Services, Inc. agreed to pay $259,000 to settle its potential civil liability for 72 apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR).
      • IPSA, on 44 occasions, imported Iranian-origin services into the U.S. and on 28 occasions, IPSA engaged in transactions or dealings related to Iranian-origin services by approving and facilitating its foreign subsidiaries’ payments to providers of Iranian-origin services.
      • The company did not voluntarily disclose the apparent violations and OFAC determined it to be a non-egregious case. OFAC found at least one of IPSA’s senior management knew, or had reason to know, it was dealing in transactions related to Iran; however, the fine was mitigated by, among other things, the company undertaking remedial measures and submitting an investigation report to OFAC without an administrative subpoena. It answered additional questions promptly, and entered into a statute of limitations tolling agreement.
    • On August 17, OFAC announced Blue Sky Blue Sea, Inc., doing business as American Export Lines and International Shipping Company (USA), agreed to pay $518,063 to settle potential civil liability for 140 apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR).
      • Between 2010 and 2012, the company appears to have transshipped used and junked cars and parts from the U.S. via Iran to Afghanistan on 140 occasions.
      • The company did not voluntarily disclose the apparent violations and OFAC determined it to be a non-egregious case. OFAC found the company’s President and co-owner knew and approved of the transshipments via Iran; however, the fine was mitigated by, among other things, taking remedial steps before OFAC’s investigation began. It also cooperated, to include agreeing to toll the statute of limitations for 804 days.
    • On August 24, OFAC announced COSL Singapore Ltd., an oilfield services company located in Singapore and a subsidiary of China Oilfield Service Limited, agreed to pay $415,350 to settle its potential civil liability for 55 apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR).
      • Between 2011 and 2013, the company, through two subsidiaries, exported or attempted to export 55 orders of oil rig supplies from the U.S. to Singapore and the UAE, then re-exported or attempted to re-export these supplies to four oil rigs in Iranian territorial waters.
      • The company did not voluntarily disclose the apparent violations and OFAC determined it to be a non-egregious case. COSL Singapore’s fine was mitigated by, among other things, the institution of an OFAC sanctions compliance program and its display of substantial cooperation, to include entering a tolling agreement with OFAC.

For more information, contact: Jeff Snyder, Edward Goetz

On July 26, 2017, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) assessed a civil money penalty of more than $110 million against BTC-e, a Russian-headquarted, internet-based virtual currency exchanger, and a $12 million penalty against its Russian owner, Alexander Vinnik. On that same day, the Department of Justice announced a 21-count indictment against Vinnik for money laundering and the operation of an unlicensed money services business (MSB). Vinnik was arrested in Greece the day before. This is the second time FinCEN has pursued enforcement against a virtual currency provider. It also represents the second largest penalty FinCEN ever has levied against an MSB.

Virtual currencies, which entered into mainstream consciousness with the advent of Bitcoin and its progeny, do not have legal tender status in any jurisdictions. However, “convertible” virtual currencies have equivalent value in real currency or act as a substitute for real currency, while often allowing users a greater degree of anonymity than real currency. BTC-e exchanged U.S. dollars, Russian Rubles, and Euros for virtual currencies Bitcoin, Litecoin, Namecoin, Novacoin, Peercoin, Ethereum, and Dash.

FinCEN has authority under the Bank Secrecy Act (BSA) to regulate MSBs, including money transmitters. In March 2013, FinCEN issued interpretative guidance identifying “exchangers” of virtual currency – defined as persons engaged as a business in the exchange of virtual currency for real currency, funds or other virtual currency – as money transmitters subject to regulation as MSBs under the BSA. The assessment against BTC-e alleges failure to register with FinCEN as an MSB as well as gross failures to maintain appropriate anti-money laundering (AML) controls and to report suspicious transactions as required by the BSA.

FinCEN’s previous enforcement action was for $700,000 for similar violations against popular virtual currency provider Ripple Labs, in 2015. The substantial difference in penalties between the two may be attributable in part to the facts that: (1) Ripple’s penalty was a negotiated settlement, as part of broader non-prosecution agreement with DOJ, whereas the assessment against BTC-e is nonconsensual; (2) BTC-e customers allegedly openly discussed their use of the exchanger to facilitate the sale of drugs and other unlawful activity without objection or further diligence from BTC-e; (3) BTC-e’s customer base allegedly consisted largely of “criminals who desired to conceal proceeds from crimes such as ransomware, fraud, identity theft, tax refund fraud schemes, public corruption, and drug trafficking”; and (4) BTC-e allegedly failed to demand or verify even basic identifying information for its customers and allowed the use of tools, such as bitcoin “mixers,” that obscured the identity of transacting parties.

Although not technically a penalty action, in June 2013 FinCEN also used Section 311 of the USA PATRIOT Act to identify another foreign virtual currency provider closely linked to criminal activity, Liberty Reserve S.A., as a ‘primary money laundering concern’ under Section 311 of the USA PATRIOT Act, and to propose special measures that would have cut off the company’s access to U.S. correspondent banking, once again in coordination with arrests and prosecution by DOJ.

FinCEN clarified by rule in 2011 that MSBs conducting business wholly or in substantial part in the United States are subject to regulation under the BSA for such activities, even if the MSBs have no physical presence there. FinCEN’s assessment against BTC-e appears to represent the first time FinCEN has taken action under this guidance against a foreign MSB with no physical presence in the U.S.

Practical Considerations

These actions, along with FinCEN’s 2013 guidance, and numerous administrative rulings since then about whether various virtual currency models qualify as MSB activity, offer several lessons. First, FinCEN appears determined to bring “legitimate” virtual currency providers under its regulation while taking strong steps to punish providers that wilfully allow the use of their systems to facilitate illegal activity, including through measures that preserve the anonymity of transacting parties. Second, FinCEN is willing to target foreign virtual currency businesses that lack any physical presence in the U.S., so long as they do substantial business there. This may occur either through civil enforcement actions or through the use of other tools such as Section 311. Third, FinCEN’s enforcement actions and various administrative rulings since its 2013 guidance suggest that determining whether a virtual currency activity is subject to regulation by FinCEN can be difficult. For example, FinCEN has issued rulings clarifying that a party renting computer systems to mine virtual currency would not be a money transmitter, but that a party that proposed to accept credit card payments on behalf of merchants and then to pay the merchants in virtual currency would be. For all of these reasons, U.S. and foreign entities considering providing virtual currency-related services should consult available FinCEN guidance and consider carefully whether their business models may qualify as MSB activity. They should use counsel as appropriate to assist them in navigating this emerging area of the law, and should consider seeking an administrative ruling from FinCEN in close cases.

Bureau of Industry and Security (BIS)

  • On July 25, BIS entered into a Settlement Agreement with Harold Rinko, doing business as Global Parts Supply of Hallstead, Pennsylvania (also known as Rinko/Global Parts Supply) to settle a charge of one alleged violation of the Export Administration Regulations (EAR). The company was assessed a $100,000 civil penalty and a denial of export privileges for ten years. Both are suspended so long as the company makes quarterly reports to BIS.
    • Between 2007 and 2011, Rinko/Global Parts conspired and/or acted in concert with others to procure U.S.-origin goods, subject to the EAR, from suppliers in the U.S. to Syria without a license. These included items specifically identified on the Commerce Control List (CCL) or designated as EAR99. For example, in 2008, the company prepared false sales invoices for a multi-gas scanner, used in the detection of chemical warfare agents, and accessories, knowing the items would be transshipped to Syria.

Financial Crimes Enforcement Network (FinCEN)

  • On July 26, Treasury took its first action against a foreign-located money service business, assessing a $110 million civil monetary penalty against BTC-e, a/k/a Canton Business Corporation for willfully violating U.S. anti-money laundering (AML) laws. One of BTC-e’s operators, Russian national Alexander Vinnik, was arrested in Greece, as well. FinCEN assessed a $12 million penalty against him for his role in the violations.
    • BTC-e exchanges fiat currency as well as different convertible virtual currencies, such as Bitcoin. It is one of the largest virtual currency exchanges by volume in the world. BTC-e facilitated transactions involving ransomware, computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking.

For more information, contact: Jeff Snyder, Edward Goetz

Bureau of Industry and Security (BIS)

  • On June 8, BIS entered into a Settlement Agreement with Axis Communications, Inc. of Massachusetts to settle charges of 15 alleged violations of the Export Administration Regulations (EAR). The company was assessed a $700,000 civil penalty and directed to conduct an external audit of its export compliance program by an unaffiliated third-party consultant.
    • Between 2011 and 2013, the company exported thermal imaging cameras to Mexico without a license on 13 occasions. The cameras were valued at nearly $400,000. BIS also alleged Axis failed to comply with recordkeeping requirements in connection with the shipments.
  • On June 9, BIS entered into a Settlement Agreement with Cryomech, Inc. of New York for one alleged violation of the EAR. The company was assessed a $28,000 civil penalty and directed to conduct an external audit of its export compliance program by an unaffiliated third-party consultant.
    • In 2012, Cryomech made an unlicensed export of an LNP-20 Liquid Nitrogen Plant to a party in Russia on the Entity List.
  • On June 27, BIS entered into a Settlement Agreement with Hassan Zafari of Brentwood, California, to settle one alleged violation of the EAR. Mr. Zafari was assessed a $52,500 civil penalty (with all but $7,500 suspended, pending a two-year probationary period) and is subject to a two-year denial order; he may not participate in the export of any item from the U.S. during this time.
    • He caused, aided, or abetted the export from the U.S. to Iran of a used industrial laser system without the required license. According to the Charging Letter, among other things, Zafari admitted to BIS special agents during an interview that he knew that U.S. law prohibited exports to Iran, directly or indirectly, but he “[n]onetheless . . . took several actions that facilitated the transaction, including identifying and hiring a freight forwarding company to ship the laser system from the United States to a general trading company in Dubai, UAE, and instructing the forwarder to list the UAE general trading company as the consignee while aware. . . that the item actually was intended for supply, transshipment, or re-export to Iran.”

Office of Foreign Assets Control (OFAC)

  • On June 8, OFAC announced American Honda Finance Corporation (AHFC) agreed to remit $87,255 to settle its potential civil liability for 13 alleged violations of the Cuban Assets Control Regulations (CACR).
    • Between 2011 and 2014, Honda Canada Finance, Inc. a majority-owned subsidiary of AHFC located in Canada, approved and financed 13 lease agreements between an unaffiliated Honda dealership in Ottawa, Canada and the Embassy of Cuba in connection with the Cuban Embassy’s leasing of vehicles.
  • On June 26, OFAC announced American International Group agreed to remit $148,698 to settle its potential civil liability for 555 alleged violations of sanctions regulations covering Iran, Sudan, Cuba, and the Weapons of Mass Destruction program.
    • From 2007 to 2012, AIG engaged in transactions totaling approximately $396,530 in premiums and claims for the insurance of maritime shipments of various goods and materials destined for, or that transited through, Iran, Sudan, or Cuba, and/or that involved a blocked person.
    • Although AIG had in many cases included OFAC’s recommended exclusion clauses (see OFAC FAQs 102 and 103), some failed to include them, and other policies “were too narrow in their scope and application” for the clauses to be effective.

Department of Justice

On June 16, the Department of Justice publicly disclosed another declination under its Foreign Corrupt Practices Act pilot program. This is the sixth public declination by the Department since launching the program in April 2016. It also represents the first public declination since the Department announced the temporary extension of the pilot program on March 10, 2017, and the first under the Trump administration.

For details on the new declination, please see Crowell & Moring’s Client Alert.

For more information, contact: Jeff Snyder, Edward Goetz

May.10.2017

MoneyGram’s ex-Chief Compliance Officer, Thomas Haider, on May 3 settled alleged anti-money laundering (AML) compliance violations with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network for $250,000, according to announcements by FinCEN and U.S. Attorney’s Office for the Southern District of New York. It appears to be the largest penalty FinCEN ever has imposed on an individual. The settlement resolves an action that FinCEN brought in federal district court to enforce its penalty against Haider, and also Haider’s counter-claim that the Government violated the Privacy Act by leaking details of its investigation to the media. This appears to be the first time that FinCEN has sought penalties against an individual for mismanagement of an AML compliance program, and only the second time FinCEN has sued to enforce a civil penalty. Haider also agreed to be enjoined from performing compliance functions for a money transmitter for a period of three years.

The settlement comes four months after the United States District Court for the District of Minnesota denied Haider’s motion to dismiss FinCEN’s complaint, rejecting in particular his argument that the Bank Secrecy Act (BSA) did not allow penalties against individual employees of a financial institution for the institution’s willful violations of the BSA’s requirement to implement an effective AML program. FinCEN’s complaint was based on previous allegations that MoneyGram failed to file suspicious activity reports (SARs) or to discipline agents despite repeated evidence of fraud against MoneyGram customers in which those agents appear to have colluded. These allegations included events from 2003 to 2008, and ultimately led to MoneyGram entering into a deferred prosecution agreement (DPA) with the Department of Justice in 2012 and agreeing to forfeit $100 million. FinCEN brought its complaint against Haider two years later, in 2014. The complaint alleged that Haider willfully failed to ensure that MoneyGram implemented an effective AML program, in particular by failing to discipline or terminate MoneyGram agents and outlets that presented a high risk for fraud, and also that he willfully failed to ensure that MoneyGram filed SARs on reports of fraud or money laundering through these agents as required by the BSA. (See our previous alert on the complaint and the district court’s opinion here.)

The settlement amount of $250,000 is less than the $1 million FinCEN sought in its Complaint. The agreed injunction also is narrower than the government’s request in the complaint that Haider be barred from “participating, directly or indirectly, in the conduct of the affairs of any financial institution” for a period of years to be determined at trial. And FinCEN did not obtain an admission from Haider that he willfully violated the BSA, something that FinCEN has sought and obtained in recent settlements against both individuals and institutions. However, the amount is far more than reported AML settlements for individuals with other financial regulators, and appears to be the largest paid by an individual to date.

FINRA historically has been the most active regulator in assessing penalties against individual AML compliance personnel. A former global AML chief compliance officer of Brown Brothers Harriman (BBH) and a former AML compliance officer at Raymond James & Associates (RJ) each settled for $25,000 with FINRA in 2014 and 2016, respectively. For purposes of comparison, BBH paid $8 million and RJ paid $17 million to settle the related corporate enforcement actions. The SEC also has prioritized individual accountability, highlighted by an October 2016 enforcement action against the CEO of a Miami-based brokerage firm which resulted in a $50,000 individual settlement. The decision to pursue the CEO was driven by the SEC’s finding that he was ultimately responsible for its AML program and supervision of the firm’s AML officer. Haider’s $250,000 settlement with FinCEN is enough to strike fear into the hearts of AML compliance officers at all financial institutions.

That is particularly true for compliance officers at financial institutions also regulated by New York’s Department of Financial Services, which in June of 2016 adopted new AML rules requiring one or more “senior officers” (which is likely for many institutions to include their chief AML officers) to certify annually that the institution’s AML programs have various mandatory elements similar to those required under federal law, with potential penalties for “false” certifications. In cases where AML officers are deemed to have “willfully” violated BSA rules by failing to properly maintain aspects of their institution’s AML programs, they may risk accusations from the NYDFS that their certifications about the adequacy of these programs were false. (See our alert on the NYDFS rule here.)

Practical Considerations

Two aspects of the Haider settlement provide special guidance to AML compliance officers. First, the settlement notes that Haider chose not to implement a draft policy to discipline or terminate agents with high reported incidents of fraud in part because of opposition from the company’s Sales Department. Second, the fraud and money laundering activity occurring through specific MoneyGram agents was not reported to FinCEN in SARs in part because MoneyGram’s Fraud Department, also under Haider’s management, did not share information on agents that had been the subject of disproportionate reports of fraud with its AML Compliance Department. This also prevented AML Compliance Department staff from targeting audits to address such activity, a further basis for the AML program failures attributed to Haider.

The first lesson that comes from this resolution is that financial institutions need to empower their AML compliance officers to ensure that the goals of sales and other company departments do not prevent the company from making sound compliance decisions and avoiding costly fines. This is consistent with FinCEN’s 2014 guidance recommending a “culture of compliance,” which calls for such empowerment of AML compliance officers. Second, this case makes it clear that FinCEN expects AML compliance officers to stand firm in demanding compliance-related changes to address situations that put the company at risk. In cases where a decision may be overruled by concerns other than compliance, AML compliance officers should document their requests that particular actions be taken to ensure compliance, as well as the rationales for those requests. Third, financial institutions should avoid silos in the sharing and processing of internal alerts, in particular the alerts of internal fraud departments, to ensure that circumstances that merit a SAR are seen by the right people and are reported. Finally, the successful collaboration between FinCEN and the U.S. Attorney’s Office in this case is likely to embolden FinCEN to continue pursuing penalties against individuals for AML program and other violations in egregious cases. This is especially relevant following DOJ’s 2015 “Yates Memo,” which provides an incentive for financial institutions to identify individuals responsible for alleged misconduct in order to receive cooperation credit in criminal cases. In future criminal prosecutions by DOJ of financial institutions for AML program and SAR violations, it is possible to imagine more circumstances where FinCEN will collaborate with DOJ to impose civil penalties on culpable individuals (who also potentially may face prosecution by DOJ).