AIBA. 14 September 2010

Transcription

1 AIBA 14 September 2010

2 What is OFAC? Office of Foreign Assets Control (OFAC) U.S. Department of the Treasury OFAC administers and enforces economic and trade sanctions against targeted: Foreign governments Individuals Entities Practices 2

3 Who is OFAC? National Security Council The President Department of the Treasury Department of the State Department of Homeland Security Law Enforcement Department of Commerce Office of Foreign Assets Control Department of Justice Federal Regulators Federal Bureau of Investigation Central Intelligence Agency 3

4 Statutory Authority Trading with the Enemy Act (TWEA) (50 U.S.C. app. 1-44) Primary legal authority for Cuba program 4

5 Statutory Authority International Emergency Economic Powers Act (IEEPA) (50 U.S.C ) Primary legal authority for all non-twea programs 5

6 Statutory Authority Other Statutes Antiterrorism and Effective Death Penalty Act Foreign Narcotics Kingpin Designation Act Comprehensive Iran Sanctions, Accountability, and Divestment Ac of 2010 ( CISADA ) Implementation Authorities Title 31 U.S. Code of Federal Regulations, Chapter V Various Executive Orders 6

7 Jurisdiction Individuals - U.S. citizens and permanent resident aliens located anywhere in the world - Individuals, regardless of citizenship, physically located in the United States Corporations - organized under U.S. law, including foreign branches of U.S. companies (Cuba foreign subsidiaries as well) - physically located in the U.S., including U.S. branches, agencies and representative offices of foreign corporations - For purposes of CISADA, foreign subsidiaries of U.S. financial institutions 7

8 OFAC Terminology Blocking Rejecting Property; property interest General License Specific License Specially Designated National 8

9 Blocking Freezing assets under U.S. jurisdiction Across-the-board prohibitions against transfers or transactions regarding the blocked property Title of blocked property remains with sanctioned target 9

10 Rejecting Underlying transaction that is prohibited, but contains no blockable interest U.S. company must simply refuse to engage in the transaction 10

11 Property; property interest 31 C.F.R Property - contracts of any nature whatsoever, services, and any other property, real, personal, or mixed, tangible or intangible, or interest or interests therein, present, future, or contingent. 31 C.F.R Property interest - any interest whatsoever, direct or indirect. 11

12 Licenses General License Regulatory provision authorizing certain transactions without written authorization from OFAC Specific License A written authorization from OFAC issued on a case-bycase basis to a specific individual or company allowing an activity that would otherwise be prohibited by the embargo or sanctions program 12

13 Specially Designated Nationals and Blocked Persons SDNs - Over 3500 unique entities identified by OFAC around the world - Owned, controlled by or acting on behalf of targeted governments or groups - Include front companies, parastatals, high-ranking officials - Designated narcotics traffickers, terrorists, terrorist groups, WMD proliferators and support networks 13

14 Sanctions Programs Comprehensive Programs Counter Narcotics Trafficking Non-Proliferation (NPWMD) Anti-Terrorism Sudan Cuba Iran Limited Programs Burma (Myanmar) Conflict Diamonds North Korea Syria Regime-Based Programs Former Liberian Regime of Charles Taylor Dem. Republic of Congo Cote D Ivoire Zimbabwe Balkans Belarus 14

15 Sanctions Programs Prohibited under comprehensive sanctions programs: - Exports (direct or indirect) - Imports (direct or indirect) - Trade brokering, financing, or facilitation - Any attempt to evade or avoid the sanctions 15

16 Compliance Programs 1. RISK ASSESSMENT IS ESSENTIAL!! 2. Internal Controls 3. Internal Testing and Audits 4. Compliance Officer 5. Training 16

17 Foreign Entity Offices The U.S. branch of a foreign entity may have a higher risk profile - Correspondent banking relationships with countries targeted by the U.S. government - Facilitation by U.S. office 17

18 IEEPA Enhancement Act IEEPA Enhancement Act - October 16, 2007 (P.L , 121 Stat 1011 ) IEEPA Penalty Increase to Greater of: $250,000 or 2X Transaction Amount Retroactive Application 18

19 Enforcement Guidelines - Goals Enforcement Goals Flexibility to Achieve Appropriate Results Predictability/Equity in Results 19

20 Enforcement Guideline - Priorities Limited resources Target most significant cases Intentional/reckless conduct Value of transactions at issue Nature of practices Foreign policy/national security goals Joint settlements with other agencies

21 Enforcement Guidelines November 9, 2009

22 Types of Response No Action Cautionary Letter Finding of Violation Civil Penalty Criminal Referral Violations may also result in: Blocked funds & Seized Goods License Revocation Negative Publicity, Loss of Business 22

23 Base Penalty Calculation 23

24 Enforcement Guidelines - General Factors A. Willful or Reckless Violation of Law B. Awareness of Conduct at Issue C. Harm to Sanctions Program Objectives D. Individual Characteristics E. Compliance Program F. Remedial Response G. Cooperation with OFAC H. Timing of Apparent Violation I. Other Enforcement Action J. Future Compliance/Deterrence Effect K. Other Relevant Factors 24

25 FOREIGN BANK CASES Legal Theory: Exporting services from the US in violation of US Sanctions Involved varying degrees of deceptive practices Stripping transactions of sanctions references and/or using cover payments to process transactions in violation of U.S. law

26 ANZ USD5.7M settlement SUDAN 16 Sudanese transactions were egregious because the lack of transparency was purposeful, but the number paled by comparison to other cases before OFAC 3 large transactions accounted for 88% of the base penalty amount. Payments typically related to agriculture; they were ANZ s 1 st violations of such a nature; there was substantial cooperation & prompt remedial action

27 ANZ USD5.7M settlement SUDAN 16 Sudanese transactions were egregious because the lack of transparency was purposeful, but the number paled by comparison to other cases before OFAC 3 large transactions accounted for 88% of the base penalty amount. Payments typically related to agriculture; they were ANZ s 1 st violations of such a nature; there was substantial cooperation & prompt remedial action

28 ANZ USD5.7M settlement CUBA Transactions involved a non-egregious voluntary selfdisclosure The evidence did not suggest that ANZ deliberately acted to conceal information or establish procedures to deliberately circumvent the CACR.

29 LLOYDS USD217M settlement Obligation to pay was deemed satisfied by prior payment of USD350M to DOJ / DANY arising out of the same pattern of conduct. Lloyds had a policy of intentionally manipulating & deleting information about U.S. sanctioned parties notably Iran, Sudan, & Libya in wire transfer instructions executed on behalf of its bank & non-bank customers.

30 LLOYDS USD217M settlement Jun 03 Aug 06: at least 4,200 transfers USD36,988,457 Lloyds indicated it terminated activities, including ceasing USD clearing for Iranian bank customers in 2003 & cooperated fully with OFAC. Substantial lookback regarding USD payments performed. Annual prospective review for 2 years w/ 3 rd party & scope of review approved by the FSA.

31 LLOYDS USD217M settlement Although not a VSD, OFAC mitigated based on substantial cooperation, prompt & thorough remedial response, & no OFAC enforcement actions over the previous 5 years.

32 CREDIT SUISSE USD536M settlement Global aggregate OFAC, DOJ, DANY + FED C&D w/ FINMA assistance IEEPA / TWEA Iran, Sudan, Cuba, Libya, Taylor s Liberia Aug 03 Dec 06 5,138 transfers c.usd645m thru US banks (not VSD) Sep 02 Jun securities transactions c.usd152m London thru United States using code names (VSD)

33 CREDIT SUISSE USD536M settlement Credit Suisse used cover payments to avoid referencing parties subject to U.S. sanctions and omitted, removed, or provided incorrect information in payment messages to conceal the identities of U.S. sanctions targets in electronic funds transfers executed through the United States and in securities transactions executed in the United States.

34 CREDIT SUISSE USD536M settlement Credit Suisse Securities: Credit Suisse executed trades involving U.S. securities on behalf of a then-designated Libyan state-owned investment company and a bank located in Sudan. Credit Suisse Asset Management London also utilized code names to disguise the names of the sanctioned persons and maintained subaccounts in these code names in its omnibus accounts maintained at Credit Suisse USA. 34

35 CREDIT SUISSE USD536M settlement Total combined base penalty for all apparent violations = USD1.7 billion OFAC mitigated the total potential penalty based on CS s extensive and substantial cooperation, its remediation, the fact that OFAC had not issued a penalty notice or FOV against CS in the 5 years preceding the transactions at issue, and CS s willingness to enter into tolling agreements with OFAC. CS substantially cooperated with OFAC by engaging an independent consulting firm to conduct an extensive review of all applicable incoming and outgoing payment messages during the review period and providing that information to OFAC in a comprehensive and well organized manner. Mitigation was also extended because CS agreed to settle the allegations of violations.

36 BARCLAYS USD176M settlement Global aggregate settlement of USD298M OFAC, U.S. Department of Justice, New York County District Attorney s Office The Board of Governors of the Federal Reserve System and the New York State Banking Department issued a consent C&D with the FSA s assistance IEEPA / TWEA Sudan, Iran, Burma, Cuba Aug 02 Sep 06 1,285 transfers for USD112,695,000 through Barclays NY and other US banks (VSD)

37 BARCLAYS USD176M settlement Barclays engaged in payment processes that prevented Barclays NY and other U.S. financial institutions from identifying the involvement of U.S. sanctions targets in funds transfers processed through the United States. Barclays apparent violations arose out of practices designed to circumvent filters at U.S. banks installed to detect transactions in violation of OFAC regulations. This was done using cover payments to avoid referencing parties targeted by U.S. sanctions and omitting or removing information in payment messages in order to conceal the identities of U.S. sanctions targets most notably Sudan in electronic funds transfer instructions executed through the United States.

38 BARCLAYS USD176M settlement Total combined base penalty for all apparent violations = USD218,971,000 million OFAC mitigated the total potential penalty based on Barclays substantial cooperation, its remediation, the fact that OFAC had not issued a penalty notice or FOV against Barclays in the five years preceding the transactions at issue, and Barclays willingness to enter into tolling agreements with OFAC. Mitigation was also extended because a number of the Sudan transactions involved the export of agricultural products. At the same time, aggravating circumstances including the recklessness of the apparent violations, awareness of the conduct by relevant managers within the bank, and sophistication of the institution partially offset the amount of mitigation.

39 Banco Colpatria, S.A. USD91,849 settlement Banco Colpatria, S.A., Miami Agency ( Colpatria Miami ) screened the names of the beneficial owners of a Banco Colpatria, S.A. ( Colpatria ) corporate client at the time the account was opened After the account is opened, OFAC designates the client s beneficial owners as Specially Designated Narcotics Traffickers ( SDNT ) Colpatria Miami fails to screen the beneficial owners after their designation and processes numerous wire transfers on behalf of the Colpatria corporate client After discovering that the corporate client s beneficial owners had been designated as SDNTs, Colpatria Miami voluntarily self-disclosed this matter to OFAC

40 Banco Colpatria, S.A. USD91,849 settlement Colpatria Miami processed 26 USD wire transfers on behalf of the Colpatria corporate client after the beneficial owners were designated by OFAC The base penalty for the apparent violations was USD229,623 OFAC mitigated the total potential penalty because Colpatria Miami voluntarily self-disclosed the apparent violations, revised its software configuration to review automatically the names of authorized signatories and beneficial owners of accounts, and signed a tolling agreement with OFAC. OFAC had not issued a penalty notice or FOV against Barclays in the five years preceding the transactions at issue

41 Compass Bank USD607,500 settlement SUDAN Compass Bank initiated three large-sum funds transfers on behalf of one of its clients related to the petroleum or petrochemical industries in Sudan Compass Bank acted without an OFAC license or outside the scope of its license by initiating the subject transactions

42 Compass Bank USD607,500 settlement The base penalty for the three apparent violations was USD750,000 Compass Bank did not voluntarily self-disclose this matter to OFAC The alleged violations constituted a non-egregious case Compass Bank fully cooperated with OFAC during its investigation of this matter; and has undertaken significant remedial actions to strengthen its compliance program and to manage potential sanctions risk

43 A NEW STATUTE On July 1, President Obama signed into law the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, also known as CISADA. There are several components to the law, including provisions related to the financial and the energy sectors.

44 Petroleum Sector Provisions Expands Iran Sanctions Act provisions Thresholds for investment or commercial transactions related to Iran s Petroleum Sector were reduced If a company meets these criteria, the State Department must impose three or more of nine possible actions against that firm Retains waiver provisions

45 Financial Sector Provisions U.S. financial institutions cannot open or maintain correspondent or payable-through accounts for foreign financial institutions that the Secretary of the Treasury finds knowingly engage in certain activities described in the statute In lieu of that broad prohibition, Treasury may impose conditions on the operation of an account

46 IFSR On August 16, OFAC issued its Iranian Financial Sanctions Regulations, 31 CFR 561 to implement subsections 104 (c) and 104 (d) of CISADA. FinCEN will be issuing regulations to implement subsection 104 (e) Due Diligence requirements

47 The IFSR To be named under CISADA, a foreign financial institution must knowingly engage in one or more of the following: Facilitating the efforts of the GOI to acquire WMD, delivery systems for WMD, or provide support for terrorism Facilitating the activities of parties designated by UNSC Engaging in money laundering or facilitating efforts by any Iranian financial institution (including the Central Bank of Iran) to carry out these activities Facilitating a significant transaction or transactions, or providing significant financial services for the IRGC, any of its agents or any financial institution designated by OFAC under its WMD or Terrorism programs

48 The IFSR What is Significant? The Secretary of Treasury may consider some or all of the following factors in making his determination: Size, Number, and Nature of the transactions Level of Awareness: Pattern of Conduct Impact Deceptive Practices Other Relevant Factors

49 Resources OFAC Homepage Current Sanctions Programs Frequently Asked Questions OFAC Brochure for the Financial Community Subscribe to OFAC Alerts 49