Archive for the ‘Treasury Dept’ Category

Treasury/OFAC Amends and Reissues North Korea Sanctions Regulations

2018/04/04

(Source: Treasury/OFAC)

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is announcing the amendment and reissuance in its entirety of the North Korea Sanctions Regulations, 31 C.F.R. part 510, in order to implement Executive Order (E.O.) 13687, E.O. 13722, and E.O. 13810, and to reference the North Korea Sanctions and Policy Enhancement Act of 2016 and the Countering America’s Adversaries Through Sanctions Act of 2017.  Pursuant to these authorities, all property and interests in property of the Government of North Korea and the Workers’ Party of Korea are blocked, and U.S. persons are generally prohibited from engaging in transactions with them without authorization from OFAC and must block property or interests in property that are in, or come within, the United States or the possession of a U.S. person.  In addition, these authorities provide the Secretary of the Treasury, in consultation with the Secretary of State, additional tools to disrupt North Korea’s ability to fund its weapons of mass destruction and ballistic missile programs.  OFAC is also publishing new and updated North Korea-related FAQs.

The Regulations and the FAQs emphasize that all U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all individuals and entities within the United States, and all U.S.-incorporated entities and their foreign branches.  Furthermore, all transactions within the United States, including all financial transactions that transit the U.S. financial system, must comply with OFAC regulations.  For additional information, see FAQ 11 and 31 C.F.R. part 510, subpart G.

Violations of the North Korea Sanctions Regulations, issued under the authority of the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06 (IEEPA), and other statutes can result in substantial civil monetary penalties, referral for criminal prosecution, or both.  Each violation of the North Korea Sanctions Regulations is subject to a civil monetary penalty of up to the greater of the IEEPA statutory maximum ($289,238 as of March 1, 2018) or twice the value of the underlying transaction.  Criminal penalties of IEEPA can reach $1,000,000 and 20 years imprisonment per violation.  For additional information, see FAQ 12 and 31 C.F.R. part 510, subpart G.

For additional information regarding OFAC’s prohibitions and penalties, see Basic Information on OFAC and Sanctions.

The regulations will be published in the Federal Register, and the changes will take effect, on: March 5, 2018.

Further information about the North Korea sanctions may be found here


Treasury Publishes List of Countries Requiring Cooperation with an International Boycott

2018/02/08

Source: Federal Register

The Department of the Treasury has named the following countries as requiring or may requiring participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2018-01-08/pdf/2018-00123.pdf


US Firms Part Ways with China’s ZTE Monitor

2018/02/08

In early 2017 China’s largest telecommunications company agreed to pay a nearly $900 million penalty to the US after entering a guilty plea for illegally shipping goods to Iran and North Korea. ZTE was charged with 380 violations of the EAR, including (1) Conspiracy (2) Acting with Knowledge of a violation in Connection with Unlicensed Shipments of Telecommunications Items to North Korea via China and (3) Evasion. The company also entered into a settlement with OFAC for violating the Iranian Transactions and Sanctions Regulations (“ITSR”; 31 CFR Part 560). More Information on these charges can be found here.

Part of the settlement with OFAC required the company to hire an initial independent compliance monitor approved by the US government for a three-year term. The monitor is responsible for preparing the initial three annual audit reports to be provided to the US government. In addition, ZTE had to hire an independent compliance auditor, also approved by the US government, for an additional three years to prepare the remaining three annual audit reports.

Guidepost Solutions and Larkin Trade International were hired in June 2017 by the US monitor, James Stanton, a Texas civil and personal injury lawyer in charge of the oversite regime for ZTE. Stanton’s job is to help evaluate ZTE’s US export controls compliance and sanctions laws, and mitigate any future violations. US District Judge Ed Kinkeade, who presided over the ZTE sanctions case, actually rewrote the agreement to put Stanton in charge of monitoring the company before signing off on the plea deal. It has been said that Stanton has a lack of experience in US trade controls and the order naming him is sealed, leaving the reasoning behind the judge’s decision unclear. This situation is a bit of an anomaly because generally, the Department of Justice chooses an independent monitor in corporate criminal cases from candidates proposed by the company, which is how the agreement was originally written before Judge Kinkeade rewrote it. ZTE and the Justice Department agreed to Judge Kinkeade’s choice and the changes to the monitorship agreement, sources said, because the plea had already been negotiated and filed in the judge’s court and a temporary license allowing ZTE to continue to obtain US made goods was about to expire.

In December 2017, rumors broke out that Guidepost Solutions and Larkin Trade International had resigned in August 2017 from the job of actively auditing ZTE. Although the exact reason is unclear, some say it was a result of  Stanton restricting their access to ZTE documents and officials, which ultimately hindered their ability to effectively monitor the company. Stanton’s first report was due to the US government last month and this report, as well as the subsequent 2 reports will decide whether the company is liable for an additional fine of $300 million or being added to the US denial list.

Nearly all parties related to the case, including Guidepost Solutions, Larkin Trade International, Judge Ed Kinkeade, and James Stanton have all declined requests for comments based on this news. Additional details about this story and the ties between Judge Kinkeade and James Stanton can be found at https://www.reuters.com/article/us-usa-zte-exclusive/u-s-experts-resign-from-monitoring-chinas-zte-corp-sources-idUSKBN1EG03R


Treasury/OFAC Announces Settlement Agreement With IPSA International Services, Inc.

2017/10/16

(Source: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/OFAC-Recent-Actions.aspx)

IPSA International Services, Inc. of Phoenix, Arizona agreed to settle its potential civil liability for 72 apparent violations of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced IPSA’s settlement of $259,200 on August 7, 2017. The apparent violations include, on 44 separate occasions, IPSA’s importation of Iranian-origin services into the United States in apparent violation of § 560.201 of the ITSR, and on 28 separate occasions, IPSA’s engagement in transactions or dealings related to Iranian-origin services by approving and facilitating its foreign subsidiaries’ payments to providers of Iranian-origin services in apparent violation of §§ 560.206 and 560.208 of the ITSR.  OFAC concluded that IPSA did not voluntarily disclose these apparent violations, and that the apparent violations constitute a non-egregious case.

OFAC’s web notice is included below.

ENFORCEMENT INFORMATION FOR AUGUST 10, 2017

Information concerning the civil penalties process can be found in the Office of Foreign Assets Control (OFAC) regulations governing each sanctions program; the Reporting, Procedures, and Penalties Regulations, 31 C.F.R. part 501; and the Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. These references, as well as recent final civil penalties and enforcement information, can be found on OFAC’s website.

ENTITIES – 31 CFR 501.805(d)(1)(i)

IPSA International Services, Inc. Settles Potential Civil Liability for Apparent Violations of the Iranian Transactions and Sanctions Regulations: IPSA International Services, Inc. (IPSA), Phoenix, Arizona, has agreed to pay $259,200 to settle its potential civil liability for 72 apparent violations of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). [FN/1] The apparent violations involve, on 44 separate occasions, IPSA’s importation of Iranian-origin services into the United States in apparent violation of § 560.201 of the ITSR, and on 28 separate occasions, IPSA’s engagement in transactions or dealings related to Iranian-origin services by approving and facilitating its foreign subsidiaries’ payments to providers of Iranian- origin services in apparent violation of §§ 560.206 and 560.208 of the ITSR.

OFAC determined that IPSA did not voluntarily disclose the apparent violations, and that the apparent violations constitute a non-egregious case. The total transaction value of the apparent violations was $290,784. The statutory maximum civil penalty amount in this case was $18,000,000, and the base civil penalty amount was $720,000.

IPSA is a global business investigative and regulatory risk mitigation firm that provides due diligence services for various countries and their citizenship by investment programs. In March 2012, IPSA entered into an engagement letter and fee agreement with a third country with respect to its citizenship by investment program (“Contract No. 1”). In October 2012, IPSA’s subsidiary in Vancouver, Canada (“IPSA Canada”) entered into a similar contract with a government-owned financial institution in a separate third country (“Contract No. 2”). While the majority of the applicants to both of these programs were nationals from countries not subject to OFAC sanctions, some were Iranian nationals. Since most of the information about Iranian applicants could not be checked or verified by sources outside Iran, IPSA Canada and IPSA’s subsidiary in Dubai, United Arab Emirates subsequently hired subcontractors to conduct the necessary due diligence in Iran, and those subcontractors in turn hired third parties to validate information that could only be obtained or verified within Iran. Although it was IPSA’s foreign subsidiaries that managed and performed both Contract No. 1 and Contract No. 2, with regard to Contract No. 1, IPSA appears to have imported Iranian-origin services into the United States because the foreign subsidiaries conducted the due diligence in Iran on behalf of and for the benefit of IPSA. With regard to Contract No. 2, IPSA also appears to have engaged in transactions or dealings related to Iranian-origin services and facilitated the foreign subsidiaries’ engagement in such transactions or dealings because IPSA reviewed, approved, and initiated the foreign subsidiaries’ payments to providers of the Iranian-origin services.

The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. OFAC considered the following to be aggravating factors: (1) IPSA failed to exercise a minimal degree of caution or care when it imported background investigation services of Iranian origin into the United States and when it reviewed, approved, and initiated its foreign subsidiaries’ payments to providers of Iranian-origin services, and the frequency and duration of the apparent violations constitute a pattern or practice of conduct; (2) at least one of IPSA’s senior management knew or had reason to know that it was importing and/or engaging in transactions or dealings related to services of Iranian origin; (3) the transactions giving rise to the apparent violations resulted in economic benefits to Iran, and the conduct underlying the apparent violations is not eligible for OFAC authorization under existing licensing policy [FN/2]; (4) IPSA is a commercially sophisticated company operating internationally with experience in U.S. sanctions; and (5) IPSA’s OFAC compliance program was ineffective in that it did not recognize or react to the risks presented by engaging in transactions that involved Iranian-origin background investigation services.

OFAC considered the following to be mitigating factors: (1) IPSA has no prior OFAC sanctions history in the five years preceding the earliest date of the transactions giving rise to the apparent violations; (2) IPSA undertook significant remedial measures by taking swift action to cease the prohibited activities, conducting an investigation to discover the causes and extent of the apparent violations, and adopting new internal controls and procedures to prevent reoccurrence of the apparent violations; and (3) IPSA substantially cooperated with OFAC’s investigation by conducting an internal look-back investigation for potential sanctions violations and submitting an investigation report to OFAC without receiving an administrative subpoena, promptly providing detailed additional information and documentation in a well-organized manner in response to OFAC’s multiple requests for information, and entering into a statute of limitations tolling agreement.

For more information regarding OFAC regulations, please go here.


CSE Global Limited and CSE TransTel Pte. Ltd. Pay Settlement for Apparent Violations Involving Iranian Companies

2017/10/16

By: Ashleigh Foor

A solely-owned subsidiary of CSE Global Limited (an international technology group), CSE TransTel Pte. Ltd., appears to have violated § 1705 (a) of IEEPA and § 560.203 of the ITSR and has agreed to pay a $12,027,066 settlement for the apparent 104 violations of the International Emergency Economic Powers Act 1 (IEEPA) and the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). The apparent violations occurred on or around June 4, 2012 through March 27, 2013 when TransTel appears to have involved at least six different financial institutions in the unauthorized exportation or re-exportation of services from the United States to Iran, a prohibition of § 560.204 of the ITSR.

OFAC concluded that TransTel did not voluntarily make known these apparent violations, which OFAC found to be grounds for a serious case. The maximum and base civil monetary penalty for the apparent violations was $38,181,161.

TransTel first signed contracts with and received purchase orders from Iranian companies starting August 25, 2010 through November 5, 2011. The purchase orders were for multiple energy projects taking place in Iran and/or Iranian territory. In order to carry out the orders to deliver and install telecommunications equipment, TransTel hired several Iranian companies to deliver these goods and services on its behalf.

Preceding these interactions with Iranian companies, CSE Global and TransTel opened separate Singapore bank accounts (the “Bank”). Then-Managing Director and CSE Global’s then-Group Chief Executive Officer signed and sent a letter titled “Sanctions – Letter of Undertaking” to the Bank with the following statement: “In consideration of [the Bank] agreeing to continue providing banking services in Singapore to our company, we, CSE TransTel Pte. Ltd … hereby undertake not to route any transactions related to Iran through [the Bank], whether in Singapore or elsewhere.”  The Bank continued to provide financial services to the company after receiving the Letter of Undertaking and around June 2012, less than two months after the Letter of Undertaking was delivered, TransTel began transferring USD funds related to its Iranian business.

On or around the dates of June 4, 2012 to March 27, 2013 Transtel appears to have violated § 1705 (a) of IEEPA and/or § 560.203 of the ITSR when it initiated 104 USD wire transfers totaling more than $11,111,000 involving Iran. Transfers from the Bank went to several different third-party contacts including Iranian vendors. There was never any mention of Iran, the Iranian projects, or any Iranian parties on documentations involved in these transactions.

The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. OFAC considered the following to be aggravating factors:

(1) TransTel willfully and recklessly caused apparent violations of U.S. economic sanctions by engaging in, and systematically obfuscating, conduct it knew to be prohibited, including by materially misrepresenting to its bank that it would not route Iran-related business through the bank’s branch in Singapore or elsewhere, and by engaging in a pattern or practice that lasted for 10 months;

(2) TransTel’s then-senior management had actual knowledge of – and played an active role in – the conduct underlying the apparent violations;

(3) TransTel’s actions conveyed significant economic benefit to Iran and/or persons on OFAC’s List of Specially Designated Nationals and Blocked Persons by processing dozens of transactions through the U.S. financial system that totaled $11,111,812 and benefited Iran’s oil, gas, and power industries; and

(4) TransTel is a commercially sophisticated company that engages in business in multiple countries.

 

OFAC considered the following to be mitigating factors:

(1) TransTel has not received a penalty notice, Finding of Violation, or cautionary letter from OFAC in the five years preceding the date of the earliest transaction giving rise to the apparent violations;

(2) TransTel and CSE Global have undertaken remedial steps to ensure compliance with U.S. sanctions programs; and

(3) TransTel and CSE Global provided substantial cooperation during the course of OFAC’s investigation, including by submitting detailed information to OFAC in an organized manner, and responding to several inquiries in a complete and timely fashion.

This enforcement action reflects compliance obligations for all companies that conduct business in OFAC-sanctioned jurisdictions or process transactions through or related in any way to the United States. Prior to signing agreement letters, representatives should be certain they and their company are willing and able to abide by rules set forth.


Treasury Fingers Countries Enforcing the Arab League Boycott of Israel

2017/10/16

Editorial By: John Black

Note:  I love this list.  It gives me a chance to say tertiary.   As my career winds down its things like this that I will miss.

N.B.:  I don’t remember ever seeing anybody write an editorial piece about Treasury publishing this list, probably for good reason.  If I don’t do this now, nobody ever will. 

Once again the Treasury Department has published its list of countries that more or less enforce certain aspects of the Arab League Boycott of Israel. Or, as Treasury clearly states, they are countries “which may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).”

You see, way back whenever, the US Congress decided it doesn’t like US persons cooperating with the secondary and tertiary elements of the Arab Boycott of Israel so it told the Treasury Department to put something in the tax code so that US person who illegally cooperate can’t claim foreign tax credits. Congress also told the Commerce Department to put something in its export control regulations so the Commerce rules make such cooperation illegal without telling anybody which countries it applies to.

You see, Congress and the US Government don’t want to have actual rules that say Arab League Boycott of Israel to make it clear that US person can’t cooperate with the unmentionable boycott on the unmentionable close ally of the United States.  Because, what the wizards* in Washington figured out is, if they don’t write little known rules that ban cooperation with the “Arab Boycott of Israel,” nobody will know that US foreign policy in many ways has long favored Israel over the Arab League.

(*Sorry, I did not mean to disparage indirectly the Washington Wizards NBA basketball team but this raises an important issue.  Years ago the Washington Bullets NBA team decided to change their name to the Washington Wizards. I always knew that they dropped the Bullets name to reduce violent crime in the capital city (how is that working?)  But, after wondering for years why the Washington team chose “Wizards,” I just now realized it is because most of the people in Congress and the US Government are wizards—either, if you are old like me, the type of wizards who wear pointy hats and robes with stars on them and have a magic wand or, if you are not old, those in Harry Potter movies; or, if you ask Congress, the type of wizards who are generally highly adept at what they do.  Now that’s another life knowledge breakthrough thanks to export regs.)

Treasury noted that this list is “based on currently available information,” which, I personally found to be a great relief because if the list had been based on only information available prior to 1975, it would have looked quite different.  And who knows what the list would have looked like if it were based on information that is not currently available—We could have ended up with Mexico and China on the list, seriously.

FYI, this paragraph contains information that is important:  Treasury listed these countries:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

The Commerce Department traditionally does not publish a similar list of countries for its antiboycott rules in Part 760 of the Export Administration Regulations (“EAR”).  EAR 760 prohibits a US person from cooperating with (or agreeing to do so) the secondary and tertiary elements of the Arab League boycott of Israel.  Instead of ever mentioning the Arab League or Israel, Commerce and the EAR brandish the terms “boycotting countries” and “boycotted countries” to adeptly hide the US pro-Israel foreign policy bias.

A reasonable person might assume that since the Commerce and Treasury rules have the same objective and are implemented by the same US Government, the Commerce Department considers its rules are applicable to the same countries as Treasury.

Editorial Note: I am not saying that the EAR rules are limited to the list of countries Treasury published. I am merely pointing out what a reasonable person might assume.

Useful Information:  In any event, when you do a risk based assessment of your EAR compliance issues and, based on that, decide how to allocate your limited compliance resources, it may be cost-effective to focus your EAR antiboycott rules compliance on the countries on the Treasury list.  And while you are doing risk assessments and deciding how to cost-effectively allocate your limited resources for EAR compliance, you may decide to allocate only a small portion of your total EAR compliance resources to compliance with the EAR antiboycott rules.  That is because antiboycott EAR fines are frequently well under $100k.  I recommend you allocate most of your EAR compliance resources to focus on compliance with the standard EAR export controls where it is not unusual for Commerce (along with OFAC) to impose fines of hundreds of millions of dollars, or in the case of ZTE, $1 billion and membership on an export denial list.

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2017-08-02/pdf/2017-16290.pdf


U.S. Antiboycott Compliance: New Federal List Published

2017/01/31

By: Melissa Proctor, Polsinelli PC

Companies doing business in the Middle East take note: The Treasury Department recently published its quarterly list of countries that currently require participation or cooperation with an international boycott, such as the Arab League‘s boycott of Israel.

Even though many of these countries are WTO members and were required to shut down their Arab League offices as a condition of membership, many boycott-related requests are still being issued by government agencies and companies in these countries. The countries that are designated on this list, which by the way are the very same countries that were listed in the Third Quarter list, are:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

To view the list, click here.

If you are not familiar with U.S. antiboycott requirements, Part 750 of the Export Administration Regulations (EAR) prohibits U.S. companies and their foreign affiliates from complying with requests related to a foreign boycott that is not sanctioned by the U.S. Government. Specifically, U.S. companies and their overseas affiliates are prohibited from agreeing to:

  1. Refuse to do business with or in Israel or with blacklisted companies
  2. Discriminate against other persons based on race, religion, sex, national origin or nationality
  3. Furnish information about business relationships with or in Israel or with blacklisted companies, or
  4. Furnish information about the race, religion, sex, or national origin of another person

Foreign boycott-related requests can take many forms, and can be either verbal or written. They can appear in bid invitations, purchase agreements, letters of credit and can even be seen in emails, telephone conversations and in-person meetings. Some recent examples of boycott-related requests include:

  • “Provide a certificate of origin stating that your goods are not products of Israel.”
  • “Provide the religion and nationality of your officers and board members.” 
  • “Suppliers cannot be on the Israel boycott list published by the central Arab League.”  
  • “Provide a signed statement from the shipping company or its agent containing the name, flag and nationality of the carrying vessel and its eligibility to enter Arab ports “

In addition, implementing letters of credit that contain foreign boycott terms or conditions is also prohibited under the EAR.

Antiboycott compliance is a key issue for U.S. companies doing business in the Middle East, and personnel on the front lines with customers and supply chain partners in these countries should be trained to identify potential foreign boycott-related requests and escalate them to senior compliance personnel or in-house counsel to determine the applicable OAC and IRS reporting requirements.

Companies that receive boycott-related requests must submit quarterly reports to the Office of Antiboycott Compliance (OAC) unless an exemption applies. Failing to timely report a boycott request or complying with the request itself can lead to the imposition of civil penalties by the OAC. The IRS also requires U.S. taxpayers to report their operations in countries that require participation or cooperation with an international boycott on IRS Form 5713 (International Boycott Report) – the forms are submitted annually with U.S. tax returns.  Failure to comply with the Internal Revenue Code’s antiboycott requirements can lead to the revocation of certain international tax credits and benefits.

© Polsinelli PC, Polsinelli LLP in California


Publication of New Cuba-Related Frequently Asked Questions

2016/08/09

(Source: OFAC)

On July 8, 2016, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) updated its Frequently Asked Questions regarding Cuba to issue two new FAQs (#43 and #50) regarding the use of the U.S. dollar in certain transactions.

For more information on this specific action, please visit this page.


Treasury Releases List of Boycotted Countries

2014/07/16

By: Brooke Driver

The Department of Treasury released the most current list of countries which require or may require participation in, or cooperation with, an international boycott, which includes:

• Iraq
• Kuwait
• Lebanon
• Libya
• Qatar
• Saudi Arabia
• Syria
• United Arab Emirates
• Yemen

This list relates to the US antiboycott provisions in the IRS tax code that prohibit US persons in the US and abroad from complying with the Arab League boycott of Israel. While the Commerce Department does not publish a similar list for its antiboycott rules in the Export Administration Regulations, this Treasury list is certainly a clear indicator of where companies should focus their limited compliance resources when it comes to the EAR antiboycott rules.


Treasury Department Releases Foreign Sanctions Evaders List

2014/03/13

By: Brooke Driver

On February 6, the Treasury Department released its new Foreign Sanctions Evaders List, which you should incorporate into your screening process for selecting potential international clients and associates. The list identifies foreign individuals and entities that have either violated, attempted to violate, conspired to violate or caused a violation of U.S. economic and financial sanctions on Syria or Iran or facilitated deceptive transactions for or on behalf of persons subject to such sanctions. Individuals and entities included on the list are prohibited from working with U.S. commercial or financial systems. Likewise, U.S. persons or companies are forbidden to directly or indirectly enter into business relations with any of the listed parties unless OFAC grants permission or the transaction is exempt under the International Emergency Economic Powers Act.

To view the list, click here: http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/fse_list.aspx.