Regulatory & Investigations
In recent months, the Biden administration, through the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the U.S. Department of State and other agencies, promulgated new economic sanctions, issued a notable enforcement action, and published advisories on the risks posed to U.S. businesses operating in specified sectors.
These updates represent but a few of the latest developments in sanctions issuance, enforcement and guidance by the Biden administration this year. This brief roundup of the latest developments highlights the diverse threats against which the U.S. deploys economic sanctions. Moreover, the recent enforcement action against Mashreqbank demonstrates the long arm of OFAC enforcement, covering activities stretching back over twenty years. Such far-reaching and complex aspects of OFAC’s sanctions programs, in tandem with the frequent updates to OFAC’s Specially Designated Nationals (“SDN”) and Blocked Persons list, underscore the importance for international maritime operators and commercial traders to exercise prudence and care in managing their compliance with U.S. sanctions and export controls.
A brief summary of these latest developments follows:
On November 9, 2021, OFAC issued a Finding of Violation, in conjunction with the New York Department of Financial Services (“NY DFS”) and the Federal Reserve, to Mashreqbank for violations of the now-repealed Sudanese Sanctions Regulations (“SSR”). For two decades, between 1997 and 2017, the SSR imposed comprehensive trade sanctions concerning Sudan and blocked all property and property interests of the Government of Sudan in the United States or within the possession or control of United States persons. OFAC promulgated the sanctions in response to the Sudanese Government’s support of international terrorist groups.
Mashreqbank is an international commercial bank headquartered in the United Arab Emirates but maintains a branch in London. Between 2005 and 2006, Mashreqbank processed 1,760 payments through U.S. financial institutions that related to U.S. dollar transfers from payments processed by accounts of Sudanese banks outside of the United States. Mashreqbank did not note the originating Sudanese institutions in the payments messages, so the payments were successfully processed through the U.S. financial system. By processing these payments on behalf of Sudanese institutions, Mashreqbank engaged in the prohibited export of services from the United States to Sudan.
OFAC determined that a Finding of Violation was an appropriate administrative action rather than a civil monetary penalty in response to these violations. This response was partly due to Mashreqbank’s consent to a retroactive statute of limitations waiver, which allowed OFAC to charge the violations. In addition, Mushreqbank agreed to pay a $100 million fine to the NY DFS and the Federal Reserve.
In furtherance of its authority to address malicious cyber-enabled activities, on November 8, 2021, OFAC announced a series of actions to disrupt criminal ransomware actors and virtual currency exchanges that launder ransomware proceeds. OFAC designated Chatex, a virtual currency exchange, and its associated support network, for facilitating transactions for ransomware actors. Further, OFAC designated two individuals, a Ukrainian and a Russian, for participating in the Sodinokibi/REvil ransomware attack which targeted at least nine U.S. companies. As a result of these designations, these entities and individuals’ assets are blocked, and U.S. persons and entities are generally prohibited from engaging in economic activity with them.
On the same date, the Financial Crimes Enforcement Network (“FinCEN”) released an update to its 2020 Advisory on Ransomware and the Use of the Financial System to Facilitate Ransom Payments. The updated Advisory reflects information showing ransomware trends and typologies as well as recent examples of ransomware incidents, and sets out financial red flag indicators of ransomware-related activity to assist in identifying and reporting suspicious transactions consistent with the obligations of financial institutions under the Bank Secrecy Act.
In October 2021, OFAC designated companies and individuals supporting Iran’s Unmanned Aerial Vehicle (“UAV”) program under the Islamic Revolutionary Guard Corps (“IRGC”) and IRGC Aerospace Force UAV Command. UAVs have been used for attacks on international shipping and on U.S. forces, including the July 29, 2021, attack on the commercial shipping vessel MERCER STREET off the coast of Oman and strikes in 2019, which damaged Saudi, Emirati and Norwegian vessels. The designated persons and entities include several high-ranking IRGC commanders, and Kimia Part Sivan Company and Oje Parvaz Mado Nafar Company, two entities that support the production and service of the UAV program. OFAC also identified the OMAN PRIDE (IMO 9153525), a Liberian flag vessel, as a crude oil tanker subject to secondary sanctions and linked the vessel to Bravery Maritime Corporation.
Lastly, on November 10, 2021, the U.S. Department of State, U.S. Department of the Treasury, and U.S. Department of Commerce issued a “Cambodia Business Advisory on High-Risk Investments and Interactions,” to caution U.S. businesses about interacting with Cambodian entities or sectors that may be involved in human rights abuses, criminal activities, and corrupt business practices. The Advisory addressed two primary areas of risk for U.S. companies:
The Advisory highlights in detail the areas warranting heightened due diligence practices and procedures in interacting with these Cambodian entities and sectors, in light of these risks, and sets out the relevant U.S. Government resources and guidance.
These recent developments reflect the Biden administration’s willingness, consistent with prior presidential administrations, to engage and deploy economic sanctions and export controls as geopolitical tools of global diplomacy. Prudent traders and maritime operators will manage their compliance regimes to monitor such developments and to manage their due diligence programs to account for these messages by the U.S. sanctions authorities.