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William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘OFAC’

OFAC compliance v. FATCA compliance?  Can a SDN FFI Obtain a GIIN?

Posted by William Byrnes on August 4, 2015


The entity I represent is on the Office of Foreign Asset Control’s Specially Designated Nationals list.  Is the entity eligible to register and receive a GIIN?

Answer to be found International Financial Law Prof Blog

 

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The Ghost of Meyer Lansky? Cuba is Back in Business ! But Still Illegal To Have Fun… Analysis of OFAC’s Regulations Released Today

Posted by William Byrnes on January 15, 2015


“Don’t worry, don’t worry. Look at the Astors and the Vanderbilts, all those big society people. They were the worst thieves – and now look at them. It’s just a matter of time.” Meyer Lansky

International Financial Law Prof Blog post … Academics, conference attendees, and business persons may travel to Cuba under blanket authorization to attend conferences, teaching programs, and transact business.

However, the US Treasury Department has left it illegal under the OFAC regulations to undertake tourist activities, including “excessive” free time sitting about puffing cigars and sipping rum.  At least a professor can bring one small box of cigars back home now (not over $100 value). And smart phones will work in the future!  read my analysis of the OFAC Cuba Amendments Released Today – read the full analysis at International Financial Law Prof Blog.

 

 

 

 

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OFAC Focuses on Banks Detecting Persons & Entities on the International Black List With New Global Format

Posted by William Byrnes on January 15, 2015


This new sanctions list format was jointly developed by the United Nations (U.N.) and the Wolfsberg Group of International Banks in an effort to create a universal sanctions list format that can be efficiently used by governments worldwide and enhances sanctions compliance.  The United States is the first U.N. member state to implement this advanced sanctions data model.  In an effort to ensure a greater level of global sanctions compliance the Treasury Department supports the new sanctions list model and appreciates the efforts of the U.N. and the Wolfsberg Group in their creation of a universal format.

The new format incorporates a variety of features that ensure maximum flexibility for sanctions list creators, while also limiting the need for future changes to the underlying data specification due to the standard’s adaptability.  The new capabilities associated with the advanced sanctions list format are discussed are International Financial Law Prof Blog.

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How does a small California Chinese sourcing operation end up violating Weapons of Mass Destruction Sanctions?

Posted by William Byrnes on July 17, 2014


Tofasco Inc. of La Verne, California, according to its website, sources Chinese manufactured consumer goods for sale to US retailers.   In an OFAC enforcement announcement of of July 17, 2014, US Treasury described Tofasco as a “small company lacking the sophistication of a larger company conducting international trade”.    Yet, Tofasco settled potential civil liability for an alleged violation of the Weapons of Mass Destruction Proliferators Sanctions Regulations (the “WMDPSR”).  How does a small California Chinese sourcing operation and importer allegedly violate the Weapons of Mass Destruction Proliferators Sanctions Regulations?

Tofasco initially presented trade documents to a bank in connection with a blocked letter of credit transaction representing payment for a shipment of recreational chairs with a substitute bill of lading omitting reference to the Islamic Republic of Iran Shipping Lines (“IRISL”), an entity whose property and interests in property are blocked pursuant to the WMDPSR. However, the bank refused to advise the letter of credit transaction due to IRISL’s involvement.  Tofasco knew of IRISL’s involvement in the transactions.   The Treasury stated that on or about April 16, 2009, Tofasco approached another bank to undertake the blocked property transaction.  Tofasco undertook deliberate steps to evade or avoid U.S. sanctions requirements by obtaining and submitting altered bill of lading documents that concealed IRISL’s involvement.

Thus, the US Treasury found that Tofasco demonstrated reckless disregard for U.S. sanctions requirements in its presentation of trade documents to a second bank and by making payment for ocean freight for an underlying shipment of recreational chairs after the trade documents were rejected by a prior bank.  Moreover, US Treasury found that Tofasco did not appear to have had an OFAC compliance program in place at the time of the apparent violation and Tofasco did not make a voluntary self-disclosure.

Treasury stated that Tofasco appeared to have violated §544.201(a) and §544.205 of the WMDPSR.  §544.201(a) addresses prohibited transactions involving blocked property.

(a) … all property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of U.S. persons, including their overseas branches, of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in:

(1) Any person listed in the Annex to Executive Order 13382 of June 28, 2005…;

(2) Any foreign person determined … to have engaged, or attempted to engage, in activities or transactions that have materially contributed to, or pose a risk of materially contributing to, the proliferation of weapons of mass destruction or their means of delivery (including missiles capable of delivering such weapons), including any efforts to manufacture, acquire, possess, develop, transport, transfer or use such items, by any person or foreign country of proliferation concern;

(3) Any person determined … to have provided, or attempted to provide, financial, material, technological or other support for, or goods or services in support of, any activity or transaction described in paragraph (a)(2) of this section, or any person whose property and interests in property are blocked pursuant to this section; and

(4) Any person determined… to be owned or controlled by, or acting or purporting to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked ….

Although US Treasury determined that Tofasco demonstrated reckless disregard, it did not find that the conduct constituted an “egregious case”.   An egregious case, and the penalty enhancement, is described in my previous article about BNP Paribas’ transactions with Sudan and Iran.   The maximum statutory penalty amount for this was $250,000, and
the base penalty amount was $25,000.  Tofasco did not have a prior OFAC sanctions history.  Tofasco settled the potential civil liability for $21,375.

book cover

LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook with commentary and analysis by hundreds of AML experts from over 100 countries,  is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.  As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities.

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BNP Paribas Pays $8.9 Billion for Sanction Violations With Iran, Sudan & Cuba

Posted by William Byrnes on June 30, 2014


$8.9 Billion Settlement of $19 Billion Possible Penalty

On June 30th, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), as part of a combined $8.9 billion settlement (settlement agreement here) with federal and state government agencies, today announced a $963 million agreement with BNP Paribas (BNPP) to settle its potential liability for apparent violations of U.S. sanctions regulations.  The $8.9 billion is the largest OFAC settlement to date.  However, the statutory maximum and base civil monetary penalties in this case were $19,272,380,006.

What Did BNP Paribas Do Exactly?

For a number of years, up to and including 2012, BNPP processed thousands of transactions to or through U.S. financial institutions that involved countries, entities, and/or individuals subject to the sanctions programs listed above.  BNPP appears to have engaged in a systematic practice, spanning many years and involving multiple BNPP branches and business lines, that concealed, removed, omitted, or obscured references to, or the interest or involvement of, sanctioned parties in U.S. Dollar Society for Worldwide Interbank Financial Telecommunication payment messages sent to U.S. financial institutions.

The specific payment practices the bank utilized in order to process sanctions-related payments to or through the United States included omitting references to sanctioned parties; replacing the names of sanctioned parties with BNPP’s name or a code word; and structuring payments in a manner that did not identify the involvement of sanctioned parties in payments sent to U.S. financial institutions.  While these payment practices occurred throughout multiple branches and subsidiaries of the bank, BNPP’s subsidiary in Geneva and branch in Paris facilitated or conducted the overwhelming majority of the apparent violations.

How Bad Was BNP Paribas Conduct?

OFAC determined that BNPP did not voluntarily self-disclose its violations (it was a whistleblower), and that the apparent violations constitute an egregious case: BNPP’s systemic practice of concealing, removing, omitting, or obscuring references to information about U.S.-sanctioned parties in 3,897 financial and trade transactions routed to or through banks in the United States between 2005 and 2012, including:

$8 Billion with Sudan

BNPP officials have described Darfur as a “humanitarian catastrophe” and, while discussing the Sudanese business, noted that certain Sudanese banks “play a pivotal part in the support of the Sudanese government which…has hosted Osama Bin Laden and refuses the United Nations intervention in Darfur.”  BNPP’s senior compliance personnel agreed to continue the Sudanese business and rationalized the decision by stating that “the relationship with this body of counterparties is a historical one and the commercial stakes are significant. For these reasons, Compliance does not want to stand in the way.”

BNPP processed 2,663 wire transfers totaling approximately $8,370,372,624 between September , 2005, and July 24, 2009, involving Sudan.  The total base penalty for this set of apparent violations was $16,826,707,625.  $8 billion in four years – approximately $2 billion a year.

$1 Billion with Iran

BNPP processed 318 wire transfers totaling approximately $1,182,075,543 between July 15, 2005, and November 27, 2012, involving Iran.  The total base penalty for this set of apparent violations was $2,382,634,677.

$700 Million With Cuba

BNPP processed 909 wire transfers totaling approximately $689,237,183 between July 18, 2005, and September 10, 2012.  The total base penalty for this set of apparent violations was $59,085,000.

$1.5 Million with Burma

BNPP processed seven wire transfers totaling approximately $1,478,371 between November 3, 2005, and approximately May 2009, involving Burma.  The total base penalty for this set of apparent violations was $3,952,704.

Who Was Involved?

Benjamin M. Lawsky, New York’s Superintendent of Financial Services, said, “BNPP employees – with the knowledge of multiple senior executives – engaged in a long-standing scheme that illegally funneled money to countries involved in terrorism and genocide. As a civil regulator, we are taking action today not only to penalize the bank, but also expose and sanction individual BNPP employees for wrongdoing. In order to deter future offenses, it is important to remember that banks do not commit misconduct – bankers do.”

– COO Signed Off on Continuing Illicit Transactions at Meeting Where He Asked Minutes Not to be Taken”;

– North American Head of Ethics/Compliance wrote: “The Dirty Little Secret Isn’t So Secret Anymore, Oui?”

Did Anyone Go to Prison?

No.  No charges have been brought.

If Not Prison, Then What Was the Discipline?

Some executives were merely ‘separated’.  What does separated mean?  Asked to resign?  Awarded severance?  Kept the high salaries and bonuses derived from the illicit business – yes.  What of the COO who “signed off on continuing illicit transactions at a meeting where he asked minutes not to be taken“?  He was allowed to retire.  He keeps his pension, retirement funds, bonuses …

What BNP states: “As a result of BNP Paribas’ internal review, a number of managers and employees from relevant business areas have been sanctioned, a number of whom have left the Group.”

But what the Department of Financial Services states: At DFS’s direction, 13 individuals were terminated by or separated from the Bank as a result of the investigation, including the following senior executives:

  • George Chodron de Courcel, Group Chief Operating Officer
  • Vivien Levy-Garboua, Current Senior Advisor to the BNPP Executive Committee and Former Group Head of Compliance
  • Christopher Marks, Group Head of Debt Capital Markets
  • Dominique Remy, Group Head of Structured Finance for the Corporate Investment Bank (CIB)
  • Stephen Strombelline, Head of Ethics and Compliance for North America

In total, including those terminated, the Department of Financial Services reports that the Bank disciplined 45 employees, with levels of discipline ranging from dismissals, to cuts in compensation, demotion, and other sanctions, while 27 additional BNPP employees who would have been subject to potential disciplinary action during the investigation had already resigned.

Who Is Paying the Fine?

BNP Paribas shareholders inevitably.  No fines have been levied against the employees involved.  BNP shareholders include:

Belgian State (through SFPI (1)) 10.3%
Grand Duché de Luxembourg 1.0%
Employees 5.5%
Retail shareholders 4.9%
European institutional Investors 46.1%
Non-European institutional investors 30.0%
Other and unidentified 2.2%
Total 100%

How Will BNP Minimize the Risk of Its Doing It Again?  

Under the settlement agreement, BNPP is required to put in place and maintain policies and procedures to minimize the risk of the recurrence of such conduct in the future.  BNPP is also required to provide OFAC with copies of submissions to the Board of Governors relating to the OFAC compliance review that it will be conducting as part of its settlement with the Board of Governors.

BNP states that it has designed new robust compliance and control procedures:

  • a new department called Group Financial Security US, part of the Group Compliance function, will be headquartered in New York and will ensure that BNP Paribas complies globally with US regulation related to international sanctions and embargoes.
  • all USD flows for the entire BNP Paribas Group will be ultimately processed and controlled via the branch in New York.

Read my previous analysis warning to financial institutions about lack of education

Is AML Training Effective or Whitewashing?

Is AML Training Effective or Whitewashing? Part II

Are Financial Service Firms Serving High Net Wealth Suffering As a Result of Compliance Costs?

book cover

LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook with commentary and analysis by hundreds of AML experts from over 100 countries,  is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.  As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities.

Selected Settlement Agreements:

2014 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and BNP Paribas SA

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Clearstream Banking, S.A.

2013 Information

The U.S. Department of the Treasury’s Office of Foreign Assets Control has issued a Finding of Violation to VISA International Service Association

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and the Royal Bank of Scotland plc.

2012 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and HSBC Holdings plc

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Standard Chartered Bank

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and ING Bank, N.V.

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Online Micro, LLC

2011 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Sunrise Technologies and Trading Corporation

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and JPMorgan Chase Bank N.A.

2010 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Barclays Bank PLC.

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Innospec, Inc

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Aviation Services International, B.V.

2009 Information

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Lloyds TSB Bank, plc.

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Credit Suisse AG.

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Australia and New Zealand Banking Group, Ltd.

Posted in Compliance, Money Laundering | Tagged: , , , , , , | 5 Comments »

 
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