Search results for: OFAC

On August 8, the Office of Foreign Assets Control (“OFAC”) sanctioned “notorious” virtual currency “mixer” Tornado Cash, which allegedly has been used to launder more than $7 billion worth of virtual currency since its creation in 2019.  Tornado Cash is a virtual currency mixer that operates on the Ethereum blockchain.  Tornado Cash receives a variety of transactions and mixes them together before transmitting them to their individual recipients.  The stated purpose of such mixing is to increase privacy, but mixers are often used by illicit actors to launder funds because the process enhances anonymity and makes it very hard to track the flow of funds.  According to the Treasury Department press release, “[d]espite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risk.”  This statement seems to imply that Tornado Cash is run by actual people – an implication that is at the heart of the controversy over these sanctions, as we will discuss.

The sanctions against Tornado Cash have elicited enormous controversy in the crypto world because, some argue, (1) Tornado Cash is not an entity run by actual people, but is merely code; and (2) although OFAC has the legal authority to sanction people and entities, it lacks such authority to sanction code or a technology – or at the very least, such sanctions create many practical problems for innocent actors, including in ways which no one has foreseen fully.  As we discuss,  even a member of the U.S. House of Representatives has waded into the controversy this week, questioning the ability of OFAC to issue the sanctions and demanding answers.  The controversy also reflects that, once again, whether one chooses to focus on the word “privacy” or on the word “anonymity” typically reflects an a priori value judgment predicting one’s conclusion as to whether something in the crypto world is good or bad. 

Indisputably, the Tornado Cash sanctions are, to date, unique and unprecedented.  Although they may turn out to be an outlier experiment by OFAC, public pronouncements by the U.S. Treasury Department strongly suggest that, to the contrary, they represent part of the future of crypto regulation, in which the enormous power of the U.S. government to issue broad sanctions obliterates legal and practical hurdles which could stymie other agencies, such as the Financial Crimes Enforcement Network (FinCEN).  This may be because, ultimately, the government actually agrees that no person is in control of a powerful technology that has easy application for malicious uses, and that is precisely the problem.

Continue Reading OFAC Sanctions Virtual Currency “Mixer” Tornado Cash and Faces Crypto Backlash

On April 5, 2022 the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced sanctions against “the world’s largest and most prominent darknet market, Hydra Market” and Garantex, a virtual currency exchange registered in Estonia but operating in Moscow and St. Petersburg, Russia.  The sanctions are part of a larger initiative targeting Russian cybercrime that spans across multiple federal departments—including the U.S. Department of Justice, Federal Bureau of Investigations, Drug Enforcement Administration, Internal Revenue Service Criminal Investigation, and Homeland Security Investigations—and across the globe—including international partners like the German Federal Criminal Police and Estonia’s Financial Intelligence Unit.  The sanctions follow September and November sanctions of SUEX OTC, S.R.O. and CHATEX, two virtual currency exchanges operated out of Moscow that allegedly facilitated transactions for ransomware actors.  SUEX was the first virtual currency exchange subject to OFAC sanctions (and the subject of a previous post).

While ostensibly focused on closing another avenue for ransomware purveyors to profit off of their wares, the sanctions may also cut off all types of cybercriminals who allegedly find “a haven” in Russia and used Hydra or Garantex. Continue Reading OFAC Designates “Hydra” –  the Largest Darknet Market – and Third Russian Virtual Currency Exchange

Second Post in a Two-Part Series on Recent OFAC Designations

As we blogged yesterday, OFAC has been busy.  Right before OFAC designated the virtual currency exchange SUEX for allegedly facilitating ransomware payments,  OFAC announced another significant but more traditional action on September 17, 2021 by designating members of a network of Lebanon and Kuwait-based financial conduits that fund Hizballah, as well as members of a network of financial facilitators and front companies that operate in support of Hizballah and Iran’s Islamic Revolutionary Guard Corps-Qods Force (“IRGC-QF”).  The designated persons are prohibited from transacting with U.S. persons or transacting within the United States, and financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals may expose themselves to sanctions or be subject to an enforcement action.

In its press release announcing the designation, OFAC noted that “Hizballah continues to exploit the legitimate commercial sector for financial and material support, which enables the group to carry out acts of terrorism and degrade Lebanon’s political institutions.”  What stands out here is the designated individuals’ alleged use of gold as a vehicle to move illicit funds through shell companies (for more on the use of gold as a vehicle for money laundering, see here and here).

Two individuals included in OFAC’s recent designations, Meghdad Amini and Ali Qasir, allegedly led a network of “nearly 20 individuals and front companies, located in multiple countries and jurisdictions, that facilitates the movement and sale of tens of millions of dollars worth of gold, electronics, and foreign currency in support of Hizballah and the IRFC-QF.”  Further, Omid Yazdanparast, Mohammad Ali DAmirchilu, and Samaneh Damirchilu allegedly smuggled gold and currency from Iran to Turkey on commercial flights operated by U.S.-designated Iranian airline Mahan Air.  Once the gold was sold, the proceeds were returned to Iran through the same process and the proceeds were then transferred to Amini and Qasir.  Other members of the network – Mostafa Puriya and Hossein Asadollah – allegedly accumulated funds by selling electronics through the Dubai-based company Hemera Infotech FZCO.  Finally, China-based Morteza Minaye Hasemi allegedly laundered tens of millions of dollars for the IRGC-QF through foreign currency conversions and gold sales.

The list of newly-sanctioned individuals also includes Hasib Muhammad Hadwan, who is a senior official in Hizballah’s General Secretariat responsible for raising funds from donors outside Lebanon.  Hadwan’s superior, Hassan Nasrallah, was designed by OFAC on May 16, 2018 as the leader of Hizballah.  Hadwan’s office manager, Ali al-Sha’ir also was designed for accepting financial contributions on behalf of Hizballah since 2000.

OFAC made these designations pursuant to Executive Order (E.O.) 13224, which was initially signed by President George W. Bush in 2001, shortly after September 11.  Hizballah was designated pursuant to E.O. 13224 on October 31, 2001 and the IRGC-QF was designated in 2007 for its support of terrorist groups.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

OFAC Updates Advisory on Enforcement Risks Relating to Agreeing to Pay Ransomware

First Post in a Two-Part Series on Recent OFAC Designations

On September 21, 2021 OFAC issued its first sanctions designation against a virtual currency exchange by designating the virtual currency exchange, SUEX OTC, S.R.O. (SUEX) “for its part in facilitating financial transactions for ransomware variants.”  Although this is a unique development, the broader and more important issue for any financial institution or company facing a ransomware attack is the continuing problem encapsulated in OFAC’s six-page Updated Advisory on Potential Sanctions Risks for Facilitating Ransomware Payments, which OFAC released in conjunction with the announcement of the SUEX designation.  The Updated Advisory illustrates a “Catch 22” scenario, in which a victim that halts a ransomware attack by making the demanded payment then may find itself under scrutiny from OFAC on a strict-liability basis if it turns out that the attackers were sanctioned or otherwise had a sanctions nexus.  The Updated Advisory states that OFAC will consider self-reporting, cooperation with the government and strong cybersecurity measures to be mitigating factors in any contemplated enforcement action.

OFAC has been busy.  Tomorrow, we will blog on a more traditional action announced by OFAC right before the SUEX designation:  OFAC’s designation of members of a network of financial conduits funding Hizballah and Iran’s Islamic Revolutionary Guard Corps-Qods Force.  This designation is notable for the targets’ alleged use of gold as a vehicle to launder illicit funds through front companies. Continue Reading OFAC Targets Virtual Currency Exchange For Ransomware Attack

As we’ve blogged, high-end artwork can create an ideal vehicle for money laundering. And, as we’ve also blogged, the Permanent Subcommittee on Investigations for the U.S. Senate released in July 2020 a detailed report titled “The Art Industry and U.S. Policies That Undermine Sanctions,” focusing on the nexus between high-end art and U.S. sanctions law violations, potential money laundering schemes and anti-money laundering (“AML”) risks. The Senate report recommends in part that the Bank Secrecy Act (“BSA”) be amended to include art dealers as “financial institutions” subject to AML obligations under the BSA.

Indeed, recent legislation has included a proposal to (i) add to the list of “financial institutions” covered by the BSA “a person trading or acting as an intermediary in the trade of antiquities, including an advisor, consultant or any other person who engages as a business in the solicitation of the sale of antiquities;” and (ii) require a study by the Secretary of the Treasury “on the facilitation of money laundering and terror finance through the trade of works of art or antiquities,” including an evaluation of whether art industry markets should be regulated under the BSA.

This is a “hot” topic.  In the latest development in this area, and in what appears to be a response to — or affirmation of – the Senate report, the U.S. Department of the Treasury’s (“Treasury”) Office of Foreign Assets Control (“OFAC”) recently issued a new advisory (the “Advisory”) highlighting the related problem of individuals blocked by OFAC from entering the U.S. financial system trying to evade those restrictions through the commerce of art, and emphasizing sanctions for U.S. persons who engage in prohibited transactions. Continue Reading Art and OFAC

October is National Cybersecurity Awareness Month, and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) and Office of Foreign Assets Control (“OFAC”) kicked off the month by issuing two advisories that aim to increase cybersecurity awareness, assist financial institutions in detecting and reporting ransomware activity, and highlight potential sanctions risks for facilitating ransomware payments.

The FinCEN and OFAC advisories signal the seriousness with which the Department of Treasury treats the threat of cybercriminals and ransomware attacks. Both FinCEN and OFAC have now squarely placed an obligation on financial institutions and other payment intermediaries to put procedures in place to detect ransomware payments and to restrict payments to blocked individuals. It appears FinCEN and OFAC want to make sure cybercrime does not pay by cutting off cybercriminals’ access into the financial system.

While both FinCEN and OFAC have offered guidance to financial institutions formulating policies and procedures for deciding whether to process or report payment requests that may be connected to ransomware attacks, OFAC has also offered a warning: facilitating ransomware payments may lead to an enforcement action and civil penalties. Given the growing national security concerns associated with ransomware attacks, the advisories rightly encourage financial institutions and other payment intermediaries that facilitate ransomware payments to share information via Suspicious Activity Reports (“SARs”) and to fully cooperate with law enforcement during and after ransomware attacks. Continue Reading FinCEN and OFAC Advisories Aim to Increase Cybersecurity Awareness and Thwart Ransomware Attacks in the Financial Sector

Foreign Banks Reliant on U.S. Correspondent Services Should Take Note of New Rules

We are pleased to present this guest blog by Hdeel Abdelhady, who is a Washington, D.C.-based attorney and Principal at MassPoint Legal and Strategy Advisory PLLC, her boutique law and strategy firm. Ms. Abdelhady focuses on regulatory compliance and transactional matters, including cross-border trade and finance transactions and regulation.

As Ms. Abdelhady discusses, the Office of Foreign Assets Control (OFAC) issued on June 21, 2019 an interim final rule (the “IFR”) amending provisions of the Reporting, Procedures, and Penalties Regulations applicable to OFAC-administered sanctions programs at 31 C.F.R. Part 501. The IFR became effective upon publication in the Federal Register on June 21. OFAC has requested public comments, which are due by July 22, 2019. The IFR has many important potential consequences, including for foreign banks that rely on U.S. correspondent banking services, as well as U.S. financial institutions facing additional compliance burdens.

As legal counsel to U.S. and foreign banks, other financial services providers, and businesses, Ms. Abdelhady has advised on sanctions, anti-money laundering, anti-corruption, and counter-terrorism finance regulation and compliance under U.S. law and international standards, including the FATF Recommendations and Wolfsberg Standards. She has served as in-house counsel on secondment to banks in the United States and abroad, including in connection with the first major USA Patriot Act enforcement by the Comptroller of the Currency and Financial Crimes Enforcement Network (FinCEN). In addition, Ms. Abdelhady has advised on the establishment of money services businesses and Foreign Banking Organizations in the United States.

Ms. Abdelhady serves on the board of the Washington, D.C. Chapter of the Association of Certified Financial Crime Specialists (ACFCS), is a Fellow of the American Bar Foundation, and is an Adjunct Professor at The George Washington University Law School. Ms. Abdelhady writes frequently on banking, finance, and regulatory compliance matters. Among other publications, Reuters, the World Bank Legal Review, and Law360 has published her work.  We hope that you enjoy this discussion by Ms. Abdelhady of this important development.  –Peter Hardy

In addition to effectuating technical and conforming amendments, the IFR revises Trading With the Enemy Act (TWEA) penalties and amends reporting requirements and procedures applicable to initial and annual blocked property reports, unblocked property reports, and the unblocking of funds due to mistaken identity. Additionally, the IFR revises reporting requirements applicable to “rejected transactions.” The rejected transactions amendment is the most substantial of the revisions, and is the focus of this update. Continue Reading OFAC’s Revised Reporting Rules Create New Compliance Requirements for All U.S. Persons

As reported in Reuters and other media outlets, the partial government shutdown has impaired the ability of the U.S. Treasury to maintain many of its anti-money laundering and counter-terrorist financing (“AML/CTF”) efforts.  Specifically, the Financial Crimes Enforcement Network (“FinCEN”), the Office of Foreign Assets Controls (“OFAC”) and the Office of Terrorism and Financial Intelligence (“TFI”) have implemented a “lapse in appropriations contingency plan.”

Reuters summarizes the situation regarding FinCEN and OFAC as follows, and provides links to the relevant government announcements:

[FinCEN] will not be working on regulatory guidance or rulemaking as its normal workforce of 285 employees is slashed to 130, according to a document posted on Treasury’s website [here].

It also will not be providing public speakers for AML events, nor will it respond to routine requests for financial intelligence submitted by foreign law enforcement agencies.

FinCEN will, however, continue to provide financial intelligence to U.S. law enforcement and intelligence agencies in support of money laundering and terror finance investigations, the document states. It also will continue to maintain the IT systems that banks and other financial institutions use to file Suspicious Activity Reports and other filings required by the Bank Secrecy Act.

“Forgoing these critical functions may prevent law enforcement and intelligence agencies from receiving timely information related to potential terrorism or ongoing crimes which potentially compromises safety of life and property,” the document states.

[OFAC] will also continue updating its sanctions blacklist during the shutdown, separate Treasury guidance states [here].

Further, according to a separate Treasury document, TFI will continue to perform the following functions during a lapse of appropriations:

  • Monitor and disseminate intelligence reporting on anticipated or actual events to Treasury leadership and other law enforcement, intelligence and military authorities; maintain SCI/collateral communication connectivity with NSC and intelligence community (Watch Officers excepted for protection of life and property)
  • Administer the Specially Designated Nationals (SDN) list and enforce economic and trade sanctions as directed by the Secretary
  • Implement and administer new sanctions on foreign countries or targeted individuals or entities through newly issued Executive Orders (EO) as directed by the Secretary
  • Develop and provide policy recommendations in response to national security incidents as directed by the Secretary
  • Participate in national security policy and intelligence forums responsible for development of response to any national security incident (e.g., NSC Counterterrorism Security Group) as directed by the Secretary
  • Ensure continuity of key regulatory and enforcement actions to preclude exploitation by adversaries during national security event/emergency
  • Limited communications with financial sector participants, including finance ministries and central bank authorities of foreign states, regarding threats and emergent conditions, as directed by the Secretary
  • Limited IT support to service those positions excepted from furlough
  • Limited handling of incoming inquiries (Hotline calls)
  • Limited analytic support (Bank Secrecy Act data, intelligence information, and international financial intelligence unit information including Egmont Secure Web (ESW) case support) to federal law enforcement agencies
  • Use of Section 314 (a) Patriot Act authority, which enables federal law enforcement agencies, through FinCEN, to reach out to financial institutions to locate accounts andtransactions of persons that may be involved in illegal activity
  • Operations funded by other than annual appropriations, including [the Treasury Executive Office for Asset Forfeiture].

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The Office of Foreign Assets Control (“OFAC”) wrapped up 2017 by issuing a series of high-profile designations generally prohibiting U.S. persons from conducting financial or other transactions with the identified individuals and entities, and freezing any assets which these individuals and entities may have under U.S. jurisdiction. Specifically, OFAC, acting in conjunction with a new Executive Order issued by the President pursuant to the Global Magnitsky Human Rights Accountability Act (“Magnitsky Act”), sanctioned on December 21 a list of alleged international bad actors, including Dan Gertler, a billionaire and international businessman from Israel who has been involved in, among other notorious ventures, alleged corruption in the mining of diamonds and copper in the Democratic Republic of the Congo. The next day, OFAC then sanctioned individuals and entities allegedly associated with Thieves-in-Law, an alleged and unapologetically-named Eurasian criminal entity; according to the U.S. government, Thieves-in-Law originated in Stalinist prison camps and has grown over time into a “vast criminal organization” stretching across the globe and into the United States. Continue Reading OFAC Designates Diamond Mining Billionaire, “Thieves in Law,” and Many Other International Targets as Subject to U.S. Sanctions and Asset Freezes

On November 9, 2017, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) amended the Cuban Assets Control Regulations, 31 C.F.R. part 515 (the “CACR”), with the stated intent of channeling economic activities away from the Cuban military, intelligence, and security services, while maintaining opportunities for Americans to engage in authorized travel to Cuba and support the private, small business sector in Cuba. These amendments implement the National Security Presidential Memorandum (“NSPM”), “Strengthening the Policy of the United States Toward Cuba,” which was signed on June 16, 2017.  While the changes may limit certain new business opportunities in Cuba for Americans, they also provide clarity regarding with whom Americans may not do business, and should be considered accordingly by institutions in regards to tailoring their Anti-Money Laundering (“AML”) and OFAC-related due diligence and compliance procedures. Continue Reading OFAC Increases Clarity Regarding Financial Transactions with Cuba