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Bin Laden’s Death May Mark A Need For Increased Bank Vigilance

Due to the death of Osama Bin Laden, a number of experts in the anti-money laundering field are predicting heightened transfers of money and assets among al-Qaeda operatives and/or leadership. Such movement could leave banks susceptible to OFAC, money laundering, and Bank Secrecy Act violations. This is particularly true in Africa, where it is believed that Al Qaeda has established a strong base in recent years.

All of this points to the need for U.S. banks to step up their efforts in relation to preventing these violations. Such efforts to prevent these violations includes staying aware of contemporary political developments. For example, over the past several months, the United States Department of the Treasury Office of Foreign Assets Control (OFAC) made several changes to the newly issued Libya sanctions including the issuance of general licenses, reporting requirements, and the designation of additional parties. These changes were in response to the constantly evolving situation in Libya.

In sum, Bin Laden’s death calls for increased compliance efforts and vigilance by U.S. banks, as it marks the beginning of a transition period for Al Qaeda and Islamic extremism. Such a period will likely involve the transfer of funds and assets amongst Al-Qaeda’s leadership. As such, there will be an opportunity for banks to catch these transfers, stop them, and block off Al-Qaeda’s funding.

As has been echoed across the world, the end of Bin Laden is not the end of terrorism. Therefore, those OFAC administered sanctions which target global terrorism are still in effect and need to be followed. As part of a larger AML/BSA program, OFAC compliance should be carefully considered during this unique to time in history. With President Obama quickly implementing sanctions against governments across the Middle East, and the rapid rate at which these sanctions programs expand and change, now more than ever OFAC compliance should be closely followed.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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Syrian Sanctions Issued During Obama’s Big Weekend

Lost in the news coverage of the release of President Obama’s long form birth certificate, the Royal Wedding, and the assassination of Osama Bin Laden, was the issuance of a new round of sanctions against Syria. On Friday, April 29, 2011, President Obama signed into effect an executive order which has blocked certain individuals and entities in Syria from the U.S. financial system.

As is the case with sanctions, all those targeted by the sanctions who have assets held in the United States have had those assets blocked. In addition, there are prohibitions installed which bar U.S. persons from providing funds, goods, or services, to those parties designated under the sanctions. U.S. persons are also prohibited from receiving funds, goods, or services from anyone blocked pursuant to this new set of sanctions against Syria. In addition, the President indicated in his executive order that humanitarian donations, generally permitted under the International Emergency Economic Powers Act (IEEPA), are not prohibited to any of the targeted parties.

Those parties who were designated by the President for sanctions include:

1. Mahir AL-Asad, the Brigade Commander in the Syrian Army’s Fourth Armored Division;
2. Ali Mamluk, the Director of the Syrian General Intelligence Directorate;
3. Atif Najib, the former head of the Syrian Political Security Directorate for Dar’a Province
4. Syrian General Intelligence Directorate
5. Islamic Revolutionary Guard Corps – Qods Force

Within the last few months we have seen the President quickly turn to sanctions to target those parties involved in suppressing political dissension in both Libya and Syria. The speed at which these sanctions are being imposed may very well show that Obama is serious about addressing the political oppression taking place in those countries, however, I have to imagine that it is having a tremendous strain upon the agency which administers and enforces these sanctions: The United States Department of the Treasury Office of Foreign Assets Control (OFAC). OFAC already has limited resources and from discussions I have had with a number of officials has been very busy implementing the Libya sanctions program. Now with a new round of sanctions aimed at Syria, OFAC will certainly be faced with a massive backlog as they struggle to maintain not only their former workload–which was significant–but also the new workload created by the implementation of two new rounds of sanctions over the last three months. I sense a whole host of delays coming up, particularly in relation to licensing.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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OFAC Releases April Penalties Information

The United States Department of the Treasury Office of Foreign Assets Control (OFAC) has released a new announcement describing recent penalties imposed for violations of OFAC administered sanctions regulations. In this announcement two companies were penalized for violations of the Iranian Transactions Regulations (ITR) and one individual was penalized for a violation of the Sudanese Sanctions Regulations (SSR).

The total penalties for violations of the ITR was $75,528 and involved a Houston based insurance holding company, HCC Insurance Holdings, Inc., and a New Jersey based medical instruments company, Robbins Instruments, Inc (Robbins). The Robbins penalty announcement highlighted just how careless some companies can be. Robbins was exporting medical instruments to Iran that were licensable under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) program without said license. Moreover, Robbins had a compliance program in place and continued to export medical products to Iran despite being warned by OFAC of the violation.

The individual who was found to have violated the SSR was involved in facilitating a trade related transaction involving the supply of jute bags in Sudan without an OFAC license. That individual, a Houston resident, was penalized $112,500 for the facilitation of these transactions.

The facilitation provision for which the aforementioned individual was penalized is often over looked and yet provides OFAC the ability to enforce sanctions against a wide range of transactions. Facilitation occurs when a U.S. person carries out some activity which allows for two foreign persons to engage in any activity which is otherwise prohibited. This definition can be applied to a number of complex transactions in order to find violations of OFAC administered sanctions by U.S. persons. As such, those parties with any nexus to a transaction with a targeted country or party should be particularly careful of taking any action in relation to that transaction.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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OFAC Issues New Libya General License…..for Certain Parties

The United States Department of the Treasury Office of Foreign Assets Control (OFAC) has promulgated a new general license for U.S. persons to engage in transactions with or involving Qatar Petroleum or the Vitol Group of companies, if those transactions are related to oil, gas, or petroleum products exported from Libya under the auspices of the Transitional National Council of Libya (TNC). There is a caveat, however; these transactions are only allowed so long as no party blocked pursuant to the Libya Sanctions receives a benefit from the transactions. Furthermore, there is a caveat within the caveat in that the Arab Gulf Oil Company may receive a benefit from these transactions in certain circumstances.

Those engaging in transactions authorized under this new general licensemust submit a report to OFAC within 30 days of those transactions describing the due diligence efforts undertaken to ensure that no blocked party received a benefit from the transactions.

In a separate Statement of Licensing Policy, OFAC has declared that specific licenses will be granted on a case by case basis to trade in or support trade in hydrocarbon fuel exported under the auspices of the TNC. Those seeking to obtain specific licenses for such activities are to follow the licensing procedures set forth in Part 501 of Title 31 of the Code of Federal Regulations. As such, those applying for specific licenses to engage in such transactions will be required to provide details about the transactions, the parties involved in the transactions, the financing of the transactions and the due diligence efforts to be taken to ensure that blocked parties will not receive any benefit from the transaction.

I think this move by OFAC is interesting. At the outset of the conflict in Libya, President Obama, through OFAC instituted sanctions which were meant to cripple the financial backbone of Qaddafi’s regime. Now it seems that not only are they sanctioning Qaddafi, but they are also opening up the sanctions to make it easier and more attractive to do business with those opposing the Qaddafi regime in this conflict. In essence, sanctions in this case are not only restricting a target, but are also being selectively eased to assist the target’s opponent.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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Zimbabwe Diamond Dilemma Resolved?

Over the past few weeks I have written about issues arising from the export of diamonds which were potentially sanctioned under the Zimbabwe Sanctions Regulations administered by the United States Department of the Treasury Office of Foreign Assets Control. As I had previously mentioned, it was believed that the U.S., through OFAC, and the E.U. would take action against those involved in the export of certain Zimbabwean diamonds to Dubai, for later export to India.

Recent reports suggest that the confrontation regarding these rough diamond exports from Zimbabwe is almost over with India and China successfully brokering a solution with the United States and the European Union at the April 14, 2011 Kimberley Process’s (KP) Working Group of Monitoring (WGM) meeting. Those in attendance at that meeting stated that a consensual draft of a Joint Work Plan (JWP) has been prepared by a number of countries and was submitted to the KP chair Mathieu Yamba of Democratic Republic of Congo (DRC).The KP Chair is tasked with sending the consensual draft to the Government of Zimbabwe for acceptance in order to resume the exports of diamonds from the Marange diamond field.

The diamonds in question were ultimately destined for Surat, India, the world’s largest diamond cutting and polishing center. Surat has been eagerly waiting for the Zimbabwe issue to get resolved, as the Marange diamond field produces more than one million carats of rough stones. That type of production could alleviate the demand-supply gap currently prevailing in the global market.

The controversy around the diamonds began last month when KP chairperson Mathieu Yamba called for Zimbabwe to export its rough gems from Chiadzwa diamond fields. This decision immediately sparked a debate with the U.S. and E.U warning diamond companies in India and UAE not to buy the rough stones from Zimbabwe. Those not heeding the warning were at risk of being identified on government websites and having their transactions investigated by OFAC.

The diamond trade can often lead to OFAC issues. There are a number of sanctions programs administered by OFAC that either directly or indirectly impact diamond traders. As such, those individuals involved in the diamond trade should be cautious that their activities or their involvement with certain parties do not draw the negative attention of OFAC. For those involved in the diamond industry an OFAC compliance program is a must, as is staying aware of the latest additions to OFAC’s Specially Designated Nationals (SDN) List.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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Top Three Tips For Filing an OFAC Voluntary Self Disclosure

When a violation of a sanctions program administered by the United States Department of the Treasury Office of Foreign Assets Control (OFAC) has taken place, it is generally advisable to self disclose this violation or potential violation to OFAC. The reasons for this are varied, however, the simple answer is that a voluntary self disclosure could greatly reduce any penalty you receive for that violation. Below I outline three steps that I have taken which have greatly assisted my clients in their OFAC voluntary self disclosure matters.

1. Make Sure You Have a Potential Violation. Prior to filing anything, make sure the transaction was indeed a violation. Make sure to check the exemptions found in any relevant statutory authority (IEEPA, CISADA, etc.), the general licenses found in the regulations, and any interpretative guidance found on OFAC’s website. If you are unsure that a violation has occurred, but suspect that it has, then it may be wise to disclose the matter to OFAC.

2. Act Quickly. If OFAC finds out about the violation prior to you submitting a voluntary self disclosure, then your self disclosure is pretty much useless. As such, once you have enough information about the violation then you should file an initial self disclosure. Inform OFAC that you will supplement your voluntary self disclosure as more information becomes available. This is done because you may not have all information pertaining to the violation readily available, however, you the best course of action is to report the violation as soon as you become aware of it.

3. Advocate When Necessary. If you are unsure as to whether or not the disclosed activity is a violation or not, tell OFAC what leads you to believe it is not. Don’t just make general statements. Rather, support your position with relevant regulations, laws, guidance, or case law. Also, look to OFAC’s Enforcement Guidelines to determine what factors they may consider in reviewing your case during the pre-penalty phase. Follow those enforcement guidelines to provide OFAC your stated position on how those criteria are impacted by the transactions disclosed in your voluntary self disclosure.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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The Isle of Man Is Fully OFAC Compliant

In the Irish Sea sits an island known as the Isle of Man. Over the last decade this island has been utilized by numerous entities and individuals seeking to skirt the sanctions against Iran administered by the United States Department of the Treasury Office of Foreign Assets Control (OFAC). However, in response to strict enforcement of sanctions by OFAC, the Isle of Man has worked to ensure that business and individuals on the island were not used to facilitate prohibited transactions involving Iran.

Recently, two OFAC officials visited the Isle of Man to ensure that trade sanctions imposed against the Islamic Republic of Iran Shipping Lines were being enforced. As part of their visit, the OFAC officials met officials from various Isle of Man governmental bodies, including Customs and Excise, Ship Registry, the Attorney General and the Financial Supervision Commission. OFAC also provided a presentation regarding its activities to Isle of Man government officials and politicians.

Although, the Isle of Man’s Chief Minister said he was pleased with the way the visit went, he had some reservations. The Chief Minister specifically stated, “We were disappointed that the United States took the actions it did and felt the US authorities had not been fully briefed on the Isle of Man’s involvement.” In essence, he felt that the sanctions had been imposed when the US authorities had not fully understood the Isle of Man’s position.

A few months ago when attempting to identify a foreign intermediary bank through which to process an OFAC authorized transaction, our office reached out to a number of banks on the Isle of Man which allowed for the opening of off shore accounts. When these banks were informed that the transactions were originating in Iran, we were turned down. Despite our repeated attempts to tell these banks that we had appropriate authorization from OFAC, the banks on the Isle of Man refused to process the transactions. The point of this story is that for those seeking to evade OFAC administered sanctions against Iran, the Isle of Man is no longer a base for such activities; the Isle of Man is fully OFAC compliant.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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OFAC General License No. 4 for Libya

Last Friday, the United States Department of the Treasury Office of Foreign Assets Control (OFAC) issued its fourth general license in respect to the recently imposed sanctions which target the Government of Libya and the Qaddafi regime. This new general license pertains to investment funds in which there is a blocked, non-controlling minority interest held by the Government of Libya.

The Libya sanctions have effectively blocked those interests held by the Government of Libya, the Qaddafi family and officials within the regime, and those individuals and entities affiliated with such parties that were under U.S. jurisdiction. In addition, the Libya sanctions have enacted prohibitions on U.S. persons engaging in transactions with those parties targeted by the sanctions; namely those parties mentioned above.

The new general license promulgated by OFAC allows for U.S. investment funds to continue to transact in those funds regardless of whether a party blocked pursuant to the Libya sanctions holds a non-controlling minority interest in the fund. The activities allowed by this general license include:

1. Investment management functions;
2. The purchase and disposition of portfolio investments;
3. The custody of portfolio investments;
4. The making of payments owed by the investment fund to its managers, other service providers, directors, govemment regulators, tax authorities, or investors whose property and interests in property are not blocked; and/or
5. The receipt of funds, securities, or other assets.

Keep in mind that there are several caveats to this license. For example, payments of funds or assets to any blocked person made pursuant to this general license must be made to a blocked account at a U.S. financial institution. Moreover, transfers between blocked accounts must not result in the funds or assets being transferred to an account outside of the United States. In essence, no financial benefit inuring as a result of this general license is to be accessible to a party blocked pursuant to the Libya sanctions. Finally, no loans are to be made to any person blocked pursuant to the Libya Sanctions. OFAC has also instituted a monthly reporting requirementon these investment funds. As such, investment funds in which a blocked Libyan party holds a non-controlling, minority interest must provide an accounting of the value of that interest every 30 days.

The monthly reporting requirement seems quite burdensome for these funds and it might lead quite a few investment funds to utilize the general license to dispose of these Libyan interests and transfer them to a blocked account at a U.S. financial institution. While some might view this general license as OFAC easing up on the enforcement of Libya sanctions, it seems like it might be the opposite; it may be a calculated move to provide investment funds in which blocked Libyan parties hold an interest the impetus to transfer those funds out of their investment funds–where they might obtain greater value–and into a blocked account. Even if this was not OFAC’s intent, it still might be the effect of this general license. All things considered, the promulgation of the general license by OFAC was a smart move.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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OFAC Speaking Events in April 2011

I will be speaking on OFAC related matters several times over the next month. On April 18th I will be speaking in Los Angeles, on April 19th I will be speaking in San Diego, and on April 21st, I will be speaking in Washington, D.C. I hope to see a lot of my readers at these events and I look forward to the always exciting question and answer sessions. The information for these events is down below in chronological order:

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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Libya Sanctions Questions Keep Piling Up; We Provide Answers

Over the past month I have been inundated with calls from clients, potential clients, and reporters seeking answers to a number of questions related to the recently imposed sanctions against Libya. Due to the recency of such sanctions, the regulations that will serve as the legal framework of Libya sanctions have not yet been promulgated. As a result, a lot of people are scratching their heads on what compliance with these new sanctions requires. Some of the more common questions are answered below:

Question #1: Who is effected as the result of U.S. sanctions against Libya? Those individuals and entities targeted as owned or controlled by the Libyan Government and identified on the Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) List are the targets of the sanctions. However, the burden of compliance with the sanctions falls upon the shoulders of U.S. persons. U.S. persons are defined as U.S. citizens, U.S. permanent legal residents and entities organized under the laws of the United States. In addition, any other entity or individual within the jurisdictional control of the United States would also be impacted by these sanctions.

Question #2: What if an entity is partially owned by an entity or individual designated under the Libya Sanctions? If an entity is owned or controlled by an entity designated on the OFAC SDN List under the Libya sanctions, then U.S. persons should be way of transacting with that entity, except for in certain circumstances. This is true even if a sanctioned Libyan party only owns a portion of the foreign entity in question.

Question #3: What can happen if I violate the Libya Sanctions? Penalties for failure to comply with the Libya sanctions can be found in the International Emergency Economic Powers Act (IEEPA). Such penalties include up to twenty (20) years imprisonment and up to $250,000 per transaction in civil penalties.

Question 4: I have heard some banks report that they have exemptions or general licenses which exempt them from Libya Sanctions. Is this true? There might be an authorization from OFAC for transactions involving parties designated under the Libya sanctions, but they are not “exemptions” and they are not “general licenses.” An exemption from an OFAC administered sanctions program is an actual carve out found in the statutory authority underlying such sanctions: The International Emergency Economic Powers Act (IEEPA). There are certain exemptions found in IEEPA which preclude the U.S. President from sanctioning certain types of activity. General licenses, on the other hand, are open ended authorizations which allow for a certain type of activity to be engaged in which would otherwise be prohibited. General licenses can be revoked at any time by OFAC.

What these banks are likely referring to is a specific license authorization. A specific license authorization is granted on a case by case basis and is limited in time and scope. OFAC will issue such specific licenses in response to a properly drafted OFAC specific license application.

Question #5: What should I do if I am unsure whether or not to proceed with a transactions which potentially involves a blocked Libyan party? Logic dictates the safest path is abstinence. In other words, avoid any transactions which might potentially lead to running afoul of the Libya sanctions. On the other hand, business considerations dictate finding a way to address these issues. One way of doing this is by obtaining the appropriate specific licenses referred to above.

For questions that might not necessarily be best addressed by applying for specific license authorization, one could file a request for interpretative guidance with OFAC. In this guidance you could outline the proposed transactions and ask for OFAC’s opinion as to whether they are exempted, authorized, licensable, or strictly prohibited. A request for interpretative guidance is a valuable tool, especially when dealing with a newly issued sanctions regime like the Libya sanctions.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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