Category Archives: General Information

01.13.16
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Sanctions 101, Part 2

Here is the second “Sanctions 101” blog post that Adam Szubin penned in 2014 when he was still OFAC Director:

Do sanctions change behavior?

They certainly can. Targeted financial sanctions apply concentrated pressure on bad actors, isolating them and making it harder for them to continue their bad activities. For those targets who seek to operate in the legitimate international financial system, sanctions can deliver a massive blow, as conscientious people and institutions will often shun them and their business. One narcotics trafficker once compared sanctions to “la muerte civil,” or “civil death.” Perhaps less intuitively, even those targets who do not regularly interact with banks or other regulated institutions can feel the impact of sanctions, as they find it more difficult to travel across borders, receive wire transfers, or procure needed materials. Time and time again, we have seen illicit actors struggle with the consequences of designations, and approach OFAC to forswear their prior activities and seek delisting.

When it comes to sanctions against more sophisticated companies or entire governments, their comparatively larger resources and greater access to the international financial system provide them with both advantages and liabilities. By one light, the more integrated a target is within the global economy, the more vulnerabilities it faces, and the more it has to lose. A smart sanctions strategy will engage as many partners as possible and focus on the pressure points. When it comes to the decisions of a government, a wide range of domestic and international factors will drive policy, and sanctions by themselves are rarely determinative. But a concerted sanctions approach, coupled with intensive diplomacy, can put a heavy thumb on a government’s decision-making scale and make change more likely. Sanctions played that role in Burma by providing incentives of potential relief and the deterrence of additional pressure, we aim to encourage the Burmese government further down the path of reform. And, as the P5+1 seek to negotiate a resolution to international concerns over Iran’s nuclear program, the overriding goal for Iran is a return to the international community and relief from the sustained, multi-layered sanctions pressure that has encircled it in recent years.

What are the practical effects of sanctions?

Sanctions are effective immediately and U.S. individuals and entities are prohibited from doing business with those named, wherever they are located around the globe. Also, all assets within U.S. jurisdiction are frozen, including assets based in branches of U.S. financial institutions abroad. In addition, any transaction carried out by a foreign financial institution involving a designated entity or individual is prohibited from being routed through a U.S. institution (which is the case for the vast majority of dollar-denominated transactions), and such transactions through the United States will be blocked. In other words, even if a transaction passes for a millisecond through New York on its way to the final transaction point, such transfer is prohibited and it will be blocked.

If a Specially Designated National (SDN) owns 50 percent or more of an entity, the entity is also blocked regardless of whether it is specifically named on the SDN List. We also find that non-U.S. financial institutions around the world often will refuse to do business with SDNs even if they are not legally required to do so – a step that reflects the reputational risk of doing business with someone on our SDN List and that underscores the gravity and sweeping impact of U.S. sanctions.

How are sanctions enforced and how do you ensure compliance?

The Office of Foreign Assets Control (OFAC) draws from publicly available information, law enforcement and intelligence community sources, anonymous tips, and self-disclosures to detect and respond to potential sanctions violations. Once detected, the agency has at its disposal a range of civil enforcement tools to address those potential violations – including cautionary letters, civil monetary penalties, and referral to criminal law enforcement authorities (see OFAC’s Enforcement Guidelines, here).

How does OFAC communicate with the companies and individuals it regulates? How can I contact OFAC?

OFAC has a hotline and an email address to answer questions regarding sanctions compliance; we receive over 100,000 calls and emails every year. We also reach out regularly to a variety of industry groups and affected organizations, through conferences, panels, and webcasts. While OFAC has limited resources, we seek to maximize our reach by creating separate web pages and brochures for every sanctions program and publishing other guidance, such as our Frequently Asked Questions. In the last two years alone, we have published hundreds of FAQs, and I would recommend that those with specific questions on our programs start with all of these public resources

How can individuals and entities be removed from the sanctions list?

A designated person may seek delisting by seeking administrative reconsideration of their case before OFAC or challenging their designation in a U.S. district court. Either avenue is available immediately, and both are open to U.S. and foreign persons. Details on the delisting process are provided in OFAC’s regulations.

Sanctions are a means to an end; the ultimate goal of sanctions is behavioral change. OFAC therefore seeks to respond to those who demonstrate a change in the behavior that resulted in sanctions, to reward their conduct and incentivize others to act similarly. Since 2012, OFAC has removed nearly 500 persons from its SDN list upon a showing of behavioral change.

While much more could obviously be written, I hope that these answers can provide a starting point for those looking to learn more about this tool. We at Treasury are committed to using sanctions aggressively but responsibly, to advance U.S. foreign policy goals and protect our country’s most vital interests.

 

You'll notice there is not a lot of detail on the delisting process – I'm trying to get some clarity from OFAC on that…

Link:

Sanctions 101, Part 2: Enforcement and Effects

 

01.12.16
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How one gets delisted by the United Nations Sanctions Committees

The focal point for getting delisted by one of the UN's sanctions committees is called, amazingly enough, the “Focal Point for De-Listing”:

The Focal Point for De-listing, established pursuant to resolution 1730 (2006) (hereafter “the Focal Point”) receives de-listing requests and performs the tasks described in the annex to that resolution, as well as the tasks described in paragraph 37 of resolution 2083 (2012) and paragraphs 62 and 63 of resolution 2161 (2014).

Work and Mandate of the Focal Point

As part of its commitment to ensure that fair and clear procedures exist for placing individuals and entities on sanctions lists and for removing them, as well as for granting humanitarian exemptions, the Security Council, on 19 December 2006, adopted resolution 1730 (2006) by which the Council requested the Secretary-General to establish within the Secretariat (Security Council Subsidiary Organs Branch), a focal point to receive de-listing requests and perform the tasks described in the annex to that resolution.

Petitioners, other than those whose names are inscribed on the list created pursuant to resolutions 1267 (1999), 1333 (2000) and 1989 (2011) (“the Al-Qaida Sanctions List”), can therefore submit de-listing requests either through the focal point process outlined in resolution 1730 (2006) or through their State of residence or citizenship.

Petitioners whose names are inscribed on the Al-Qaida Sanctions List can submit their de-listing requests through the Office of the Ombudsperson.

On 17 December 2012, the Security Council adopted resolution 2083 (2012) by which it authorized the Focal Point to receive travel ban and assets freeze exemption requests in relation to individuals, groups, undertakings or entities on the Al-Qaida Sanctions List. On 17 June 2014, the Council adopted resolution 2161 (2014), further authorizing the Focal Point to receive communications from individuals removed from the Al-Qaida Sanctions List and those claiming to have been subjected to the sanctions measures mistakenly.

The Focal Point’s mandate includes the following :

    • Receive de-listing requests from a petitioner
    • Verify if the request is new or repeated; if the latter, and with no additional information, return the request to the petitioner
    • Acknowledge receipt of the request to the petitioner and inform the petitioner on the general procedure for processing that request
    • Forward the request to the reviewing governments
    • Put reviewing governments into contact with each other, as appropriate
    • Forward to the relevant Committee a reviewing government’s recommendation, if any, to de-list and the accompanying explanation
    • Inform the relevant Committee should a reviewing government oppose de-listing
    • Inform all members of the relevant Committee should any reviewing government not comment either way within three months
    • Convey to the relevant Committee all communications from Member States
    • Inform the petitioner of the outcome of the de-listing procedure
    • Receive and forward to the 1267/1989 Committee requests from listed individuals, groups, undertakings, and entities on the Al-Qaida Sanctions List, for exemptions to the assets freeze and travel ban measures
    • Transmit to the individuals, groups, undertaking or entities the 1267/1989 Committee’s decision on the exemption request
    • Receive and transmit to the 1267/1989 Committee communications from individuals who: have been removed from the Al-Qaida Sanctions List; claim to have been subjected to the sanctions measures as a result of false or mistaken identification or confusion with individuals listed on the Al-Qaida Sanctions List

Link:

Focal Point for De-Listing

 

01.04.16
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Happy New Year! Want to become a UN sanctions expert?

The United Nations has a neat page explaining who gets to work supporting the Sanctions Committees:

The Security Council Affairs Division (SCAD) assists the Security Council in carrying out its critical responsibilities.

SCAD also supports subsidiary bodies established by the Security Council, particularly sanctions Committees and working groups. A key part of this support comprises the establishment of Expert Groups and identification of suitable candidates to serve on these groups who assist Committees in overseeing sanctions regimes.

The nature of the work of sanctions Committees and working groups make it necessary for such Expert Groups to be established in a timely and efficient manner. To facilitate this process, SCAD seeks to identify candidates who possess the highest degree of integrity and professionalism, as well as demonstrable subject-matter expertise in one of the following areas:

    • border control
    • children and armed conflict
    • conventional arms
    • counter-terrorism
    • finance
    • gender issues
    • humanitarian affairs
    • human rights
    • international law
    • judiciary (criminal/prosecution)
    • law enforcement
    • narcotics
    • natural resources
    • piracy
    • regional expertise
    • sanctions
    • transportation
    • weapons of mass destruction/non-proliferation (or relevant technical field)

Experts are required to have technical skills to assist the relevant Committees/working groups with:

    • Analysis and monitoring of sanctions measures
    • Investigate incidents of non-compliance
    • Fact and information gathering
    • Draft substantive reports on their findings
    • Make recommendations to the respective committees
    • Other tasks as required by Security Council resolutions specific to the respective Committees/working groups

If you have been invited to join the SCAD Roster of Experts, follow the Registration Instructions to create your profile. Please note that registration is by invitation only and unsolicited applications will not be considered.

Members of the Roster of Experts will be considered for assignments when they become available; however, acceptance to the Roster of Experts does not constitute any guarantee or offer of employment.

If you have any questions or comments, please contact us directly at expertsroster@un.org

Link:

Security Council Affairs Division Roster of Experts

 

12.29.15
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AUSTRAC PEP guidance updated

Some tidbits from AUSTRAC's web pages (courtesy of the e-news newsletter), which were recently updated. Here's how they define “prominent public functions” (a cornerstone of many PEP definitions):

This term relates to functions which may exist at the Commonwealth, state and territory levels or their foreign equivalents. The meaning of 'prominent' may be determined through the size of the function in relation to the number of affected persons, the budget and its relevant powers and responsibilities.

The 2012 FATF Recommendations provide examples of positions which are covered, such as Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, important party officials, or, in relation to international organisations, directors, deputy directors and members of the board or equivalent. The FATF provides further detail in its guidance, Politically Exposed Persons (Recommendations 12 and 22).

Such positions commonly hold specific powers in relation to approving government procurement processes, budgetary spending, development approvals and government subsidies and grants.

And here is their guidance on how local or municipal officials should be treated:

It is noted that although FATF considers that a prominent public function may extend to the municipal or local government level, it is generally considered that this will only apply to persons who have the substantive powers (as noted above) relevant to this level of government.

The definition of 'domestic politically exposed person' in the AML/CTF Rules limits such persons to those who hold a position in an 'Australian government body', which is defined in the AML/CTF Act as extending to the Commonwealth, state or territory levels. This definition does not capture the local government or municipal level.

This is not the case with the definition in the AML/CTF Rules of 'foreign politically exposed persons' who hold positions in a 'government body', which is defined more broadly in the AML/CTF Act to include the 'government of part of a country'.

Although foreign PEPs are characterised as being of high ML/TF risk under Part 4.13 of the AML/CTF Rules, reporting entities may consider foreign officials at the local or municipal level as being PEPs only if they hold the substantive powers as noted above.

Accordingly, domestic customers of reporting entities at the local government or municipal level and who would otherwise be considered PEPs if they were foreign customers, are not required to be treated as PEPs under Part 4.13 of the AML/CTF Rules. However, the normal obligations relating to customer identification in Chapter 4 and ongoing customer due diligence in Chapter 15 will apply to such persons.

The Department of Foreign Affairs and Trade's Heads of Government List provides details on the names and titles of heads of state, heads of government, foreign ministers, trade ministers and in some case, ministers responsible for development assistance.

And on how soon after leaving office someone can stop being considered a PEP:

As described above, a PEP is someone who occupies a prominent public position. Once a person no longer holds that position, they are no longer considered a PEP. However, a reporting entity should continue to apply a risk-based approach to determine whether an existing customer who is no longer a PEP should continue to be treated as a high-risk customer.

Higher risk PEPs are also more likely to continue to pose a ML/TF risk after they cease holding a public position. As such, reporting entities may choose to undertake enhanced customer due diligence (ECDD) for a longer period for a former PEP under the ECDD provisions in Chapter 15 of the AML/CTF Rules.

Links:

AUSTRAC e-news December 2015 issue

 

12.28.15
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Back in the Day: Adam Szubin blogs about sanctions (section 1)

Back in mid-2014, when he was merely the OFAC Director (he has since been promoted to Acting Undersecretary of the Office of Terrorism and Financial Intelligence, or TFI), Adam Szubin wrote two blog posts entitled “Sanctions 101.” It had some really useful information, including how some of the designation process happens. So, Mr. Watchlist, in the interest of giving a good behind the scenes look at OFAC, will share pieces of the two blog posts. Here's Part 1:

Who is responsible for implementing and enforcing sanctions at the Treasury Department?

The Treasury Department’s Office of Terrorism and Financial Intelligence (TFI) harnesses intelligence, policy, regulatory, and enforcement capabilities with the twin missions of (1) defending the U.S. and global financial systems against abuse and (2) using financial intelligence and authorities to combat those who threaten our nation’s security and core objectives.

The Office of Foreign Assets Control, or “OFAC,” is the sanctions office within TFI. OFAC administers and enforces the financial sanctions at the heart of so many U.S. national security policies today. When deployed effectively, these tools can disrupt weapons of mass destruction procurement rings, suffocate narcotics and criminal cartels, degrade the capabilities of terrorist groups, and alter the decision making of threatening regimes.

How are new sanctions programs created?

The International Emergency Economic Powers Act and other legislation provide the President with the authority to deploy and enforce financial sanctions in response to specified or declared national emergencies. These authorities then allow the President to prohibit or restrict transactions and freeze property to confront the declared emergency. The funds or relevant property of the designated person stay in the hands of the bank, company, or individual that reported them to the Treasury but must be strictly maintained consistent with OFAC regulations.

Typically, the President will delegate new sanctions authorities to the Treasury Department through the signing of an Executive Order. At that point, OFAC will issue regulations and guidance that further explain the obligations and parameters of the sanctions and set out how licenses can be sought to authorize transactions that would otherwise be prohibited.

How does OFAC develop targets for sanctions?

Where so directed by statute or an Executive Order, OFAC will gather information and build cases against those contributing to the national emergency. To do so, OFAC draws on information provided by law enforcement and intelligence agencies, foreign governments, United Nations expert panels, and any other reliable information it can obtain. Similar to the way a prosecutor prepares an indictment, OFAC will then assemble all of the relevant information and draft an evidentiary memorandum that sets out why the agency has concluded that the targeted person meets the criteria specified in the sanctions authority. This information gathering phase is intensive and can be quite time consuming, as OFAC will only move a case forward upon solid information from reliable sources. Our cases are then reviewed by attorneys at the Treasury Department and the Justice Department. Before taking action, we coordinate closely with a number of government agencies – including the State Department, the intelligence community, and others – to ensure that our actions are consistent with and complement other U.S. government activities. Once our case is complete, I sign what is known as a designation memorandum, designating the target(s) for sanctions. The action is given public effect by placing the target(s) on OFAC’s List of Specially Designated Nationals (“the SDN list”).

How can someone know which individuals or entities are sanctioned?

OFAC’s SDN list, which currently includes nearly 6,000 sanctioned individuals and entities, is frequently updated. All updates are immediately disseminated via RSS feed and through our website and published in the Federal Register. All U.S. financial institutions and other holders of relevant assets must block them immediately and have up to 10 days to report those blocked assets to OFAC. If you have questions about whether an individual or entity is listed on OFAC’s SDN list, OFAC hosts a flexible online SDN search tool, which allows for searches based on partial names and other limited information.

Links:

Sanctions 101, Part 1: A Powerful Financial Tool

12.22.15
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December 9, 2015: Hong Kong Securities and Futures Commission AML/CTF Circular

Something a little different this time – it's not about list changes:

(1) Suspicious Transaction Report

Suspicious transaction reporting is a vital and integral part of the regime to combat money laundering and terrorist financing.

Licensed corporations (“LCs”) and associated entities (“AEs”) when fulfilling their statutory obligations to file a suspicious transaction report are encouraged to make reference to the reporting methods and advice available on the website of the Joint Financial Intelligence Unit (“JFIU”) at http://www.jfiu.gov.hk/index.html, as well as the advice and observations from the JFIU set out in the Appendix.

LCs and AEs are also reminded to take appropriate steps to ensure that any suspicious transaction report submitted by them contains accurate, sufficient information of the transaction and the person or entity involved, and a reasonably detailed analysis of the suspicion triggering the obligation to file the report. By providing as much relevant information as possible in the suspicious transaction report, LCs and AEs will minimize the need for the JFIU to request further information from them that is required for analysis and follow-up.

(2) Seminar Materials

The PowerPoint slides of the presentations (in both English and Chinese versions) that SFC staff and speakers of the JFIU respectively made at the recent Anti-Money Laundering and Counter-Terrorist Financing Seminars Note 1 have been posted on SFC’s website Note 2 under the heading “Training materials – Presented by SFC staff” and under the heading “Training materials – Presented by external parties”, respectively.

LCs and AEs are encouraged to download the aforesaid presentation materials for reference and internal training as appropriate.

Should you have any queries regarding the contents of this circular, please contact Ms Kiki Wong on 2231 1569.

Intermediaries Supervision Department

Intermediaries Division

Securities and Futures Commission

Links:

HK SFC Notice

HK SFC Circular