The Anti-money Laundering Act of 2020 Presents…
The sanctions regulatory landscape is ever-evolving and full of frequent changes, with impacts on all U.S. persons and entities.  In this article, we provide a snapshot of U.S. sanctions activity, which occurred in the first quarter of the year.
The U.S. Treasury's Office of Foreign Asset Control (OFAC) sanctioned Iranian steel producers and China-based suppliers of graphite electrodes, a key element in steel production, which has served to facilitate financing of illicit activity, weapons of mass destruction and human rights abuse in Iran. Pursuant to Executive Order (E.O) 1387, U.S. “persons” are prohibited from engaging in transactions with prohibited parties in Iran’s steel sector and financial institutions are restricted from facilitating payments for export, production, manufacturing and other Iran related products.
One of the last tasks from the Trump administration was the application of sanctions on three individuals, fourteen business entities and six ships alleged to have played a role in the evasion of sanctions imposed on Venezuela state owned oil company Petróleos de Venezuela, S.A. (PDVSA). The U.S. continues to take a strong stance against activity geared toward the support of Venezuelan President Nicolas Maduro administration’s ability to profit from crude oil sales.
Members of the national assembly and National electoral council and six judges were added to the Venezuela sanctions list by the European Council due to acts to undermine democracy and human rights violations.
The U.S. imposed new sanctions on a list of companies identified as Communist Chinese Military Companies (CCMCs) under E.O. 13959 which prohibits U.S. persons from trading in securities held by CCMCs. OFAC has also provided FAQs relating to transacting in securities of Non-SDN CCMCs, divestment of such securities, subsidiaries of the CCMCs and partial and exact name matches of subsidiaries.
Additional guidance was provided by OFAC for E.O. 13959 related to the CCMCs, which gives financial institutions guidance on how to identify securities issued by these companies.
The U.S. issued new sanctions on Chinese officials under the Global Magnitsky Act, who were involved in genocidal acts against Uyghur Muslims. This step continues to demonstrate the U.S.’s commitment to ensure human rights of the people are respected and will not tolerate human rights abuses. What does this mean for the U.S. and China relationship? Pursuant to Executive Order 13818, the sanctioned officials of Xinjiang Public Security Bureau (XPSB) and Xinjiang Production and Construction Corps (XPCC) are prohibited from doing business with U.S. persons and any U.S. assets held by these individuals and organizations will be blocked.
In response to the UK, EU, U.S. and Canada’s listings of Chinese officials on March 22nd, the Chinese Government imposed sanctions on U.S. officials Gayle Manchin, Tony Perkinds, Michael Chong and Canadian parliamentary subcommittee on international human rights. The sanctions prohibit these listed individuals from doing business with Chinese “persons” and entering the mainland, Hong Kong and Macau.
The U.S. Biden administration issued a new E.O. 14014, which blocks the property with respect to the February 1st, Burmese military coup on the government of Burma. OFAC designated two individuals connected to the military’s coup and enforced asset freezes, restricts export and U.S. persons from conducting business with named sanctions parties, in response to the military coup against the government of Burma.
Canada and the UK also imposed new sanctions on Myanmar in response to the military’s coup against the government of Myanmar and the detention of senior government officials. The previous trade embargoes on arms, technical and financial activities remains in effect in addition to the newly imposed sanctions issued by Canada which has sanctioned nine members of the military and the UK which has imposed asset freezes and travel ban on sanctioned parties.
The U.S. continues to demonstrate strong support for the people of Burma and along with the UK issued sanctions on Burmese military owned companies Myanmar Economic Holdings LTD (MEHL) and Myanmar Economic Corporation Limited (MECL). Both companies have significant control in key sectors of the Burmese economy and have been deemed to have engaged in the violation of human rights against the Rohingya, an ethnic Muslim minority group, in Myanmar.
Following the March 25th sanctions, OFAC issued four general licenses authorizing certain transactions involving the U.S. government, the winding down of transactions involving MEC and MEHL and other nongovernmental organizations.
Cuba was re-designated as a State Sponsor of Terrorism (SST) on January 12th, after its delisting by the Obama administration in 2015, for its role in the support of international terrorism. This designation means restrictions on dual use goods, financial transactions and a ban on export and sales on defense products with U.S. persons and entities.
The EU and the U.S. imposed sanctions on Russia which further discourages acts of human rights violations with particular focus on the poisoning and imprisonment of Alexei Navalny. This is the first of the Biden’s administration’s sanctions against Russia which implements export and visa restrictions on Russia.
PT Bukit Muria Jana, an Indonesian paper products manufacturer, reached a settlement of $1.1 million with OFAC due to its role in the export of cigarette paper to entities located in, or doing business on behalf of, North Korea. BMJ intentionally violated the NK Sanctions Regulations by disguising the names of NK entities at the request of its customers to facilitate exports including transactions to North Korean blocked persons, for which proceeds were deposited to U.S. bank accounts.
Three charged in Iran sanctions evasion
The U.S. Dept of Justice issued charges against three individuals for conspiracy to export and smuggle U.S. origin goods to Iran, which were facilitated through the UAE. Two of which are Canadian citizens (Arash Yousefi Jam and Amin Yousefi Jam) and one Iranian national Abdollah Momeni Roustani, participated in the violation of the IEEPA and ITSR acts by purchasing U.S. electronics in the U.S. for export to Iran.
Avnet Asia, a U.S electronic and software distributor, was fined by the U.S. Department of Commerce and reached a settlement of $3,229,000 due to violation of Export Administration Regulations (EAR) in which Avnet transferred $1.2 million worth of goods to Iran and China without license to further national security and terrorism acts. This was in violation of EAR and Iranian Transactions and Sanctions regulations (ITSR).
Between August and December 2017, Chan Han Choi, an Australian civil engineer, facilitated the sale of arms and materials including coal and pig iron from North Korea into Indonesia in violation of UN and Australia sanctions.
Norgas, an Italian company, has agreed to a settlement of $950,000 with OFAC due to its involvement in the re-export of U.S. origin goods which was indirectly sold to Iranian customers violating the U.S. Bureau of Industry and Security (BIS) restrictions. The ultimate end users were hidden in an effort to evade U.S. sanctions on Iran. This is in connection with UniControl’s failure to act in compliance with OFAC sanctions on Iran by exporting twenty one shipments of goods to Norgas which ultimately re-exported the goods to Iranian end users. UniControl agreed to a $216,464 settlement with OFAC due to violation of Iranian Transactions and Sanctions Regulations.
A lot has happened in the sanctions environment in the first quarter of 2021 and the changes have continued into the second quarter. So what does this mean for financial institutions? As the sanctions environment changes, financial institutions are expected to ensure that sanctions programs are aligned with regulatory requirements, risk is managed proactively, and there is an enterprise wide level of sanctions compliance awareness. Implementing enhanced screening in sanctions filtering systems, updated procedures and protocols helps financial institutions identify designated parties, securities issued by CCMCs, as well as identify companies owned by CCMCs and establish whether OFAC authorizations are in place with regards to securities divestment activity.
Sia Partners can assist financial institutions by reviewing and updating compliance programs and sanctions screening procedures. Sia Partners has expertise in conducting due diligence to establish the purpose and identify end users involved in transactions to determine whether a sanctions nexus exists and best practice to mitigate sanctions exposure. Furthermore, Sia Partners has proven methodologies in assessing and mitigating reputational, operational and regulatory risks posed by supply chains where entities and products may have a nexus to sanctioned parties including subsidiaries 50% or more owned by a sanctioned party, which would be subject to the same blocking measures.
The cost of non-compliance or poor sanctions compliance programs can be significant, however, with effective solutions in place, financial institutions can be better equipped to meet regulatory requirements and service clients globally.
 U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, all U.S. incorporated entities and their foreign branches. In the cases of certain programs, foreign subsidiaries owned or controlled by U.S. companies also must comply. Certain programs also require foreign persons in possession of U.S.-origin goods to comply.
 Global Magnitsky Act enacted by Congress authorizes the U.S. government to impose sanctions on foreign government officials engaged in human rights abuses
 All property and interests in property of persons that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC