6 Things to Know About Anti-Money Laundering Law and OFAC Enforcement
If 2023 was any indicator, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) will be extremely active in 2024. As global turmoil continues, we can expect to see more changes to the agency’s Specially Designated Nationals and Blocked Persons (SDN) list, as well as even more vigorous enforcement of the sanctions that have been imposed on the individuals and entities on those lists.
Importantly, though, one of OFAC’s tallest obstacles to overcome in enforcing these sanctions is money laundering. When sanctioned parties launder their money or act through an intermediary, it can be difficult to tell who the true beneficiary of a business transaction is, and whose money is being used to complete it.
Dr. Nick Oberheiden is the founding partner of the white collar and securities litigation defense firm Oberheiden P.C. He thinks that there are six topical and pressing things that you should know about the intersection of anti-money laundering (AML) law and OFAC enforcement actions for 2024.
1. Financial Institutions Have Been Urged to Turn Away from Aggressive De-Risking Policies
Financial institutions, like credit unions and banks, face an uphill struggle when combatting money laundering. That is why many of them have adopted so-called “de-risking” policies that take sweeping and aggressive action against any accounts that were even remotely associated with an account that showed signs of money laundering.
The U.S. Department of the Treasury, however, recently came out against de-risking policies, arguing that they painted with too broad of a brush and levied excessive consequences on account holders who did nothing wrong and who were not even suspected of wrongdoing. According to the Treasury Department, by adopting de-risking policies to combat money laundering, financial institutions had chosen to needlessly hurt their customers in an attempt to insulate the institution from liability. Instead of taking this route, the Department urged financial institutions to take the steps necessary to hone their actions on accounts that showed individualized indications of money laundering.
2. Vet New Clients Closely, But Pay Attention to Current Ones for Signs of Odd Behavior
While new foreign clients, customers, or business partners present the biggest risk of violating U.S. economic sanctions, current ones are not risk-free. New ones should be vetted according to your company’s OFAC compliance protocols. Existing ones should be monitored for signs that they are no long the true beneficiaries of the business transaction.
According to Dr. Nick Oberheiden, the founding partner of the national law firm Oberheiden P.C. and a leading OFAC and AML lawyer at the firm, “Newly-sanctioned parties tend to tap into their network of associates to do business on their behalf and enable them to evade sanctions. In some cases, sanctioned parties may use threats and duress to make others work for them. If one of their associates is a current customer at your company, or if the person they target with threats is a current client, continuing to transact with them as normal can violate OFAC-enforced sanctions. These are some of the most difficult violations to prevent, because there is little that you can do to stop it. Paying attention to changes in your client’s behavior may be your only way to notice that they are no longer the beneficiaries of the business you conduct with them.”
3. Cryptocurrency Cannot Keep Transactions Private
One of the biggest things that we have learned about cryptocurrency in the last year is that federal law enforcement agents have learned how to reliably trace an asset’s movements on the blockchain. This runs directly counter to cryptocurrency’s main attraction: That it anonymized the parties to a transaction.
When dealing with foreign parties that show signs of being under U.S. embargo, this is very important to remember. Many companies thought that they could reasonably counteract these concerns by insisting that the business dealings be done through cryptocurrency. It is clear now that this is not going to insulate you or your company from OFAC investigation. In fact, it is likely to make matters worse, as it can be used as evidence that you knew that you were violating sanctions or else you would not have insisted on using a cryptocurrency.
4. Audit Your Compliance and Reassess Your Risks
Because the risks of violating OFAC sanctions or anti-money laundering laws has never been higher, 2024 is one of the best times to audit your compliance protocols on both fronts and to reassess where your company is most at risk of violating the law. Particularly when it comes to OFAC compliance, auditing your system is important because OFAC regards auditing as a required aspect of your compliance protocols. For both AML and U.S. sanctions law, though, if you do not audit your compliance system, you cannot know for sure that it is insulating your company from liability.
Likewise, risk assessments are also important, and are also an OFAC requirement. Especially if it has been a while since you last assessed your company’s OFAC and AML risks, or if there has been a major development in your company’s business practices since it was last performed, doing one soon is probably a wise investment to make.
5. Stay Ahead of International Conflicts
An uptick in money laundering often follows the imposition of U.S. economic sanctions on a particular region or industry, which often follow regional turmoil that threatens U.S. interests in the area or that threaten American national security.
This might sound obvious. However, you can use this very foreseeable process to predict when economic sanctions get imposed. By collecting data, monitoring the news, and making informed predictions about whether a conflict will escalate to the point that sanctions are imposed, you can make alternative business and financial arrangements more quickly, giving your company a leg-up on your competition.
6. Failed Compliance is Better Than Lazy Compliance
One thing that all companies should know is that OFAC understands that complying with U.S. economic sanctions is not easy. Sanctioned parties will do all that they can to evade the embargo, and often succeed by hiding their true identities from their U.S. business associates.
Even perfect compliance strategies will occasionally fail at the hands of exceptionally savvy sanctioned parties. But that does not mean that you can just throw your hands up. OFAC reserves its harshest penalties for companies that just give up, and is known for compromising with parties that take their compliance efforts very seriously. In this way, OFAC pressures covered companies and entities to take action to avoid violating U.S. sanctions abroad. Even if they fail, companies that do all they can to comply with the law will generally come off better in an OFAC investigation.
Dr. Nick Oberheiden, founder of Oberheiden P.C., focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation.