Money laundering is a huge issue for the Office of Foreign Assets Control (OFAC), the agency from the U.S. Department of the Treasury that is tasked with enforcing the U.S. economic sanctions that are imposed by the President of the United States. As such, there are numerous instances where OFAC’s enforcement of economic sanctions will involve anti-money laundering (AML) law.
These instances are complicated and can become very costly for domestic companies that OFAC suspects of violating sanctions laws. They have also become far more frequent in recent years as global conflict has drastically increased the number of individuals, companies, and other organizations that have been targeted for economic sanction and listed as a Specially Designated National and Blocked Person (SDN).
Here are seven tips and issues that Dr. Nick Oberheiden, founding partner of the national white collar defense firm Oberheiden P.C., thinks will be important for 2023.
1. Using Cryptocurrency Will Only Make Risky Transactions Riskier
Cryptocurrency has long been touted as the money of choice if you did not want to be connected with a given transaction. This made it useful for domestic companies that found themselves privy to a potentially lucrative business opportunity, albeit with a foreign associate that was showing strong signs that he or she might be subject to U.S. economic sanctions. American entities used to think that they could cover for that risk by insisting that the business dealing was done through a cryptocurrency.
Now, however, it is clear that federal law enforcement agencies can track cryptocurrency transactions – even complex, multilayered ones – along the blockchain.
This does not just mean that the transaction can be tracked; it also means that your insistence on using a cryptocurrency can be a piece of evidence that suggests that you knew that you were violating economic sanctions when agreeing to the deal.
2. Audit Everything
With the risks of violating U.S. sanctions and AML laws up significantly in the past year or two, the importance of auditing all of your protocols that have to do with either issue cannot be understated. You cannot know how exposed your company is to legal liability if you have not performed an audit recently – especially if your business has expanded or evolved in ways that altered the risks that it faces.
This is particularly true for OFAC sanctions. In OFAC’s compliance guidance, it explicitly states that auditing should be a core component of a company’s compliance scheme. You should be auditing your OFAC compliance protocols, anyway. Doing so now is wise, given the increased risks there are of violating the law.
3. Take Compliance Seriously: Effort Pays Dividends, Even if it Comes Up Short
Some companies are overwhelmed by the scope of AML and OFAC compliance and choose to invest their time and money elsewhere and hope for the best.
This decision increases the risks of violating the law, and is almost guaranteed to increase the penalties imposed by OFAC or another federal law enforcement agency if a violation does occur.
OFAC understands the complexities of complying with sanctions. Targeted parties often do all that they can to evade sanctions, frequently making use of others to act as intermediaries. The agency recognizes that a company’s greatest compliance efforts may still not suffice. However, OFAC also recognizes that companies that do very little to comply with sanctions makes OFAC’s job much more difficult. If a violation of sanctions does occur, what you did to comply with OFAC’s requirements and guidance will matter when it comes to the penalties that the agency will impose.
4. Monitor Current Business Associates for Signs They Have Become an Intermediary for a Sanctioned Party
Most companies that are worried about violating OFAC sanctions vet their new foreign business associates closely. However, it is not impossible, or even unheard of, for sanctioned parties to search for people or companies near them with open accounts at American corporations, and then pressure or coerce them into acting as an intermediary on their behalf. In this way, the sanctioned party would be evading the embargo against them and your company would be exposed to legal liability for violating sanctions.
Avoiding this situation is extremely difficult. However, by keeping a close eye on foreign business associates that are at risk for falling into this kind of circumstance, you can spot signs that a sanctioned party is actually the one benefiting from the business arrangement.
5. Stay Apprised of International News
By keeping up-to-date with international news, you can better predict whether a situation will escalate to the point where the U.S. imposes sanctions. Once sanctions are imposed, AML risks increase, as well.
If you keep an ear to the ground, you can prepare your company for increased compliance obligations and continue to insulate it from liability for violating the law.
6. Keep an Even Closer Watch on the SDN List
You cannot avoid violating U.S. economic sanctions if you do not know who is subject to them. The names on the SDN lists that OFAC maintains have been changing on a nearly weekly basis since Russia invaded Ukraine. If you are not already receiving automated email or RSS updates about new versions of the lists, you should consider signing up for them before 2023 is over.
7. Financial Institutions Should Consider Compromising On Their De-Risking Policy
Financial institutions that have adopted de-risking policies to protect themselves from AML violations face a difficult decision in 2023: The Department of the Treasury has publicly urged them to take a more precise approach to combatting money laundering.
As Dr. Nick Oberheiden explains, “Financial institutions face a daunting task of detecting money laundering among the accounts they service. Many of them have adopted ‘de-risking’ policies that take aggressive, and often very broad, action against accounts that are associated with signs of money laundering – even if the individual account does not raise any red flags. The Department of the Treasury recently came out against these policies because, while they effectively insulate the bank from liability, they do so at the expense of numerous customers whose accounts are terminated or frozen with little to no warning or explanation. The Department of the Treasury urged financial institutions to take reasonable steps to isolate the money laundering culprits and do a more thorough investigation before taking such a big action against so many unrelated accountholders.”
Dr. Nick Oberheiden is the founding partner of the national white collar defense firm Oberheiden P.C. and one of the OFAC and AML lawyers at the firm. Numerous individual and corporate clients have benefitted from Nick’s legal guidance, whether that entailed creating OFAC or AML compliance protocols, conducting an internal investigation into a potential violation, or defending against a law enforcement action, including criminal charges for violating U.S. economic sanctions.