Category Archives: Sanctions

Corporate Executives and Criminal Justice Reform

By Amy J. Sepinwall

On September 19, Senator Chuck Grassley (R-IA) issued a press release stating that the bipartisan authors of a 2015 landmark criminal justice reform bill were preparing to reintroduce that legislation. The Sentencing Reform and Corrections Act of 2015, to which Sen. Grassley will grant new life, was part of a widespread effort at criminal justice reform that appeared to have died with the 2016 election. A centerpiece of the effort would have clarified and enhanced the mens rea (or mental state) necessary for conviction: in the House version, a defendant could be convicted only if she knew she was engaged in criminal activity; the Senate version was even more defendant-friendly, requiring willful participation.

Criminal justice reform has a laudable overarching ambition—to reduce sentences and incarceration rates, especially for minor drug and firearms offenses. As Yale Law Professor Gideon Yaffe writes, this would benefit “those who are especially ill-treated by the criminal justice system: the poor and racial minorities.” But these efforts are being championed by some unusual suspects: Republican members of Congress, who don’t ordinarily vie for more leniency when it comes to street crime, and the Koch brothers, who also are not usually poster boys for the plight of the underclass, who are over-represented in criminal prosecutions, convictions and America’s prisons. Continue reading

Sentencing Fraud

by Mihailis E. Diamantis

Imagine a class of criminals that is growing year over year, whose members have higher than average recidivism rates, and for whom the public has very little sympathy.[1]  They would seem an unlikely group for judges and scholars to think are punished too severely.  This, though, is the fortunate position of the white-collar fraudster.

To be sure, federal penalties for fraud can be quite burdensome.[2]  The base offense level for most frauds is 6, but this can climb as the loss caused by the fraud increases from $6,501 (add 2 levels) up to $550,000,001 (add 30 levels).  The number of victims can also have a significant impact, ranging from an additional 2 levels if there are at least ten victims to an additional 6 levels if there are more than twenty-five.  A first-time fraudster who causes more than $550,000,001 in losses to at least twenty-five victims is looking at a recommended sentence of thirty years to life.[3]  For most judges and scholars, that kind of punishment sounds disproportionate.[4] Continue reading

New York DFS Pursues $630 Million Fine Against Bank for Alleged Anti-Money Laundering and Sanctions Compliance Failures

By Brad S. Karp, H. Christopher Boehning, Jessica S. Carey, Michael E. Gertzman, Roberto J. Gonzalez, Richard S. Elliott, Rachel Fiorill and Karen R. King

On August 28, 2017, the New York State Department of Financial Services (“DFS”) announced a “Notice of Hearing and Statement of Charges” that seeks to impose a nearly $630 million civil penalty against Habib Bank Limited and its New York Branch (“the Bank”) based on allegations of persistent Bank Secrecy Act/anti-money laundering (“AML”) and sanctions compliance failures.[1] A hearing is scheduled for September 27, 2017 before Cassandra Lentchner, DFS’s Deputy Superintendent for Compliance. The Bank – the largest bank in Pakistan – has contested DFS’s allegations and indicated that it plans to challenge the penalty and surrender its DFS banking license, thus eliminating its only U.S. branch.  DFS also issued two related orders, which (1) expanded the scope of a review of prior transactions for AML and sanctions issues, that was already underway under the terms of an earlier consent order; and (2) outlined the conditions under which the Bank could surrender its DFS banking license, including the retention of a DFS-selected consultant to ensure the orderly wind down of its New York Branch.

The severity of the language and proposed penalty in DFS’s statement of charges reflects the large number and extent of alleged compliance failures at the Bank, which DFS claims persisted for more than a decade, despite agreements with DFS and the Federal Reserve Board of Governors (“Federal Reserve”). According to DFS, these failures are “serious, persistent and apparently affect the entire [Bank] enterprise” and indicate a “dangerous absence of attention by [the Bank’s] senior management for the state of compliance at the New York Branch.”

This enforcement action illustrates that a DFS-regulated institution’s failure to show steady progress in remedying identified concerns can have significant and franchise-threatening consequences. We describe the enforcement action in more detail below, including the numerous compliance failures alleged by DFS. Continue reading

Professional Service Advisers in the United Kingdom Under New Obligations to Report Suspicions of Financial Sanctions Breaches

by Satish M. Kini, Carl Micarelli, Alex Parker, and Konstantin Bureiko

On August 8, 2017, the United Kingdom (“UK”) broadened the obligation to report known or suspected financial sanctions breaches to apply to a range of professional service providers and certain businesses, including lawyers, external accountants and auditors. This reporting obligation reflects a wider trend of the UK government taking a more proactive approach to enforcing sanctions compliance.[1]

This reporting obligation is now similar in scope to the money laundering reporting obligations, as imposed by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.[2]

As well as impacting the internal compliance policies of professional services firms operating in the UK, this new obligation may also impact the dealings of their clients, particularly in a mergers and acquisitions context. It is also likely to significantly increase the number of reports made to the UK’s Office of Financial Sanctions Implementation (“OFSI”). Continue reading

President Trump Signs Sanctions Legislation Targeting Russia, North Korea and Iran, Creating New Compliance Risks for U.S. and Non-U.S. Companies

by Brad S. Karp, H. Christopher Boehning, Jessica S. Carey, Michael E. Gertzman, Roberto J. Gonzalez, Richard S. Elliott, and Karen R. King

Legislation Expands Primary and Secondary Sanctions and Limits Presidential Discretion

On August 2, 2017, President Trump signed into law H.R. 3364, the “Countering America’s Adversaries Through Sanctions Act” (“CAATSA” or the “Act”). CAATSA—which was passed overwhelmingly by the Senate and House of Representatives on a broad bipartisan basis[1]—significantly expands certain U.S. sanctions targeting Russia. The law also restricts President Trump’s ability to lift certain sanctions unilaterally, by including a congressional review mechanism that will allow Congress to potentially block the President from relaxing measures targeting Russia.  CAATSA also adds sanctions targeting North Korea, largely incorporating an earlier House bill, the “Korean Interdictions and Modernization of Sanctions (“KIMS”) Act.”  Finally, CAATSA codifies certain non-nuclear sanctions in place against Iran.  Many of the law’s sanctions are secondary sanctions, meaning that non-U.S. entities that engage in certain activities—even if such activities do not involve U.S. persons or the United States—may themselves be sanctioned by the United States.

While a number of the sanctions included in CAATSA are referred to as “mandatory,” it remains to be seen how certain provisions are enforced by the Trump Administration. As an initial matter, many of these provisions require the President to sanction individuals or entities only after he determines that they have engaged in certain activities, thus allowing the President to theoretically refrain from enforcing these sanctions by withholding certain determinations. Additionally, in signing the Act, President Trump released two signing statements, in which he noted his “concerns to Congress about the many ways [the bill] improperly encroaches on Executive power, disadvantages American companies, and hurts the interests of our European allies,” and his view that the “bill remains seriously flawed,” because it “encroaches on the executive branch’s authority to negotiate” and because “the Congress included a number of clearly unconstitutional provisions.”  President Trump stated that he would implement the statute’s restrictions “in a manner consistent with the President’s constitutional authority to conduct foreign relations.” [2]

We describe below CAATSA’s most significant provisions, and outline considerations for U.S. and non-U.S. companies seeking to mitigate their risks under the new legislation. Continue reading