Tag Archives: Rachel M. Fiorill

Update on Communist Chinese Military Companies (CCMCs) Sanctions (Part II of II)

by H. Christopher Boehning, Jessica S. Carey, Christopher D. Frey, Michael E. Gertzman, Roberto J. Gonzalez, Brad S. Karp, Xiaoyu Greg Liu, Richard S. Elliott, Rachel M. Fiorill, and Karen R. King

In response to the Trump administration’s CCMC sanctions (discussed in Part I of this post), the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has released additional guidance and its first two general licenses. The U.S. Department of Commerce also responded to the sanctions; it published on December 21, 2020 the first ever Military End User List pursuant to the Export Administration Regulations as well as a warning that exports to CCMCs will raise red flags and require due diligence. Continue reading →

Update on Communist Chinese Military Companies (CCMCs) Sanctions (Part I of II)

On November 12, 2020, President Trump issued an Executive Order titled “Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies” (the “Order”), which went into effect on January 11, 2021 (after a 60-day grace period).[1] The Order prohibits U.S. persons[2] from engaging in transactions in publicly traded securities (or any securities that are derivative or otherwise designed to provide investment exposure to such publicly traded securities) of any identified “Communist Chinese Military Companies” (“CCMCs”). In the Order, President Trump cited the national security threat posed by the People’s Republic of China’s (the “PRC”) national strategy of Military-Civil Fusion, and, specifically, the threat posed by PRC companies that sell securities to U.S. investors and then invest this capital to finance the development and modernization of the Chinese military. Continue reading →

Congress to Include Significant Expansion of Beneficial Ownership Disclosure Requirements for U.S. Companies and Non-U.S. Companies Registered to Do Business in the United States as a Part of the 2021 NDAA

by H. Christopher Boehning, Jessica S. Carey, Michael E. Gertzman, Roberto J. Gonzalez, Brad S. Karp, Mark F. Mendelsohn, Richard S. Elliott, Rachel M. Fiorill, Karen R. King, Anand Sithian, and Joshua R. Thompson

As has been widely reported[1] and announced in statements by members of both the House and Senate,[2] Congress has included a significant expansion of beneficial ownership disclosure requirements for companies in the United States as a part of the fiscal year 2021 National Defense Authorization Act (the “2021 NDAA”), a spending bill that is expected to pass by the end of the year. The most recent version of the 2021 NDAA reported out of conference to the House last week includes new beneficial ownership (defined for purposes of the 2021 NDAA as those individuals who own 25 percent or more of the ownership interests of a company and/or who exercise “substantial control” over a company) reporting requirements for companies that closely track the Corporate Transparency Act of 2019,[3] which passed the House in October 2019, although certain changes were made to make the disclosure provisions somewhat more business-friendly. Nonetheless, if the 2021 NDAA is passed and signed into law in its current form,[4] the law would impose new beneficial ownership disclosure requirements on many U.S. companies—and non-U.S. companies that are registered to do business in the United States (collectively, “reporting companies”)—that previously had not been required to disclose their beneficial owners. Continue reading →

OFAC Takes Enforcement Action Against U.S. Parent Company for its Recently Acquired Chinese Subsidiary’s Iran Sanctions Violations

by Brad S. Karp, H. Christopher Boehning, Jessica S. Carey, Christopher D. Frey, Michael E. Gertzman, Roberto J. Gonzalez, Richard S. Elliott, Rachel M. Fiorill, Karen R. King, Joshua R. Thompson

Enforcement Action Shows the Importance of Pre-Acquisition Sanctions Due Diligence and Post-Acquisition Sanctions Compliance Enhancements

On March 27, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced a $1,869,144 settlement agreement with Connecticut-based Stanley Black & Decker, Inc. (“Stanley Black & Decker”), a manufacturer of industrial tools and household hardware, regarding 23 apparent violations of OFAC’s Iran sanctions regulations.[1] OFAC determined that Stanley Black & Decker’s Chinese subsidiary, Jiangsu Guoqiang Tools Co. Ltd. (“GQ”), knowingly provided power tools and spare parts to Iranian end-users.[2] According to OFAC, GQ’s shipments were made via third-party intermediaries, located in the United Arab Emirates and China, with the knowledge that the products were ultimately destined for Iran.[3] Under U.S. law, non-U.S. companies owned or controlled by U.S. companies are required to adhere to Iran sanctions as if they were U.S. persons. The settlement, along with the Kollmorgen Corporation (“Kollmorgen”) settlement in February 2019, signals the Trump Administration’s willingness to hold U.S. parent companies liable for their subsidiaries’ Iran sanctions violations, which is an area that, prior to this year, had seen little enforcement activity to date. Continue reading →

Economic Sanctions and Anti-Money Laundering Developments: 2018 Year in Review

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

Executive Summary

This memorandum surveys economic sanctions and anti-money laundering (“AML”) developments and trends in 2018 and provides an outlook for the year ahead. These areas remained a high priority last year, with the Trump administration making major changes in U.S. sanctions policy and federal and state agencies imposing over $2.7 billion in penalties for sanctions/AML violations. We also provide some thoughts concerning compliance and risk mitigation in this challenging environment.

After a period of relative quiet on the sanctions enforcement front, the last months of 2018 saw a $1.3 billion multi-agency resolution with Société Générale S.A., a burst of enforcement actions by Treasury’s Office of Foreign Assets Controls (“OFAC”), and Treasury Under Secretary Sigal Mandelker’s announcement that OFAC will soon publish guidance on the “hallmarks of an effective sanctions compliance program” and incorporate these principles in future settlements. Last year also witnessed significant and constant changes to the sanctions policy landscape. In a dramatic break from the Obama administration’s policy towards Iran, President Trump withdrew the United States from the Joint Comprehensive Plan of Action (“JCPOA”) in May 2018, and fully revoked JCPOA-era sanctions relief by November 2018, creating new sanctions risks for U.S. and non-U.S. companies across industries, generating conflict-of-law issues, and straining relations with U.S. allies. The administration also took a number of significant actions with respect to Russia/Ukraine sanctions, including designating a number of Russian “oligarchs” and their global companies and taking further steps to implement the Russian secondary sanctions regime enacted by Congress in the 2017 Countering America’s Adversaries through Sanctions Act (“CAATSA”). The administration also imposed several new sanctions against the Maduro regime in Venezuela (and recently sanctioned Venezuela’s national oil company), continued its campaign of “maximum pressure” on North Korea, implemented Global Magnitsky Act sanctions targeting human rights abuses and corruption worldwide, and established new sanctions programs targeting the Nicaraguan regime and non-U.S. interference in U.S. elections. Continue reading →

Court Upholds SEC Authority and Finds Broker-Dealer Liable for Thousands of Suspicious Activity Reporting Violations

by H. Christopher Boehning, Jessica S. Carey, Michael E. Gertzman, Roberto J. Gonzalez, David S. Huntington, Brad S. Karp, Raphael M. Russo, Richard S. Elliott, Rachel M. Fiorill, Karen R. King, Anand Sithian, and Katherine S. Stewart

Decision Provides Rare Judicial Guidance on SAR Filing Requirements

On December 11, 2018, the Securities and Exchange Commission (SEC) obtained a victory in its enforcement action against Alpine Securities Corporation, a broker that cleared transactions for microcap securities that were allegedly used in manipulative schemes to harm investors.[1] Judge Cote of the U.S. District Court for the Southern District of New York issued a 100-page opinion partially granting the SEC’s motion for summary judgment and finding Alpine liable for thousands of violations of its obligation to file Suspicious Activity Reports (SARs).[2]

Because most SAR-related enforcement actions are resolved without litigation, this decision is a rare instance of a court’s detailed examination of SAR filing requirements. The decision began by rejecting—for a second time[3]—Alpine’s argument that the SEC lacks authority to pursue SAR violations. The court then engaged in a number of line-drawing exercises, finding that various pieces of information, as a matter of law, triggered Alpine’s SAR filing obligations and should have been included in the SAR narratives. This mode of analysis, which applies the SAR rules under the traditional summary judgment standard, may appear to contrast with regulatory guidance recognizing that SARs involve subjective, discretionary judgments.[4]

Although the decision has particular relevance in the microcap context, all broker-dealers—and potentially other entities subject to SAR filing requirements—may wish to review the court’s reasoning for insight on a number of SAR issues, including the adequacy of SAR narratives and the inclusion of “red flag” information. Among other cautions, the decision illustrates the dangers of relying on SAR “template narratives”[5] that lack adequate detail.

More broadly, the SEC’s action against Alpine is another indicator of heightened federal interest in ensuring broker-dealer compliance with Bank Secrecy Act (BSA) requirements. For example, last month the U.S. Attorney for the Southern District of New York brought the first-ever criminal BSA charge against a broker-dealer, noting that this charge “makes clear that all actors governed by the Bank Secrecy Act—not only banks—must uphold their obligations.”[6] Continue reading →

OFAC Reaches Settlement with Cobham Holdings, Inc. for Violations Resulting from Deficient Screening Software

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

On November 27, 2018, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) announced a nearly $90,000 settlement agreement with Virginia-based Cobham Holdings, Inc. (“Cobham”), a global provider of technology and services in aviation, electronics, communications, and defense, on behalf of its former subsidiary, Aeroflex/Metelics, Inc. (“Metelics”).[1] The settlement involves three shipments of goods through distributors in Canada and Russia to an entity that did not appear on OFAC’s Specially Designated Nationals and Blocked Persons List (the “SDN List”), but was blocked under OFAC’s “50% rule” because it was 51% owned by a company sanctioned under the Russia/Ukraine sanctions program. This is the second OFAC action of which we are aware that has relied on the 50% rule. The apparent violations appear to have been caused by Metelics’s (and Cobham’s) reliance on deficient third-party screening software.

While difficult to predict, OFAC’s decision to pursue this action—involving only three shipments, a violation of the 50 percent rule, and where the root cause of the apparent violations is attributable to deficient sanctions screening software—may signal a raising of OFAC’s compliance expectations, consistent with Treasury Under Secretary Sigal Mandelker’s warning in a recent speech that private sector companies “must do more to make sure [their] compliance systems are airtight.”[2]

Below, we describe the settlement, OFAC’s penalty calculation, and several lessons learned. Continue reading →

Compliance and Enforcement