My partner at Akrivis, Sam Amir Toossi, who heads the firm’s White Collar Defense and Commercial Litigation practice wrote this piece, which features on our firm’s website as well. Those of us in the sanctions regulatory and compliance field may have less appreciation for this as for those familiar with the regulations, the sanctions are very clear and self-evident on this issue – sanctions evasion and circumvention are prohibited whether by cryptocurrency or any other method. However, those in the enforcement space, including litigators such as Sam, a former federal prosecutor in the Eastern District of New York (EDNY), find the opinion of the District Court for the District of Columbia (DDC) very poignant and significant as it clearly ascertains the Department of Justice’s position on this issue. Expect to see a lot more on this in the coming months and years.

Following Russia’s invasion of Ukraine, the United States quickly imposed sweeping sanctions on Russian entities and individuals, which the Biden Administration immediately began to take steps to aggressively enforce.  The Department of Justice (DOJ) announced the formation of the KleptoCapture Task Force, an interagency law enforcement effort to enforce the sanctions and restrictions designed to punish Russia’s actions in Ukraine.

As news reports abounded of Russian efforts to evade the sanctions using cryptocurrency, the DOJ stated that part of the KleptoCapture’s mission would be to “target[] efforts to use cryptocurrency to evade US sanctions, launder proceeds of foreign corruption, or evade US responses to Russian military aggression.”  OFAC also issued guidance in an FAQ released on March 11, 2022, confirming that compliance with the Russian sanctions would be required “regardless of whether a transaction is denominated in traditional fiat currency or virtual currency,” pointing to its own October 2021 guidance on the use of cryptocurrency.  Now, a court sitting in the District of Columbia has weighed in and confirmed that the DOJ can pursue criminal charges against individuals that use cryptocurrency to evade U.S. sanctions.  This ruling not only confirms that the DOJ is pursuing sanctions violators criminally, but it also represents the first time that the federal courts have approved of such enforcement.

On May 13, U.S. Magistrate Judge Zia Faruqui, sitting in the United States District Court for the District Columbia (DDC), ruled that the DOJ could pursue a criminal action based on the use of cryptocurrency to evade U.S. sanctions.  In an opinion rich with pop-culture references (including Friday the 13^th, Silicon Valley, and Saturday Night Live), the Court stated that “[t]he question is no longer whether virtual currency is here to stay (i.e., FUD) but instead whether fiat currency regulations will keep pace with frictionless and transparent payments on the blockchain.”  The Court ultimately relied heavily on OFAC’s recent guidance from October 2021, which determined that “sanctions compliance obligations apply equally to transactions involving virtual currencies and those involving traditional fiat currencies.” (quoting OFAC, Sanctions Compliance Guidance for Virtual Currency (“OFAC Guidance”), at 1 (Oct. 2021),

https://home.treasury.gov/system/files/126/virtual_currency_guidance_brochure.pdf  see also U.S. Dep’t of the Treasury, Questions on Virtual Currency (Mar. 19, 2018),

https://home.treasury.gov/policy-issues/financial-sanctions/faqs/560.

Notably, the Court also cited with approval recent enforcement actions involving cryptocurrency.  Prominent payment platforms such as BitGo and BitPay had to settle sanctions violations with OFAC earlier this year due to deficiencies in internal controls and screening procedures aimed at detecting prohibited transactions on their platforms. BitGo was found to have violated OFAC regulations because it allowed transactions between buyers in a sanctioned country and businesses in the United States and elsewhere exchanging digital currency on its platform, even though the platform provider had Internet Protocol (IP) addresses and other location data about the buyers prior to processing the transactions.

There are several key takeaways from Judge Faruqui’s opinion.  First, while it is unknown which sanctioned country was involved in the transactions at issue, the DOJ has been clear that it intends to pursue sanctions violators criminally.  As Deputy Attorney General Lisa Monaco recently said, “sanctions are the new FCPA.”  And the opinion reveals that the DOJ is now pursuing sanctions violations using cryptocurrency criminally.  Second, it is unusual that the opinion is even available to the public.  The case remains under seal, and the Court redacted the name of the defendant and the sanctioned country at issue.  And yet the Court nonetheless published the opinion on its website, seemingly as a warning that not only does the executive branch (e.g., DOJ and OFAC) view cryptocurrency as subject to sanctions regulations, but the judiciary does now as well.  Indeed, there is now clear judicial precedent for the proposition that the use of cryptocurrency is subject to U.S. sanctions.  As Judge Faruqui stated in his opinion, “The [DOJ] can and will criminally prosecute individuals and entities for failure to comply with [sanctions] regulations, including as to virtual currency.”

It’s been a long time since I wrote about this topic, but it remains one of perennial interest for many. Unlike many developing countries, Iran is a perhaps a net sender rather than receiver of family remittances. This therefore constantly begs questions by people in the United States as to how they can obtain money from Iran, whether it’s gifts from parents and grandparents, inheritance, or the sale of their own property. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), which has jurisdiction over most individual transactions involving the U.S. and U.S. persons and Iran, regularly issues new regulations and statements on a wide range of sanctions programs. In studying this particular issue, however, the Iranian Transactions and Sanctions Regulations, 31 CFR Part 560 (the ITSR) is arguably the cornerstone regulatory framework.

Below are a few things to consider when looking at the legal issues surrounding the receipt of family remittances from Iran.

1. Does it need an OFAC license? Many think you generally need an OFAC license to receive Iranian-origin money, or that money under some given threshold does not need a license (this may be the result of hearsay and a rumor mill). The reality is that the actual amount at issue is not what determines whether you need a license. There is no magical threshold – in other words, transfers of all sizes fall under OFAC’s jurisdiction. Furthermore, licenses, where applicable, are not necessarily just for bringing money – oftentimes, the actual transaction that gives rise to the money needs a specific license. If you think a general license applies, meaning you will not need to apply for a specific license, then make sure your analysis is correct and true to the letter of the law.
   
   Therefore, determining whether a specific license is needed is extremely fact specific, and can depend on a slew of factors – for example, if there is an asset involved, does it need an OFAC license to be sold? Who are the parties involved? What are the source of funds? Are these funds in an Iranian bank subject to blocking? Are any parties designated by OFAC as Specially Designated Nationals (SDNs) involved at any stage of the transaction? Does the money movement have a weird step? These are just a few.
   
2. Have you checked the logistics of sending and receiving the funds? Your compliance obligations do not stop when the funds leave your (or your relative’s) hands in Iran. Ensuring funds are sent in a manner compliant with OFAC regulations is critical – certain entities (e.g., certain banks and exchangers, be they in or outside Iran) cannot be used or dealt with without a specific OFAC license. Certain methods of transfer (e.g., hawala between individuals in Iran and the US) are generally prohibited.
   
3. Does your bank know about the transfer? As many know, funds bound for the US from Iran do not get wired from Iran to the US, rather they get wired from third country banks, e.g., in jurisdictions like Turkey or Malaysia. This may look suspicious to your bank, and banks know Iran relies heavily on third country exchangers for procuring certain goods and services that are blocked by sanctions. As such, banks often reject such wires as such transfers could look like sanctions violations. The onus is arguably on the customer (the recipient) to communicate that to the bank. This is something certain counsel often do – providing documents to a bank’s compliance department to support the argument that their client’s transfer is lawful. While this is not required by law, banks generally want these documents and they can help prevent an erroneous rejection of a wire, or an closure of a client’s account due to a misperceived level of risk.
   
4. Are you otherwise complying with OFAC’s regulations? OFAC regulations are broad and cover a wide host of activities, and it’s therefore critical to ensure that all rules are being followed. There are also bank policies – banks often embrace positions more conservative than what is required by the sanctions. As such, your goal is effectively to make everyone happy. Also, among other things, there are recordkeeping requirements for transactions involving Iran – make sure not to forget those.

The bottom line is that laws and regulations constantly evolve, and the issue of remittances brings forth two issues – not just law but also logistics – even if the law does not change, bank risk preferences can change and de facto “best practices” can and have evolved. Again, in other words, you have to keep everybody happy – not just the government but also your bank. Iran was (at least until late February when Russia invaded Ukraine) the largest sanctions program maintained by the US in its history. Accordingly transactions involving Iran should be seen for what they are – dealings in a country under comprehensive sanctions and in an adversarial relationship with the United States. Accordingly, even transactions that may seem innocuous should be afforded diligence and care to follow the law – Iran is not Japan or Switzerland, and certainly not under the eyes of US law.

The Biden Administration today swiftly implemented broad-reaching sanctions on what it referred to as the “so-called” Donetsk and Luhansk People’s Republics (the DNR and LNR) within Ukraine, hours after Russia recognized these two pro-Russian regions of the country. Specifically, a new Executive Order imposes a near total embargo on these regions akin to what the Obama Administration did with the Crimea following Russia’s invasion in 2014.

The new Executive Order prohibits broad swaths of the two territories and allows for blocking of large groups of people connected with the region.

Following this move, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued 6 new “General Licenses,” or “GLs”authorizing activities such as the sale of agricultural commodities to the two regions as well as continued provisions of internet connectivity and mail services by U.S. persons. General licenses are self-executing, meaning permission for the authorized activities does not require specific licenses from OFAC so long as all activity falls within the rubric of the GL. Nonetheless, those entities operating under the authority of these GLs should exercise caution and vigilance to ensure compliance.

We all watched the events of these past weeks in Afghanistan take place in rapid succession. Then Sunday, the Taliban overran the roughly 20-year old, U.S.-supported government last headed by Ashraf Ghani, forcing him into exile. While U.S. contractors have largely left the country, it is still noteworthy that Afghanistan is now ruled by an OFAC-designated group. This makes virtually all interactions with the new leaders in Kabul prohibited (well, dealings with the Taliban have been prohibited for quite a long time, but now they run the country).

Specifically, the Taliban is designated by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) under the Global Terrorism Sanctions Regulations, 31 CFR Part 594 (the “GTSR”). This means that they are on OFAC’s list of Specially Designated Nationals and Blocked Persons (the “SDN List”, sometimes called the OFAC “blacklist”).

Dealings with such parties by U.S. persons (i.e., U.S. citizens and permanent residents wherever they reside, and U.S. companies or companies owned by them) are almost entirely prohibited, with very limited exception. This covers the importation and exportation of goods and services (which can include matters like receiving permits to operate on the ground in Afghanistan, etc.), and other issues. This means that a lot of dealings with Afghanistan’s government that did not require OFAC licensing effectively now do. Naturally, it can have tremendous effects on media, non-governmental organizations working in Afghanistan, and other charitable providers, as well as on even non-U.S. parties such as banks, money remitters, etc.

Given the freshness of these events, OFAC might not have had the chance to issue new regulations, guidance, and or clarifications on this issue, but don’t be surprised if it does in the coming days (Reuters reported today that the UK has indicated new sanctions). Also note that a number of other entities in Afghanistan are SDGTs.

This isn’t the first time a country is headed by a U.S. sanctioned-party – Iran’s new president Ebrahim Raissi is himself an SDN, and many members of Iran’s regime are SDNs. Similarly Bashar Assad of Syria and some in his government are also sanctioned by OFAC.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced a settlement yesterday with a U.S.-based company Alfa Laval Inc. (“Alfa Laval U.S.”) and a Dubai-based affiliate company Alfa Laval Middle East Ltd. (“Alfa Laval Middle East”) today over potential civil charges for conspiracy to ship goods to the U.S. goods to Iran and facilitating a transaction to ship U.S. goods to Iran, respectively.

Alfa Laval U.S., based in Richmond, is a subsidiary of Alfa Laval AB, a Swedish-based company that exports storage tank cleaning units worldwide.  The U.S. operation has a subsidiary company in Exton, Pennsylvania called Al Laval Tank, Inc. (“Alfa Laval Tank”), which was the subject of this action. In 2015, Alfa-Laval Tank received an email from Alborz Pakhsh Parnia Company, an Iranian party requesting a shipment of cleaning products to Iran.  A representative of Alfa Laval Tank provided pricing and other information, and then forwarded the communication to an affiliate operation in Denmark, which then referred the matter to Alfa Laval Middle East, the UAE-based sister company.  Those of you who know your sanctions laws may immediately think this is a prohibited facilitation under the Iranian Transactions and Sanctions Regulations, 31 CFR Part 560 (the “ITSR”), as it is, even if it is a bit more tenuous than a text-book facilitation case.  However, there’s more. 

As Alfa Laval Middle East and the Iranian customer devised a plan by which AL Middle East would ship U.S. goods to the Iranian customer, it copied the U.S.-based Alfa Laval Tank on the emails. Working with Alfa Laval AB’s Iran operations, Alfa Laval Middle East and the Iranian customer formed a conspiracy to commit sanctions violations, drawing in part on a memo provided by Alborz on how to route the transactions to make them appear to be shipments destined for Dubai end use. They did not include Alfa Laval Tank on any emails that stated they planned to commit sanctions violations. They did, however include Alfa Laval Tank on an email with a subject line “Gamajet for [Iranian customer’s name],” with Gamajet as the name of the cleaning product to be shipped. As a result, Alfa Laval could have been penalized for not only facilitating a transaction that would have been prohibited if performed by a U.S. person under the ITSR but for basically indirectly exporting to Iran as it failed to heed or largely ignored several warning signs that its goods were at risk of diversion to Iran.

OFAC deemed the Alfa Laval U.S.’s failure on behalf of its subsidiary a non-egregious violation of the ITSR, resulting in a $18,750 penalty from OFAC. The ultimately settled amount of $16,875 with OFAC reflects various aggravating and mitigating factors listed here. The Dubai company that settled with OFAC, Alfa Laval Middle East, is a subsidiary of Alfa Laval AB and faced a penalty for conspiracy and completion of sanctions violations under the ITSR. After Alfa Laval Middle East received an email from AL Tank referring an Iranian customer that wanted a shipment from Alfa Laval Tank, the Dubai-based operation fabricated a conspiracy by which Alfa Laval Tank would unwittingly ship U.S. goods to Iran.  The plan, concocted with the Iranian customer, entailed listing a Dubai distributor with whom Alfa Laval Middle East did business as the end-user for the shipment from Alfa Laval Tank on its export forms. It did not tell Alfa Laval Tank that it had falsified the end-user on export forms.  When Alfa Laval Tank shipped items to the “Dubai-based company,” Alfa Laval Middle East arranged for the items to, in fact, go to the customer in Iran. It ultimately enabled the shipment of $18,585 of U.S. goods to Iran and Alborz sought products to the tune of $181,453 in totality. For this conspiracy and commission of sanctions violations, Alfa Laval Middle East faced a penalty of $615,844 from OFAC. Its large settlement amount of $415,695 is the result of not just aggravating factors, but also significant mitigating factors.

Interestingly, this case ensued from a U.S. Department of Commerce Bureau of Industry & Security (BIS) Post-Shipment Verification of Alfa Laval Tank’s shipment to Dubai, with the verification concluding that the items had been reshipped from Dubai to Iran. The size of the penalty against the Dubai company is significant as it, like cases before it, drives home the substantial liability non-U.S. companies are exposed to for U.S. sanctions violations, and the magnitude of the penalties that could arise from a fairly modest shipment value – less than $18,600 here.

In an interesting OFAC Enforcement Release issued this week, the agency announced that an individual formerly working for the U.S. Army was fined for engaging in transactions with a foreign person designated as a Specially Designated National (SDN).

Specifically, a U.S. Army official stationed at the U.S. Embassy in Colombia was penalized for engaging in at least 24 transactions with a narcotrafficker designated by OFAC. The U.S. person stationed in Bogota had evidently befriended an individual that has been designated by OFAC, and had over time “bought jewelry, meals, clothing, hotel rooms, and other gifts” for the individual over the course of a relationship. Ultimately the penalty was reduced from a maximum of over $33 million down to $5,000. While the penalty amount is not anything drastic and certainly far below the massive penalties we often see in OFAC enforcement cases against companies, this case is very interesting on a number of fronts – including the fact that:

(1) such releases seem to rarely be issued against natural persons;

(2) there was no identifying information of any of the parties (compared to corporate enforcement releases where the names of companies are generally provided); but also

(3) because of the nature of the transactions at issue – these were not commercial transactions per se but rather appear to have been the hallmarks of a personal relationship – gifts, meals, hotel stays. It begs the question – are personal relationships and generally friendships subject to sanctions?

For those who are familiar with sanctions laws, the answer is pretty clear. When parties are designated by OFAC, depending on the program under which they are sanctioned, most transactions with them by U.S. persons become prohibited for the U.S. person. Given the bar on dealings in the transfer of property to/from such parties, there is no line drawn for individual relationships. In other words, just like a U.S. person generally cannot export goods to a sanctioned company, it would naturally follow that they cannot give a gift to a sanctioned individual, or say, receive money or a small loan from that person. Again, the limitations vary based on the program under which the party is sanctioned, but these kind of limitations are not uncommon, regardless of the country the party is in.

There are a few key takeaways here, but it appears the biggest is the fact that sanctions laws like so-called “blocking programs,” whereby individuals and organizations are subject to blocking by U.S. persons (think of narcotraffickers, kingpins, certain terrorist entities, persons designated for corruption or human rights violations, etc.) are not just limited to corporate entities and are generally comprehensive enough to have an impact on personal relationships.

Further, the case very importantly highlights that compliance is critical for individuals too. This can translate into many different contexts – individual transactions in sanctioned countries like Iran or Cuba for example, or personal dealings (e.g., gift giving) with parties on the SDN list that may not fit many people’s definition of “commercial.” While all interaction with such a party might not be prohibited, they can still be under strict limitations, and the law often does not distinguish between “arms-length” commercial transactions or activities (like gift giving) that may transpire in the course of a personal relationship. As such, individuals should be alert to these risks and work to prevent them accordingly.

On July 1, the U.S. Departments of State, the Treasury, Commerce, and Homeland Security issued a detailed advisory. This is in response to the various types of regulatory exposure companies could face when dealing with suppliers and vendors in China’s northwestern Xinjiang region, given substantial allegations of forced labor and other human rights abuses.

The focus of the Advisory is on what the government identifies as the three key risk factors:

1. Assistance in the transfer of surveillance technology to the Chinese government.
2. Relying on labor sourced to the Xinjiang region, which may be among other things, forced.
3. Aid in the construction of internment facilities for various minorities, such as the Uyghurs and other Muslim minority groups, including the Kazakhs.

The issues cited by the July 1 Advisory have various potential applications under U.S. trade law, including sanctions and export controls. A number of Chinese companies and government entities have in recent months been added to the Department of Commerce’s Bureau of Industry & Security (BIS) Entity List.  

According to the Advisory, broad swaths of sectors are affected by the issue of forced labor, from mobile phones to cleaning supplies, food processing, and textiles, among many others.  

The advisory also touches on a number of other compliance-based issues for a broad range of businesses, including financial institutions.

What’s the takeaway?

The obvious lesson here is that the Xinjiang region has certain risks for U.S. companies, both legally and reputationally. However, there are two other issues here:

1. Region-specific risks. In some ways Xinjiang highlight risks in the Advisory are like geographic compliance risks in other regions, for example in the Middle East (regarding Syria, Iran, Russia) or Latin America (Cuba and Venezuela).
   
2. The drive towards more sophisticated risk-based, detailed compliance programs. Over the years it has been made increasingly clear that compliance programs are not “check the box” exercises and government enforcement agencies are giving these programs increasing scrutiny in order to assess their efficacy. Laws change, and so do risks. Accordingly, it makes sense to incorporate measures to protect against evolving risks like those detailed in the Advisory. These changes will help prevent dynamic risks like those related to sourcing and dealing in Xinjiang. Add to this the increasing number of risk advisories issued by agencies like OFAC, and it becomes clearer that periodic evaluation and assessment is critical.

Companies doing business in Xinjiang or with vendors from the region should take note and dig deeper beyond the advisory, understanding the particular risks of their respective sectors, and with their specific counterparties.

The U.S. Department of Commerce’s Bureau of Industry & Security (BIS) yesterday granted an extension of the existing Temporary General License (TGL) for China’s Huawei Technologies Co. and 115 other affiliates around the world from those parties’ current placement on the BIS Entity List.

A previous TGL (modifying the respective Entity List entries) was issued on May 20, 2019 for the original 69 entities placed on the list, and a subsequent extension incorporating the additional 46 entities was issued on August 21, 2019 (effective August 19).

The extension of the TGL provides these entities with some significant reprieve, however it does not remove their entries from the Entity List. As this reprieve is not permanent and is subject to repeal, and as it does not cause a removal from the Entity List for that period of time, there are still lingering effects that likely cause hesitation for many companies considering business with Huawei, including those whose products and technologies are not of U.S. origin or otherwise subject to the U.S. Export Administration Regulations (EAR).

The timely nature of these TGLs reflects in some part the urgency given the widespread use of Huawei’s technologies and products. Other companies named to the Entity List may experience a tougher challenge in demonstrating the need for such relief, and the presumption is likely that the named party is actively seeking permanent removal from the list, not just a series of short-term lifelines. This requires a good-faith effort to take all steps required to seek a proper delisting of the company.