6. Enforcement and Conducting or Supporting Investigations into Sanctions Violations Flashcards

Question

What is the DOJ's Voluntary (self) disclosures for business entities?

Answer 1

Violation of: ITAR ~ VSD goes to the Department of State - DDTC EAR ~ VSD goes to the Department of Commerce - BIS U.S. sanctions regulations ~ VSD goes to OFAC If violation may have been willful ~ DOJ and ALSO to NSD’s CES (Counterintelligence and Export Control Section). When a company identifies potentially willful conduct, but chooses to self-report only to a regulatory agency and not to DOJ, the company will not qualify for the benefits of a VSD under this Policy in any subsequent DOJ investigation.

Answer 2

Money moves primarily through the banking system. Most large international banks have implemented sophisticated systems for reviewing information about customers and transactions to identify and stop transactions that may be subject to sanctions. To avoid these controls, individuals, companies, and countries seeking to evade sanctions have developed a range of techniques.

Answer 3

~ ‘Stripping’ ~ Resubmission of Rejected Transactions ~ Use of Cover Payments ~ Use of Suspense Accounts ~ Special Purpose and Front Companies ~ Layering ~ Use of Third Party Financial Institutions ~ Use of Non-Bank Financial Institutions ~ Virtual Currencies ~ Bulk Cash

Answer 4

Stripping the deliberate act of deleting or changing information from payment messages or instructions. Red flags: § Obviously missing relevant information. § Use of placeholders, such as “customer”, instead of name. § Use of the bank’s own name in the customer field. § Statements such as “do not mention Iran connection”.

Answer 5

§ If a bank rejects a transaction, another evasion technique is to resubmit the transaction, but after changing information in the message. § This is done by deleting the information that would tie the payment to a sanctioned party or country, or, again, but substituting new names for old. § To counteract this, most banks use software that will identify resubmitted payments because the amounts or most of the parties are the same. Red flags: § The payment amount is identical to a rejected payment, but the names of the parties are different. § A series of payments involving the same parties total the same amount as in a rejected payment.

Answer 6

For international transfers in particular, a transaction may include a “cover” payment. Example: Dutch bank sending funds in U.S. dollars to Mexican bank routes the transaction through a correspondent bank in the U.S. The Dutch bank sends a “cover” payment, directing the U.S. Bank to transfer funds from its account to the Mexican bank’s correspondent bank in the U.S. Red flags: include: § Use of an MT202 message when an MT202 COV would normally be used. § Receipt of an MT202 message from a high risk customer. § Different payment instructions for U.S. dollar-denominated transactions.

Answer 7

§ Banks use suspense accounts to record transactions temporarily, until the final treatment of the transaction (i.e., its allocation to customer or other accounts) can be decided. § If a bank is trying to disguise a sanctioned element, it may route sanctioned transactions through a suspense account, as such transactions do not normally pass through the bank’s filters. Red flags: * The customer associated with the transaction is not identified. * Another financial institution is listed as the originator of the transaction.

Answer 8

§ A Special Purpose Entity (SPE), or ‘shell company’, is one that has no assets or business. § A front company may have an actual business, but the transaction does not fit in with the company’s normal lines of business § Sanctions evaders may also use investment funds or other types of vehicles to disguise their role in a transaction. Red flags: * Involvement in a transaction of a company that has no other visible business or purpose. * Parties that share an address with a number of other companies. * A company’s normal business does not fit in with the transaction. * There is a pattern of large but infrequent transactions, indicating the involvement of an SPE.

Answer 9

§ Common means of laundering money, may also be used to evade sanctions. § Involves using a number of different payments, possibly involving a number of different payors and payees, to perform a single transaction. § The aim is to make the transaction so complicated that the screening process does not identify a sanctioned element. Red flags: § Complicated transactions where there is no evident need for all the different steps. § The involvement of banks and other parties without an obvious business purpose. § The transaction involves shell companies.

Answer 10

§ In a variant of layering, sanctions evaders may use third-party financial institutions to route the transaction. § If a bank is trying to evade sanctions, this technique may take the form of sending a payment through a correspondent bank in a country, even if the bank has a branch in that country. Red flags: * Participation in the transaction of a financial institution with no apparent function. * The unexpected involvement of a correspondent bank, such as when the originating bank has a branch in the same country. * A sudden change in banking relationships, possibly connected with a sanctions event.

Answer 11

§ Individuals and even businesses may use non-bank financial institutions, such as exchange houses, money service providers, and hawalas, to evade sanctions. § Non-bank FIs often have sanctions compliance systems that are less robust than those of banks. § They may not conduct full customer due diligence § They may not screen transactions against sanctions lists or for the involvement of a sanctioned country. Red flags: § The non-bank FI is of a type, such as exchange houses. § The transaction is very large. § A transaction passes through multiple exchange houses. § The transaction is of a type that would normally pass through the regular banking system. § There are a series of transactions through a non-bank FI that seem to form a pattern.

Answer 12

§ Virtual currencies, such as Bitcoin, are a new phenomenon. § Virtual currency (or cryptocurrency) is anonymous and, therefore, very useful for sanctions evaders. § Other features of virtual currencies, include: § Their global nature § Distributed structure § Limited transparency § Transactionspeed § Lack of normal screening (as they do not pass through the banking system). See: U.S. Treasury’s Financial Crimes Enforcement Network (FinCen) FIN-2019-A003 Advisory on Illicit Activity Involving Convertible Virtual Currency of May 2019. Red flags: § The transaction one that would normally be performed using the normal banking system. § A ‘darknet’ is involved. § An unregistered peer-to-peer exchange is involved. § The transaction passes through an unregistered foreign MSB § The transaction is initiated from a non- trusted IP address. § Virtual currency issued by a country subject to sanctions, such as the Venezuelan ‘petro’.

Answer 13

§ Cash is largely untraceable. § In most jurisdictions, cash transactions over a certain limit must be reported, but are not necessarily illegal. § Various techniques can be used to accumulate and deposit cash in a manner that does not trigger the reporting requirements and, therefore, is a feasible way to move relatively large amounts of money without detection. Red flags: § The use of cash in a transaction that would typically be performed using electronic funds transfers. § Any use of large amounts of cash.

Answer 14

~ Precious Metals ~ Unusual Merchandise ~ Falsified or Vague Trade Documents ~ Shipments to Ports Close to Sanctioned Countries ~ AIS Record ~ Physically Altering a Vessel’s Identification ~ Ship-to-Ship Transfers

Answer 15

In many countries, it is acceptable to use gold or, to a lesser extent, silver, to move funds. Do not run through the Financial Industry and are not visible in or in between the monitoring systems. Red flags: § The transaction is one that would typically be conducted through wire transfers. § The source of the metals is not evident. § The transaction is conducted in a place geographically close to a sanctioned country (such as in Turkey).

Answer 16

§ In general, companies have fairly well-defined lines of business. § The purchase of goods by a trading company or other buyer that are outside its normal line of business may indicate that the buyer is being used by a sanctions evader to procure goods on its behalf. Red flags: A trading company or other purchaser inquires about or purchases goods or services outside of its normal line of business.

Answer 17

§ One way for evaders to use the system is simply to falsify documents. § A common technique is to mislabel the certificate of origin of goods, claiming that they come from a country not subject to sanctions. § This may go so far as actually attaching labels to goods, showing a false country of origin. Red flags: § Terms within the trade finance documents are inconsistent. § Description or destination of the merchandise is very vague (“electronics” or ”Russia”). § Origin of the goods is from a country other than what would normally be expected. § Transaction includes transshipment with no obvious purpose. § The transaction is inconsistent with one of the parties’ normal business.

Answer 18

§ Shipment of goods, especially goods subject to extensive sanctions, to ports near a sanctioned country may be a strong indication that sanctions evasion is occurring. § The goods will actually be shipped to the port in question, but then transshipped to the sanctioned destination. Example: Dandong, China, which has been identified as a major transshipment point for goods being sent to North Korea in violation of UN and other sanctions. Red flags: § The port or airport is very close to a country subject to extensive sanctions. § The port is not one to which the buyer would be likely to have the goods shipped.

Answer 19

§ All ships carry an Automatic Information System (AIS) transponder that automatically and continually reports their position. § While gaps in a vessel’s AIS record may be the result of meteorological or other factors, they may also indicate that the transponder was deliberately turned off. This in turn could conceal the ship’s location, such as if it called on a port in North Korea. Red flags: Unexplained gaps in a vessel’s AIS record

Answer 20

§ Maritime vessels are required to display their name and International Maritime Organization (IMO) number in a visible location. § The IMO number is a unique seven-digit number. § Sanctions evaders may obscure the IMO number, or even change it illegally, to disguise the connection of the vessel to a country subject to sanctions, such as North Korea. Red flags: § Visible evidence that the name and/or IMO number have been painted over or altered. § The IMO or vessel name do not match the IMO records’ description of the vessel.

Answer 21

§ Ships normally transfer cargoes at ports, where all the equipment necessary is available. Such transfers will be recorded in the port records. § Sanctions evaders may use transfers between two ships at sea to avoid scrutiny. Red flags: A vessel has cargo that is not included in a manifest or bill of lading Example: North Korea – high risk geographical locations The OFAC Advisory, Updated Guidance on Addressing North Korea’s Illicit Shipping Practices (21 March 2019), included the below regional map where ship-to-ship transfers of refined petroleum commonly occur – sea names added for ease of reference.

Answer 22

An example is North Korea. International sanctions imposed on North Korea, largely isolate it from the global economy. Not surprisingly, North Korea has proven very inventive in finding ways to circumvent sanctions. The UN has identified the following techniques North Korea uses to evade sanctions: ~ Sale/export of natural resources, often to companies located near the North Korean border, such as China. ~ Indirect payment for natural resources. ~ Import and smuggling of goods through front or shell companies.

6. Enforcement and Conducting or Supporting Investigations into Sanctions Violations Flashcards

Session 6 (46 cards)