September 6, 2017: OFAC adds 6 to South Sudan sanctions

Last Wednesday, the Office of Foreign Assets Control (OFAC) added the following 3 persons: 

AWAN, Paul Malong (a.k.a. ANEI, Paul Malong Awan; a.k.a. MALONG, Bol; a.k.a. MALONG, Paul; a.k.a. MALONG, Paul Awan), Warawar, Aweil County, Northern Bahr el-Ghazal, South Sudan; Juba, South Sudan; Kampala, Uganda; Addis Ababa, Ethiopia; P.O. Box 73699, Nairobi 00200, Kenya; DOB 02 Jan 1962; alt. DOB 04 Dec 1960; alt. DOB 12 Apr 1960; alt. DOB 30 Jan 1960; POB Malualkon, Sudan; alt. POB Malualkon, South Sudan; alt. POB Warawar, Sudan; alt. POB Warawar, South Sudan; nationality South Sudan; alt. nationality Uganda; Gender Male; Passport S00004370 (South Sudan); alt. Passport D00001369 (South Sudan); alt. Passport 003606 (Sudan); alt. Passport 00606 (Sudan); alt. Passport B002606 (Sudan); Former Sudan People’s Liberation Army Chief of General Staff (individual) [SOUTH SUDAN]. 
 
LUETH, Michael Makuei (a.k.a. LUETH, Michael Makwei; a.k.a. MAKUEI, Michael; a.k.a. MAKUEI, Michael Makuei Lueth), Juba, South Sudan; DOB 1947; POB Bor, South Sudan; alt. POB Bor, Sudan; nationality South Sudan; alt. nationality Sudan; alt. nationality Kenya; Gender Male; Minister of Information and Broadcasting; Minister of Information, Broadcasting, Telecommunication and Postal Services; Government Spokesperson (individual) [SOUTH SUDAN]. 
 
RIAK RENGU, Malek Reuben (a.k.a. REUBEN, Malek; a.k.a. RUBEN, Malek), Juba, South Sudan; DOB 01 Jan 1960; POB Yei, South Sudan; nationality South Sudan; Gender Male; Passport S00001537 (South Sudan); alt. Passport B0810167 (Sudan); Personal ID Card M6000000000817 (South Sudan); Deputy Chief of Defense Force and Inspector General of the Sudan People’s Liberation Army; First Lieutenant General (individual) [SOUTH SUDAN].

and 3 entities: 

A+ ENGINEERING, ELECTRONICS & MEDIA PRINTING CO. LTD., Tongping, Juba, Central Equatorial State, South Sudan; Tax ID No. 1100214326 (South Sudan); Commercial Registry Number 11045 (South Sudan) [SOUTH SUDAN]. 
 
ALL ENERGY INVESTMENTS LTD, Juba, South Sudan [SOUTH SUDAN]. 
 
MAK INTERNATIONAL SERVICES CO LTD (a.k.a. MAK INTERNATIONAL SERVICE CO LTD; a.k.a. “MAK INTERNATIONAL”), Juba, South Sudan [SOUTH SUDAN].

to its South Sudan sanctions program.

Treasury issued the following press release:

 Treasury Targets South Sudanese Government Officials and Related Companies for Continued Destabilization


9/6/2017


OFAC Designates Three Individuals and Three Related Companies for Destabilizing Activities, and FinCEN Issues Advisory Alerting Financial Institutions to Potential South Sudanese Corruption
 
Washington – Today, the U.S. Department of the Treasury took multiple actions in response to the continued deterioration of the humanitarian situation in South Sudan and the role of officials of the South Sudanese Government in undermining the peace, security, and stability of the country.  The Office of Foreign Assets Control (OFAC) designated two South Sudanese government officials and one former official for their roles in destabilizing South Sudan and three companies that are owned or controlled by one of the officials.  Additionally, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions concerning the potential movement of assets belonging to South Sudanese politically exposed persons.
 
“These actions send a clear message to those enriching themselves at the expense of the South Sudanese people that we will not let them exploit the U.S. financial system to move and hide the proceeds of their corruption and malign behavior,” said Sigal Mandelker, Under Secretary for Terrorism and Financial Intelligence.  “Treasury will forcefully respond to the atrocities ongoing in South Sudan by targeting those who abuse human rights, seek to derail the peace process, and obstruct reconciliation in South Sudan.” 
 
OFAC SANCTIONS 
 
OFAC sanctioned Malek Reuben Riak Rengu, Michael Makuei Lueth, and Paul Malong Awan, in addition to three companies owned or controlled by Malek Reuben Riak Rengu, pursuant to Executive Order (E.O.) 13664, which authorizes sanctions against persons who threaten the peace, security, or stability of South Sudan.  As a result of today’s actions, all of these individuals’ and entities’ assets within U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them. 
 
In addition, entry into the United States by individuals designated under E.O. 13664 is suspended pursuant to that Executive order. 
 
FINCEN ADVISORY
 
FinCEN issued an Advisory alerting U.S. financial institutions to their potential exposure to anti-money laundering risks caused by certain South Sudanese senior political figures attempting to use the U.S. financial system to move or hide proceeds of public corruption.  FinCEN’s Advisory describes South Sudanese corruption and reminds financial institutions of their due diligence and suspicious activity report (SAR) filing obligations related to senior foreign political figures.
 
OFAC SANCTIONED INDIVIDUALS AND ENTITIES 
 
Malek Reuben Riak Rengu, Deputy Chief of Defense Force and Inspector General of the Sudan People’s Liberation Army (SPLA)
 
Malek Reuben Riak Rengu (Malek Reuben) has been designated for being responsible for or complicit in, or having engaged in: (1) actions or policies that threaten the peace, security, and stability of South Sudan; and (2) actions or policies that have the purpose or effect of expanding or extending the conflict in South Sudan or obstructing reconciliation or peace talks or processes. 
 
Between 2013 and 2016, Malek Reuben held the position of Deputy Chief of Staff for Logistics of the South Sudanese military, known as the SPLA.  This position played a central role in weapons procurement for the first several years of the conflict.  Malek Reuben was reportedly one of a group of senior security officials responsible for planning the April 2015 offensive in Unity State, which reportedly included widespread destruction, targeting of civilians, large population displacement, and numerous human rights abuses.  UN experts determined that ammunition supplied by the SPLA to youth groups was critical in sustaining the offensive.  Malek Reuben allegedly supported a hardline position in a mid-2015 meeting of the National Liberation Council, which met and decided to reject a draft peace proposal. 
 
In 2013, Riak apparently facilitated the procurement of $38 million worth of arms and equipment including 100 anti-tank guided missile launchers, 1,200 missiles, 9,574 automatic rifles, 2,394 40mm grenade launchers, 20 million rounds of 7.62x39mm ammunition, 319 general-purpose machine guns, 2 million rounds of 7.62×54 ammunition, 660 pistols, 2 million rounds of 9x19mm ammunition, and 40,000 rounds of high explosive rocket ammunition.  Information indicates that, in early 2015, Malek Reuben attended a meeting during which officials of the South Sudan Ministry of Defense met with representatives of an arms firm offering to supply the SPLA with heavy military equipment.  At the time, the SPLA sought tanks, artillery pieces, armored personnel carriers, and heavy machine guns.  Information further indicates that, in early 2016, Malek Reuben traveled with a delegation to a nearby country where he appealed to the government to sell South Sudan ammunition and secure spare parts for its attack helicopters.  Allegedly, in late 2016, Malek Reuben planned to travel overseas to acquire additional weapons for the SPLA.  Malek Reuben also reportedly provided ammunition and weapons to tribal militias.
 
Additionally, Malek Reuben reportedly used his position as Deputy Chief of General Staff for Logistics to issue contracts with inflated prices in order to receive extensive kickbacks.  In 2015, it was suspected Malek Reuben was fabricating procurement contracts for food provision to SPLA troops.  Malek Reuben also reportedly controls a private company, Mak International Services Co Ltd, that sells explosives to private companies in South Sudan in an arrangement promoted on an exclusive basis by the SPLA, and received payments and cash deposits of hundreds of thousands of U.S. dollars by foreign-backed companies. 
 
OFAC also designatedAll Energy Investments Ltd, A+ Engineering, Electronics & Media Printing Co. Ltd, andMakInternational Services Co Ltd – all based in South Sudan – for being owned or controlled by Malek Reuben. 
 
Michael Makuei Lueth, South Sudanese Minister of Information and Broadcasting
 
Michael Makuei Lueth (Makuei) has been designated for being responsible for or complicit in, or having engaged in: (1) attacks against United Nations (UN) missions; (2) obstruction of the activities of international peacekeeping, diplomatic, or humanitarian missions in South Sudan, or of the delivery or distribution of, or access to, humanitarian assistance; and (3) actions or policies that have the purpose or effect of expanding or extending the conflict in South Sudan or obstructing reconciliation or peace talks or processes.  
 
In March 2014, Makuei supported and advocated for South Sudanese Government inspections of all vehicles belonging to the UN and the UN Mission in South Sudan (UNMISS), reportedly obstructing the delivery of humanitarian goods in South Sudan. Information indicates that he was also involved in planning and coordinating an April 17, 2014 attack on the UN compound in the Jonglei State capital of Bor, which killed three UN guards and 140 civilians, mostly women and children, and injured as many as 270. Makuei worked to obstruct and undermine the execution and implementation of the August 2015 Agreement on the Resolution of the Conflict in the Republic of South Sudan (ARCSS).  
 
In addition, in February 2016, Makuei reportedly declared that territory in South Sudan’s Upper Nile region was a “war zone” that was not covered by the provisions of the ARCSS.  Days later, violence broke out in the Upper Nile region and the South Sudanese military aided irregular tribal militias in storming the UNMISS Protection of Civilians site in Malakal. These forces looted property, set ablaze portions of the camp and killed civilians and humanitarian workers.
 
On April 23, 2016, Makuei ordered the closure of Juba International Airport, apparently to delay and obstruct the formation of the Transitional Government of National Unity.  Makuei claimed that the closure was due to the inadequate verification of the weapons accompanying opposition security forces, even though the South Sudanese military had already verified them.
 
Paul Malong Awan, former South Sudanese Chief of General Staff of the SPLA
 
Paul Malong (Malong) has been designated for being responsible for or complicit in, or having engaged in: (1) actions or policies that threaten the peace, security, or stability of South Sudan; (2) actions or policies that have the purpose or effect of expanding or extending the conflict in South Sudan or obstructing reconciliation or peace talks or processes; and (3) obstruction of the activities of international peacekeeping, diplomatic, or humanitarian missions in South Sudan, or of the delivery or distribution of, or access to, humanitarian assistance.
 
Malong’s alleged order for his troops to disarm and later attack Nuer soldiers was one of the incidents that is believed to have led to the start of the civil war in South Sudan.  Malong’s actions in December 2013 reportedly led to the indiscriminate killing of many innocent civilians, with the Presidential Guard force killing civilians in and near Juba. 
 
Shortly after the signing of the August 2015 peace agreement, Malong apparently approved an air assault by the SPLA on rebel positions in Upper Nile State.  Malong planned to undermine the peace deal by sending militarized river barges with tanks and heavy mortars to opposition positions and bait them into attacking SPLA troops.  
 
In early 2016, information indicates that Malong ordered SPLA units to prevent the transport of humanitarian supplies across the Nile River, where tens of thousands of civilians were facing hunger, claiming that food aid would be diverted from civilians to militia groups.  As a result of Malong’s orders, food supplies were blocked from crossing the Nile for at least two weeks.
 
As of late May 2016, it is believed that Malong ordered the SPLA to deny freedom of movement to an international peacekeeping and monitoring team in areas with reported fighting.  Malong also is believed to have denied the team’s access to areas where the SPLA planned to conduct offensives out of a fear that the SPLA would be labeled as violating the peace agreement.
 
It has been reported that Malong – knowingly countermanding orders from President Salva Kiir – ordered the July 10, 2016 tank, helicopter gunship, and infantry assaults on then-First Vice President Machar’s residence and the opposition’s “Jebel” base in Juba.  Malong was reportedly responsible for attempted efforts to kill Machar, and continued to press his commanders to capture or kill Machar.  Malong dispatched SPLA helicopter gunships and troops to attack opposition forces.  In July 2016, Malong apparently was planning military operations against Machar and the forces that remained loyal to him, and personally oversaw efforts from SPLA headquarters to intercept Machar.  
 
In April 2017, Malong allegedly ordered the SPLA to clear all people from the area around Wau to include civilians, and continued to try to clear opposition forces from Wau and other areas around Wau.  Malong reportedly did not discourage the killing of civilians by the SPLA troops, and persons suspected of hiding rebels were considered legitimate targets. 
 
Additionally, Malong is believed to have been involved in acts of corruption.  After his dismissal and flight from Juba, Malong was stopped outside of Juba in early May 2017 and reportedly found with currency worth millions of U.S. dollars in his possession that he had allegedly stolen from the SPLA treasury.  In 2014, under Malong, the Ministry of Defense procured loans of billions of dollars from South Sudanese oil companies in order to acquire military equipment.  However, as of later that year, no actual military purchases using these funds had been made.  Malong reportedly has several properties outside of South Sudan, and several of Malong’s children have owned stakes in companies that appear to operate in a wide range of business sectors, including a petroleum company.

The State Department issued its own press release – much shorter and with much less detail.

And, finally, FinCEN re-issued the Treasury press release and the following AML-focused advisory:

Certain South Sudanese senior political figures may seek to abuse the financial system.

The Financial Crimes Enforcement Network (FinCEN) is issuing this Advisory to alert U.S. financial institutions about the possibility that certain South Sudanese senior political figures may try to use the U.S. financial system to move or hide proceeds of public corruption.  This advisory reminds financial institutions of their due diligence and suspicious activity report (SAR) filing obligations related to such senior foreign political figures.[1]  It also highlights persons who have been subject to sanctions because of their actions threatening the peace, security, or stability of South Sudan.  High-level political corruption can damage a nation’s economic growth and stability as it can interfere with the international community’s efforts to support and promote economic development, discourage foreign private investment, and foster a climate where financial crime and other forms of lawlessness can thrive.

This advisory should be shared with:

  • Chief Executive Officers
  • Chief Operations Officers
  • Chief Risk Officers
  • Chief Compliance Officers
  • Legal departments

Situation in South Sudan

The U.S. Department of State has been publicly documenting the unfolding situation in South Sudan.[2]  As noted, in 2011, after a bloody and protracted conflict, the Republic of South Sudan gained formal independence from the Republic of Sudan.  In 2013, a new political conflict began within the ruling party of the nascent South Sudanese nation, growing into a broader conflict.  An estimated 1.9 million South Sudanese have fled to neighboring countries, with another two million displaced internally, including more than 200,000 civilians who have sought refuge in UN-protected camps within South Sudan.  The warring parties have failed to adhere to an agreed ceasefire, leaving the civilian population suffering through widespread violence and atrocities, human rights abuses, recruitment and use of child soldiers, attacks on peacekeepers, and obstruction of humanitarian operations.  The ongoing conflict also has resulted in widespread food insecurity.

South Sudanese Political Corruption

During this time of internal conflict and devastation, certain South Sudanese senior political officials, representing both the government and the opposition, have engaged in and profited from corrupt practices.[3]  According to the U.S. Department of State, various forms of endemic corruption in South Sudan have increased since the beginning of the South Sudanese Civil War in December 2013.  For example:

  • Abuse of position and use of shell companies:  Government officials have regularly abused their positions to enrich themselves illegally under the guise of conducting government business.  South Sudanese government corruption is often conducted through the use of shell companies belonging to the relatives of government officials. 
  • Abuse of government contracting, particularly involving natural resources:  Government officials misappropriate public funds outside the parliament-approved budget to supplement limited government salaries and to enrich themselves.  Corrupt officials steer government contracts to businesses—particularly in the natural resource (oil and gas) sector—in which they, their family members, or close associates have some level of beneficial ownership and control. 
  • Use of international financial system and real estate:  The funds accumulated through the proceeds of South Sudanese corruption are moved to accounts outside of South Sudan.  Once the funds are held in accounts in other countries, they are used to purchase real estate (among other things) in third countries.
  • Abuse of military procurement:  South Sudan’s military spending is the highest in the region.  Public reporting indicates that senior military officials in South Sudan have also engaged in corrupt practices similar to their political counterparts to enrich themselves, their families and associates.  Corruption has been particularly egregious in the procurement of military matériel and services, which account for nearly half of South Sudan’s annual budget. 
  • Abuse of military payrolls:  Corruption in the military payroll system also is rampant: generals appear to routinely siphon off civilian budgets for their personal benefit or of their organizations, as well as to procure arms and supplies that have directly threatened the peace, stability, and security of South Sudan.  Military commanders have even reportedly stolen soldiers’ salaries.  Another example is the proliferation of “ghost soldiers”—fictitious soldiers who only exist on payroll documents—has been identified by academics and journalists as one of the primary means by which funds are diverted to senior military officials.

Designated South Sudanese Persons

To further assist U.S. financial institutions’ efforts to protect the U.S. financial system from laundering the proceeds of corruption, FinCEN is providing information on South Sudan sanctions designations by the United States and the United Nations.  Including the September 6, 2017 designations, the United States has now sanctioned nine South Sudanese persons and three companies.[4]  The United Nations has sanctioned six of those same persons.  As warranted, the United States may issue further designations related to South Sudan.

OFAC Designated Individuals and Entities

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has designated certain persons in South Sudan pursuant to Executive Order (E.O.) 13664 (“Blocking Property of Certain Persons with Respect to South Sudan,” issued on April 3, 2014, placing them on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List).[5] 

The OFAC sanctions broadly prohibit U.S. persons, including U.S. financial institutions, from engaging in transactions involving designated individuals and entities, including but not limited to the making or receipt of any contribution or provision of funds, goods, or services by, to, for, or from such persons without a general or specific OFAC license or applicable exemption.  For each designated person, all property and interests in property that are in the United States, that come within the United States, or that are or come within the possession or control of any U.S. person, are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in.

United Nations Sanctioned Individuals

United Nations Security Council Resolution (UNSCR) 2206, adopted on March 3, 2015, established a global regime of targeted sanctions on individuals and entities to support the search for an inclusive and sustainable peace in South Sudan.  The Security Council has renewed UN sanctions with respect to South Sudan annually, most recently in UNSCR 2353 (May 24, 2017).  The UN sanctions are managed by a sanctions committee (Security Council Committee on South Sudan, or “Committee”).[6]  The UN sanctions place a travel ban and an asset freeze on individuals and entities designated by the Committee as responsible for or complicit in, or having engaged in, directly or indirectly, actions or policies that threaten the peace, security, or stability of South Sudan.[7]  Member states of the United Nations are required to administer and enforce domestic sanctions in compliance with UN sanctions regimes.

On July 1, 2015, the Committee designated individuals pursuant to UNSCR 2206, all of whom are also designated by OFAC.[8]

AML Guidance and Regulatory Obligations for U.S. Financial Institutions regarding 

Senior Foreign Political Figures and Suspicious Activity Reporting

The OFAC and UN designations increase the likelihood that other, non-designated South Sudanese senior political figures and opposition leaders may seek to protect their assets, including those that are likely to be associated with political corruption, to avoid potential future blocking actions. 

Consistent with existing regulatory obligations, financial institutions should take reasonable, risk-based steps to identify and limit any exposure they may have to funds and other assets associated with South Sudanese corruption.  Such reasonable steps should not, however, put into question a financial institution’s ability to maintain or continue appropriate relationships with customers or other financial institutions, and should not be used as the basis to engage in wholesale or indiscriminate de-risking of any class of customers or financial institutions.  FinCEN also reminds financial institutions of previous interagency guidance on providing services to foreign embassies, consulates, and missions.[9]

Due diligence obligations

FinCEN is providing the information in this advisory to assist U.S. financial institutions in meeting their due diligence obligations that may apply to activity involving certain South Sudanese persons.  To best meet these obligations, financial institutions should generally be aware of public reports of high-level corruption associated with certain senior foreign political figures, family members, associates, or associated legal entities or arrangements.  Financial institutions should assess the risk for laundering of the proceeds of public corruption associated with specific particular customers and transactions. 

Enhanced due diligence obligations for private bank accounts

Under section 312 of the USA PATRIOT Act (31 U.S.C. § 5318(i)), U.S. financial institutions have regulatory obligations to apply enhanced scrutiny to private banking accounts held by, or on behalf of, senior foreign political figures and to monitor transactions that could potentially represent misappropriated or diverted state assets, the proceeds of bribery or other illegal payments, or other public corruption proceeds.[10]

These implementing regulations require a written due diligence program for private banking accounts held for non-U.S. persons designed to detect and report any known or suspected money laundering or other suspicious activity.[11]  In instances where senior foreign political figures maintain private banking accounts at a covered institution, those financial institutions are required to apply enhanced scrutiny of such accounts to detect and report transactions that may involve the proceeds of foreign corruption.[12]

General obligations for correspondent account due diligence and anti-money laundering programs

U.S. financial institutions also are reminded to comply with their general due diligence obligations under 31 CFR § 1010.610(a), in addition to their general AML Program obligations under 31 U.S.C. § 5318(h) and its implementing regulations.[13]  As required under 31 CFR § 1010.610(a), covered financial institutions should ensure that their due diligence programs, which address correspondent accounts maintained for foreign financial institutions, include appropriate, specific, risk-based, and, where necessary, enhanced policies, procedures, and controls that are reasonably designed to detect and report known or suspected money laundering activity conducted through or involving any correspondent account established, maintained, administered, or managed in the United States.

Suspicious Activity Reporting

A financial institution may be required to file a SAR if it knows, suspects, or has reason to suspect a transaction conducted or attempted by, at, or through the financial institution involves funds derived from illegal activity, or attempts to disguise funds derived from illegal activity; is designed to evade regulations promulgated under the Bank Secrecy Act (BSA); lacks a business or apparent lawful purpose; or involves the use of the financial institution to facilitate criminal activity.[14] 

Additional SAR reporting guidance on Senior Foreign Political Figures

In April 2008, FinCEN issued Guidance to assist financial institutions with reporting suspicious activity regarding proceeds of foreign corruption.[15]  A related FinCEN SAR Activity Review, which focused on foreign political corruption, also discusses indicators of transactions that may be related to proceeds of foreign corruption.[16]  Financial institutions may find this Guidance and the SAR Activity Review useful in assisting with suspicious activity monitoring and due diligence requirements related to senior foreign political figures.

SAR filing instructions

When filing a SAR, financial institutions should provide all pertinent available information in the SAR form and narrative.  FinCEN further requests that financial institutions select SAR field 35(l) (Suspected Public/Private Corruption (Foreign)) and reference this advisory by including the key term:

“SOUTH SUDAN”

in the SAR narrative and in SAR field 35(z) (Other Suspicious Activity-Other) to indicate a connection between the suspicious activity being reported and the persons and activities highlighted in this advisory. 

SAR reporting, in conjunction with effective implementation of due diligence requirements and OFAC obligations by financial institutions, has been crucial to identifying money laundering and other financial crimes associated with foreign and domestic political corruption.  SAR reporting is consistently beneficial and critical to FinCEN and U.S. law enforcement analytical and investigative efforts, OFAC designation efforts, and the overall security and stability of the U.S. financial system.[17] 

For Further Information

Additional questions or comments regarding the contents of this advisory should be addressed to the FinCEN Resource Center at FRC@fincen.gov .  Financial institutions wanting to report suspicious transactions that may potentially relate to terrorist activity should call the Financial Institutions Toll-Free Hotline at (866) 556-3974 (7 days a week, 24 hours a day).  The purpose of the hotline is to expedite the delivery of this information to law enforcement.  Financial institutions should immediately report any imminent threat to local-area law enforcement officials.

Links:

OFAC Notice

Treasury Press Release

State Department Press Release

FinCEN Advisory

FinCEN Press Release

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