OFAC Updates

Of a Chinese network supplying opioids to the US, FinCEN issued an advisory yesterday entitled “Advisory to Financial Institutions on Illicit Financial Schemes and Methods Related to the Trafficking of Fentanyl and Other Synthetic Opioids.” Here’s the first section (it’s a lengthy one – 18 pages):

Transnational criminal organizations (TCOs), foreign fentanyl suppliers, and Internet purchasers located in the United States engage in the trafficking of fentanyl, fentanyl analogues, and other synthetic opioids and the subsequent laundering of the proceeds from such illegal sales.

Introduction

The Financial Crimes Enforcement Network (FinCEN) is issuing this advisory1 to alert financial institutions to illicit financial schemes and mechanisms related to the trafficking of fentanyl, fentanyl analogues, and other synthetic opioids,2 and to assist them in detecting and reporting related activity.

The United States is in the midst of an unparalleled epidemic of addiction and death, fueled by the illicit trafficking, sale, distribution, and misuse of fentanyl and other synthetic opioids. The statistics are sobering; between 2013 and 2017, deaths in the United States from synthetic opioids, other than methadone, increased over 800 percent.3 Every day in the United States, more than

130 people die from an opioid-related overdose.4 These numbers alone cannot fully capture the devastation wrought by this epidemic, the consequences of which are far reaching and everlasting, from grieving parents and orphaned children, to the enormous economic and public policy costs,5 and the destruction of current and future generations.

The epidemic is tearing away at the social and economic fabric of our communities, while TCOs, international drug traffickers, money launderers, and other criminal actors profit off the misery

of victims. Criminal networks and others generate billions of dollars in illicit drug proceeds, and

use the U.S. financial system and economy to advance their criminal enterprises and continue this epidemic to generate more criminal profits, resulting in more deaths and addictions. FinCEN

and other U.S. government agencies are collaboratively working with foreign partners, including Mexico, to end the fentanyl epidemic. This advisory will assist financial institutions in detecting

and reporting suspicious activity, making it harder and more costly for criminals to (i) commit these crimes; (ii) hide and use their illicit money; and (iii) continue fueling this epidemic. By using the information in this advisory and safeguarding our financial system, financial institutions will help save lives, protect innocent families, and ensure the safety and future of our communities. Indeed, this is the real value and utility behind information generated, maintained, and reported under the Bank Secrecy Act by financial institutions. This advisory highlights the primary typologies and red flags derived from sensitive financial reporting which are associated with (i) the sale of these drugs by Chinese, Mexican, or other foreign suppliers; (ii) methods used by Mexican and other TCOs to launder the proceeds of fentanyl trafficking; and (iii) financial methodologies associated with the sale and procurement of fentanyl over the Internet by purchasers located in the United States.6 Fentanyl is sold in the United States in many forms, all of which can be deadly. Fentanyl can be purchased alone; mixed with heroin, cocaine, or methamphetamine; or pressed into pill form and falsely sold as prescription opioids, many times being ingested by unsuspecting victims.

Link:

FinCEN Advisory

In the last hour, OFAC designated the following persons:

YAN, Xiaobing (Chinese Traditional: 顏曉兵; Chinese Simplified: 颜晓兵) (a.k.a. “YAN, Steven”; a.k.a. “ZHOU, William”), Wuhan, Hubei, China (Chinese Simplified: 武汉市, 湖北省, China; Chinese Traditional: 武漢市, 湖北省, China); DOB 25 Mar 1977; POB Wuhan City, Hubei, China; citizen China; Gender Male; Digital Currency Address – XBT 12QtD5BFwRsdNsAZY76UVE1xyCGNTojH9h; alt. Digital Currency Address – XBT 1Kuf2Rd8mDyAViwBozGTNYnvWL8uYFrkVo; alt. Digital Currency Address – XBT 13f59kUM5FU8MfTG7DCEugYarDhSD7XCoC; alt. Digital Currency Address – XBT 1P3ZfGFLezzYGg9k5SVzQmnjyh7nrUmF2y; alt. Digital Currency Address – XBT 1EpMiZkQVekM5ij12nMiEwttFPcDK9XhX6; alt. Digital Currency Address – XBT 1JREJdZupiFhE7ZzQPtASuMCvvpXC7wRsC; Chinese Commercial Code 7346 2556 0365; Citizen’s Card Number 421002197703250019 (China) (individual) [SDNTK]. 

 

ZHENG, Fujing (Chinese Simplified: 郑福景; Chinese Traditional: 鄭福景) (a.k.a. “DENG, Gao”; a.k.a. “JIN, Gordon”; a.k.a. “ZHENG, Gordon”); DOB 11 Jun 1983; POB China; nationality China; citizen China; Email Address goldenchemical@live.com; alt. Email Address gordonzheng@qinvictory.com; alt. Email Address magicchemical@hotmail.com; alt. Email Address sales@globalrc.net; alt. Email Address 3507656950@qq.com; alt. Email Address zhengfujing@live.cn; Gender Male; Digital Currency Address – XBT 17ezuJoT3XBbdcwFZbkTnrXbup11F4uhiy; alt. Digital Currency Address – XBT 1DH2xDH7TngrDU6LXciprKCBKNcPA1xX8A; Passport G31920875 (China) issued 24 Oct 2008 expires 23 Oct 2018; Identification Number 310107198306111336 (China); Chinese Commercial Code 6774 4395 2529 (individual) [SDNTK]. 

 

ZHENG, Guanghua (Chinese Traditional: 鄭广華; Chinese Simplified: 郑广华); DOB 04 Nov 1955; POB Shanghai, China; nationality China; citizen China; Email Address zhenguanghua1955@outlook.com; alt. Email Address zhenguanghua1955@gmail.com; Gender Male; Digital Currency Address – XBT 33Kja69SQVc8kozpoP7Qw6HFtGxHkiWzTz; alt. Digital Currency Address – XBT 3MkUNScqf21EcfWq6T4x2MFgBeSTqhB5t6; alt. Digital Currency Address – XBT 18uKfaUjgG52rVeXEi3wxnveww7zZuECtE; Digital Currency Address – LTC LaizKtS5DUhPuP1nTQcc83MS7HwK6vk85z; Passport E51809923 (China) issued 25 May 2015 expires 24 May 2025; Identification Number 310108195511041616 (China); Chinese Commercial Code 6774 1639 5478 (individual) [SDNTK].

and entities:

QINSHENG PHARMACEUTICAL TECHNOLOGY CO., LTD. (a.k.a. SHANGHAI QINSHENG PHARMACEUTICAL SCIENCE & TECHNOLOGY CO., LTD.; a.k.a. SHANGHAI QINSHENG PHARMACEUTICAL SCIENCE AND TECHNOLOGY CO., LTD.; a.k.a. SHANGHAI QINSHENG PHARMACEUTICAL TECHNOLOGY CO., LTD.), Room 614, Floor 3, No. 1, Alley 468, New Siping Highway, Shanghai 201413, China; Room 614, Floor 3, Block 1, Lane 468, Xinsiping Highway, Fengxian District, Shanghai, China; Website http://www.qinvictory.com [SDNTK]. 

 

ZHENG DRUG TRAFFICKING ORGANIZATION, Shanghai, China; Website http://www.globalrc.net; alt. Website http://www.goldenrc.com; alt. Website http://www.toplabrc.com; Email Address MagicChemical@hotmail.com; alt. Email Address goldenchemical@live.com; alt. Email Address 3507656950@qq.com; alt. Email Address sales@globalrc.net [SDNTK].

under its counter narcotics trafficking sanctions program.

And here is Treasury’s press release:

PRESS RELEASES

Treasury Targets Chinese Drug Kingpins Fueling America’s Deadly Opioid Crisis

FinCEN Advisory Alerts Financial Sector to Fentanyl Trafficking schemes

Washington – Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and Treasury’s Financial Crimes Enforcement Network (FinCEN) announced coordinated actions to bring additional financial pressure upon those who manufacture, sell, or distribute synthetic opioids or their precursor chemicals.

OFAC identified Chinese national Fujing Zheng (Zheng) and the Zheng Drug Trafficking Organization (DTO) as significant foreign narcotics traffickers pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act).  OFAC also designated one additional Chinese national, Guanghua Zheng, for his support to the Zheng DTO’s drug trafficking activities, as well as one Chinese entity, Qinsheng Pharmaceutical Co. Ltd., for being owned or controlled by Fujing Zheng.  OFAC is also identifying Xiaobing Yan (Yan) as a significant foreign narcotics trafficker pursuant to the Kingpin Act. 

“The Chinese kingpins that OFAC designated today run an international drug trafficking operation that manufactures and sells lethal narcotics, directly contributing to the crisis of opioid addiction, overdoses, and death in the United States.  Zheng and Yan have shipped hundreds of packages of synthetic opioids to the U.S., targeting customers through online advertising and sales, and using commercial mail carriers to smuggle their drugs into the United States,” said Sigal Mandelker, Under Secretary for Terrorism and Financial Intelligence.  “OFAC and FinCEN’s coordinated action with U.S. law enforcement leverages Treasury’s authorities to confront the deadly synthetic opioid crisis plaguing America.”

Also today, FinCEN issued an advisory to alert financial institutions to financial schemes related to the trafficking of fentanyl and other synthetic opioids.  Information in the advisory will assist them in detecting and reporting related criminal activity.

“The Bank Secrecy Act data that FinCEN collects, analyzes, and disseminates provides tremendous insight into the illicit financial networks and individuals fueling America’s deadly opioid crisis,” said FinCEN Director Kenneth A. Blanco.  “We are making the financial sector aware of tactics and typologies behind illicit schemes to launder the proceeds of these fatal drug sales, including transactions using digital currency and foreign bank accounts. Financial institutions must be on alert to red flags and other indicators of the complex schemes fentanyl traffickers are employing so that financial institutions can report and share relevant information with law enforcement, and ultimately help save lives.”

OFAC Action Targets Massive Narcotics Trafficking Network

In August 2018, the U.S. Attorney’s Office for the Northern District of Ohio unsealed a 43-count indictment in federal court in Cleveland, Ohio, charging Fujing Zheng and his father Guanghua Zheng with operating a conspiracy that manufactured and shipped deadly fentanyl analogues, cathinones, and cannabinoids to at least 37 U.S. states and 25 countries.

Directed by Fujing Zheng, the Zheng DTO manufactures and distributes hundreds of controlled substances, including fentanyl analogues such as carfentanil, acetyl fentanyl, and furanyl fentanyl.  Zheng created and maintained numerous websites to advertise and sell illegal drugs in more than 35 languages.  The Zheng DTO touted its ability to create custom-ordered drugs and avoid detection from customs and law enforcement officials when shipping the drugs through express mail and the U.S. Postal Service.  The Zheng DTO also used its chemical expertise to create analogues of drugs with slightly different chemical structures but the same or even more potent effect.  The Zheng DTO even agreed to manufacture adulterated cancer medication, creating counterfeit pills that replaced the active cancer-fighting ingredient with dangerous synthetic drugs.  The Zheng DTO laundered its drug proceeds in part by using digital currency such as bitcoin, transmitted drug proceeds into and out of bank accounts in China and Hong Kong, and bypassed currency restrictions and reporting requirements.

In September 2017, the U.S. Attorney’s Office for the Southern District of Mississippi indicted Xiaobing Yan on two counts of conspiracy to manufacture and distribute multiple controlled substances, including fentanyl, and seven counts of manufacturing and distributing the drugs in specific instances.  Yan and his network manufacture and distribute synthetic opioids, cathinones, and cannabinoids, selling directly to U.S. customers in multiple cities across the United States.  Yan has tried to evade prosecution by modifying the chemical structure of his synthetic analogues based on his monitoring of legislation and law enforcement activities in the United States and China.  Both Zheng and Yan are known to use digital currency (bitcoin), and OFAC is also identifying bitcoin addresses associated with these two drug traffickers to maximize disruption of their financial dealings.

OFAC closely coordinated today’s action with the U.S. Attorney’s Office for the Northern District of Ohio, the U.S. Attorney’s Office for the Southern District of Mississippi, the Department of Justice’s Criminal Division, the Drug Enforcement Administration’s (DEA) Cleveland and Gulfport offices, and DEA’s Special Operations Division.

As a result of today’s action, all property and interests in property of these individuals and entities that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.  OFAC’s regulations generally prohibit all dealings by U.S. persons or within (or transiting) the United States that involve any property or interests in property of blocked or designated persons. 

Since June 2000, more than 2,200 individuals and entities have been named pursuant to the Kingpin Act for their role in international narcotics trafficking.  Penalties for violations of the Kingpin Act range from civil penalties of up to $1,503,470 per violation to more severe criminal penalties.  Criminal penalties for corporate officers may include up to 30 years in prison and fines up to $5 million.  Criminal fines for corporations may reach $10 million.  Other individuals could face up to 10 years in prison and fines pursuant to Title 18 of the United States Code for criminal violations of the Kingpin Act.
 
FinCEN Advisory Highlights Typologies of Fentanyl Traffickers

Fentanyl is sold in the United States in many forms, all of which can be deadly.  Fentanyl can be purchased alone; mixed with heroin, cocaine, or methamphetamine; or pressed into pill form and falsely sold as prescription opioids, often being ingested by unsuspecting victims.  

FinCEN’s advisory highlights the primary typologies and red flags derived from sensitive financial reporting which are associated with the (i) sale of these drugs by Chinese, Mexican, and other foreign suppliers; (ii) methods used by Mexican and other transnational criminal organizations (TCOs) to launder the proceeds of fentanyl trafficking; and (iii) financial methodologies associated with the sale and procurement of fentanyl over the Internet by purchasers located in the United States.

The FinCEN advisory is being published as a part of a coordinated set of advisories issued by the U.S. Government to address the manufacturing, marketing, movement, and monetary aspects of the trafficking of illicit fentanyl and synthetic opioids.  Specifically, the 21st Century Drug Trafficking: Advisories on Fentanyl and Other Synthetic Opioidscontains a manufacturing advisory, focusing on the production of illicit fentanyl, which is aimed primarily at companies and businesses that manufacture precursor chemicals, synthetic pharmaceuticals and their support infrastructure.

A marketing advisory further focuses on the use of websites, including social media and darkweb platforms, to market synthetic fentanyl products for sale.  The advisory lists red flags, such as web hosting platforms known to host large volumes of this activity and street names commonly used for fentanyl, and gives instructions for reporting any suspected fentanyl marketing activity to law enforcement.

Finally, the movement advisory is directed towards supply chain companies that explains how fentanyl products enter the United States and move domestically to their end users.  The most common distribution medium is via the U.S. Postal Service. 

These advisories, combined with the FinCEN advisory, which also serves as the monetary advisory on the financial aspects of the illicit trafficking of fentanyl and synthetic opioids, provide information relevant for financial institutions to gain a more comprehensive understanding of the fentanyl crisis and take action to protect the homeland from this deadly threat.  The comprehensive 21st Century Drug Trafficking: Advisories on Fentanyl and Other Synthetic Opioids can be viewed here.

When filing a suspicious activity report (SAR), financial institutions should provide all pertinent available information in the SAR form and narrative and reference this advisory using the following key term: “FENTANYL FIN-2019-A006”

And there was a chart of today’s design

Links:

OFAC Notice

Treasury Press Release

Kingpin Designations Chart

Yesterday, OFAC added the following people:

CASTRO CORDERO, Natanael, Dominican Republic; DOB 08 Nov 1982; POB Santo Domingo, Dominican Republic; nationality Dominican Republic; Gender Male; Cedula No. 001-1481029-4 (Dominican Republic) (individual) [SDNTK]. 

 

DEL ROSARIO PUENTE, Ramon Antonio (a.k.a. “TONO LENA” (Latin: “TOÑO LEÑA”)), Dominican Republic; DOB 13 Sep 1968; POB Guaymate, Dominican Republic; nationality Dominican Republic; Gender Male; Cedula No. 026-0027057-9 (Dominican Republic) (individual) [SDNTK] (Linked To: CESAR PERALTA DRUG TRAFFICKING ORGANIZATION). 

 

FERNANDEZ CONCEPCION, Carlos Ariel, Dominican Republic; DOB 14 Jan 1973; POB Santo Domingo, Dominican Republic; nationality Dominican Republic; Gender Male; Cedula No. 001-1217345-5 (Dominican Republic) (individual) [SDNTK]. 

 

FERNANDEZ FLAQUER, Kelvin Enrique (a.k.a. “COTTO”), Dominican Republic; DOB 06 Dec 1977; POB Higuey, Dominican Republic; nationality Dominican Republic; Gender Male; Cedula No. 026-0088747-1 (Dominican Republic) (individual) [SDNTK] (Linked To: CESAR PERALTA DRUG TRAFFICKING ORGANIZATION). 

 

JAQUEZ ARAUJO, Yadher Rafael (a.k.a. “JAKE MATE”; a.k.a. “JAQUE MATE”), Dominican Republic; DOB 15 Oct 1985; POB Santo Domingo, Dominican Republic; nationality Dominican Republic; Gender Male; Cedula No. 001-1733889-7(Dominican Republic) (individual) [SDNTK]. 

 

PERALTA, Cesar Emilio (a.k.a. “EL ABUSADOR”), Dominican Republic; DOB 30 Jan 1975; POB Distrito Nacional, Dominican Republic; nationality Dominican Republic; Gender Male; Cedula No. 001-0972783-4 (Dominican Republic) (individual) [SDNTK] (Linked To: INKUORTYN FIVE SRL; Linked To: SUPLINKA SRL; Linked To: FLOW GALLERY LOUNGE SRL; Linked To: UNLIMITED DANCE DISCOTECA SRL). 

 

SANCHEZ NOLASCO, Boarnerges (a.k.a. “WARNEL”), Dominican Republic; DOB 02 Jul 1976; POB Hato Mayor, Dominican Republic; nationality Dominican Republic; Gender Male; Cedula No. 001-1595659-1 (Dominican Republic) (individual) [SDNTK] (Linked To: CESAR PERALTA DRUG TRAFFICKING ORGANIZATION). 

 

URENA MARTINEZ, Jhonan Alexander (Latin: UREÑA MARTINEZ, Jhonan Alexander), Dominican Republic; DOB 14 May 1987; POB Santo Domingo, Dominican Republic; nationality Dominican Republic; Gender Male; Cedula No. 001-1871175-3 (Dominican Republic) (individual) [SDNTK] (Linked To: CESAR PERALTA DRUG TRAFFICKING ORGANIZATION; Linked To: BARBARO RECORDS SRL). 

 

VALDEZ GARCIA, Bernardo Antonio (a.k.a. “PAPI CRIS”), Dominican Republic; DOB 31 Jan 1975; POB San Cristobal, Dominican Republic; nationality Dominican Republic; Gender Male; Cedula No. 001-1856559-7 (Dominican Republic) (individual) [SDNTK] (Linked To: CESAR PERALTA DRUG TRAFFICKING ORGANIZATION; Linked To: SOLUGA SOLUCIONES GASTRONOMICAS SRL).

and entities:

BARBARO RECORDS SRL (a.k.a. BARBARO RECORDS), Calle 34, Local No. 10, Los Cachorros, Cristo Rey, Santo Domingo, Distrito Nacional, Dominican Republic; Tax ID No. 131-48344-5 (Dominican Republic) [SDNTK]. 

 

CESAR PERALTA DRUG TRAFFICKING ORGANIZATION (a.k.a. “PERALTA DTO”), Dominican Republic [SDNTK]. 

 

FLOW GALLERY LOUNGE SRL (a.k.a. FLOW GALLERY LOUNGE), Calle Juan de Morfa 87, Villa Consuelo, Santo Domingo, Dominican Republic; Tax ID No. 131-42317-5 (Dominican Republic) [SDNTK]. 

 

INKUORTYN FIVE SRL (a.k.a. LA KUORA TERRAZA; a.k.a. LA TERRAZA DE LA KUORA; a.k.a. “LA KUORA”), Calle La Guardia No. 25, Villa Consuelo, Santo Domingo, Dominican Republic; Tax ID No. 131-45973-2 (Dominican Republic) [SDNTK]. 

 

SOLUGA SOLUCIONES GASTRONOMICAS SRL (a.k.a. “AL PANINO”), Av. Abraham Lincoln, Plaza Andalucia II, Primera Planta, Local Comercial 49-A y 50-A, Santo Domingo, Distrito Nacional, Dominican Republic; Tax ID No. 131-63920-8 (Dominican Republic) [SDNTK]. 

 

SUPLINKA SRL (a.k.a. “VIP ROOM”), Av. Abraham Lincoln Esq. Independencia, Zona Universitaria, Santo Domingo, Dominican Republic; Tax ID No. 131-40246-1 (Dominican Republic) [SDNTK]. 

 

UNLIMITED DANCE DISCOTECA SRL (a.k.a. “AQUA CLUB”), Av. Ortega y Gasset No. 95, Cristo Rey, Santo Domingo, Dominican Republic; Av. Ortega y Gasset 91 Esq. Felix Evaristo Mejia, Santo Domingo, Dominican Republic; Tax ID No. 131-28035-8 (Dominican Republic) [SDNTK].

to its counter narcotics trafficking sanctions program.

And Treasury had something to say about all this:

PRESS RELEASES

Treasury Designates Dominican Republic-Based Peralta Drug Trafficking Organization Under the Kingpin Act

Action targets network of nightclubs and front persons used for money laundering and human trafficking

WASHINGTON – Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) identified Dominican national Cesar Emilio Peralta and the Peralta Drug Trafficking Organization (Peralta DTO) as significant foreign narcotics traffickers pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act).  OFAC designated eight additional Dominican nationals for providing material support to, or acting for or on behalf of, Cesar Emilio Peralta and the Peralta DTO.  OFAC also designated six entities in Santo Domingo, Dominican Republic, including a number of nightclubs owned or controlled by Cesar Emilio Peralta. 

“Cesar Emilio Peralta and his criminal organization have used violence and corruption in the Dominican Republic to traffic tons of cocaine and opioids into the United States and Europe.  Treasury is targeting these Dominican drug kingpins, their front persons, and the nightclubs they have used to launder money and traffic women,” said Sigal Mandelker, Under Secretary for Terrorism and Financial Intelligence.  “This Administration continues to systematically target strategically important drug kingpins and cartels fueling our country’s opioid epidemic.”

Cesar Emilio Peralta (Peralta) is a Dominican drug kingpin with a lengthy criminal record for his involvement in narcotics trafficking and violence.  From their base of operations in Santo Domingo, Peralta and the Peralta DTO coordinate the transshipment of ton-quantities of cocaine and significant quantities of opioids through the Dominican Republic and onward to consumer markets in the United States, Puerto Rico, and Europe.  Dominican nationals Ramon Antonio del Rosario Puente (a.k.a. “Toño Leña) and Kelvin Enrique Fernandez Flaquer (a.k.a. “Cotto”), both major Dominican drug traffickers in their own right, were also designated today for their support to Peralta and the Peralta DTO.  Del Rosario Puente was arrested in May 2018 by Colombian authorities and is currently awaiting extradition to the United States on charges of narcotics trafficking conspiracy.

Peralta and the Peralta DTO also coordinate the shipment of the bulk currency proceeds of these narcotics trafficking activities from the United States, as well as the subsequent laundering of these proceeds in the Dominican Republic.  A primary avenue for the laundering of these proceeds is a series of nightclubs in Santo Domingo, all owned or controlled by Peralta through front persons.  These nightclubs, which are among the entities designated today, include VIP Room, Flow Gallery Lounge, Aqua Club, and La Kuora.  Peralta reportedly employs women trafficked from Colombia and Venezuela at these nightclubs.  The OFAC action also targets Yader Rafael Jaquez Araujo (a music promoter who uses the name “Jake Mate”) and Carlos Ariel Fernandez Concepcion, a former Dominican military officer, who play a role in managing and promoting the nightclubs owned by Peralta.

OFAC closely coordinated with the Drug Enforcement Administration and the Federal Bureau of Investigation in order to execute today’s action pursuant to the Kingpin Act.  The U.S. Department of the Treasury is committed to countering criminal networks that engage in human trafficking and is a member of the President’s Interagency Task Force to Monitor and Combat Trafficking in Persons (PITF).

As a result of today’s action, all assets in which these persons have an interest in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC.  OFAC’s regulations generally prohibit all dealings by U.S. persons or within (or transiting) the United States that involve any property or interests in property of blocked persons.

Since June 2000, more than 2,100 entities and individuals have been named pursuant to the Kingpin Act for their role in international narcotics trafficking.  Penalties for violations of the Kingpin Act range from civil penalties of up to $1,466,485 per violation to more severe criminal penalties.  Criminal penalties for corporate officers may include up to 30 years in prison and fines of up to $5 million.  Criminal fines for corporations may reach $10 million.  Other individuals could face up to 10 years in prison and fines pursuant to Title 18 of the United States Code for criminal violations of the Kingpin Act.

Links:

OFAC Notice

Treasury Department Press Release

This one’s pretty cut and dried… a $343,315 fine for accepting the business of collecting the $5,730,680.33 debt from a company on the SDN List, and for actually successfully collecting $4,043,174.25 of it. The company did not voluntarily self-report, but the two violations were considered a non-egregious case. The resulting settlement was reduced from the $590,282 base penalty.

Here is what OFAC considered in its investigation:

The following were considered aggravating factors:

  • ATCI did not undertake any meaningful analysis or otherwise seek confirmation from OFAC that assignment of the SDN’s debt and acceptance of payment from the Soho Mall Trust was permissible under existing authorizations; and
  • ATCI is a subsidiary of a sophisticated global trade credit insurance and collections conglomerate.

The following were considered mitigating factors:

  • ATCI has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the Apparent Violations; and
  • ATCI voluntarily conducted a full internal review of the underlying facts and circumstances, provided documents from its internal review to OFAC in the course of the investigation, and took voluntary remedial action to address the cause of the Apparent Violations. ATCI also agreed to undertake certain compliance commitments to ensure that its OFAC sanctions compliance program remains strong over the next several years.

and the lesson we should learn:

This enforcement action draws particular attention to transactions related to the assignment of an SDN’s debt and highlights the importance of obtaining a specific license before engaging in activity that is not otherwise authorized.

One curious thing is that ATCI didn’t get credit for the fact that the debt collection may have been licensable: the SDN was in liquidation when ATCI took on the assignment. I know that OFAC has mentioned “could have been licensed” in other cases.

Also interesting is OFAC’s focus on some of these smaller cases. It used to be that the focus was on larger and more egregious patterns of behavior. When you really get down to it, this was a single transaction they got whacked for – maybe because they were a sub of a large firm, they got penalized just to make a point?

Link:

Enforcement Information

2019 OFAC Symposium Save the Date and Registration Open

OFAC invites you to join us for our 2019 Fall Symposium to take place at the Walter E. Washington Convention Center in Washington, DC on Tuesday, November 12, 2019. Please visit the following link for additional information and to register for this event

Please note that online registration does not automatically confirm your attendance.  A separate email will be sent containing your registration status. Please do not make any travel arrangements until you have received a second email confirming your status. The event is closed to press.

Link:

OFAC Notice

These were both issued on August 8th, and were both Finding of Violations for not adhering to the Reporting, Procedures and Penalties Regulations (RPPR).

Here’s the DNI facts:

On May 29, 2015, OFAC issued an Administrative Subpoena to DNI to investigate its involvement in the facilitation of the shipment, supply, and sale of farm equipment to Sudan in apparent violation of the Sudanese Sanctions Regulations, 31 C.F.R. §§ 538.205, 538.206 (SSR).1 OFAC issued a Cautionary Letter to DNI for the underlying apparent violations of the SSR, but determined that DNI’s conduct in response to OFAC’s investigation warranted an administrative response.

On June 12, 2015, through its outside counsel, DNI responded to the administrative subpoena (“administrative subpoena response”). After reviewing DNI’s administrative subpoena response, OFAC determined that several of DNI’s responses to the administrative subpoena were contradictory, false, materially inaccurate, incomplete, and contained misleading statements.

On July 12, 2016, OFAC sent DNI’s outside counsel an e-mail (“administrative subpoena follow-up e-mail”), which, in part, requested clarification on DNI’s version of events and supporting documents that DNI had provided to OFAC in response to the administrative subpoena and also sought clarification from DNI about whether it understood its obligations under § 501.602 of the RPPR and § 538.205 of the SSR.

On July 21, 2016, DNI, through its outside counsel, responded to the administrative subpoena follow-up email. OFAC found DNI’s responses to the administrative subpoena follow-up email to be contradictory, false, materially inaccurate, incomplete, and misleading. DNI’s response also stated that it understood its obligations under § 501.602 of the RPPR and § 538.205 of the SSR. Additionally, DNI’s response to the administrative subpoena follow-up email introduced new information that was responsive to the original administrative subpoena, but was not included in the response to the original administrative subpoena.

And why OFAC decided on a Finding of Violation:

OFAC considered the following to be aggravating factors:

  1. DNI, through counsel, demonstrated reckless disregard for its U.S. sanctions requirements by failing to provide accurate and complete information in response to an OFAC Administrative Subpoena;
  2. DNI, and its owner, facilitated both the shipment and attempted shipment of goods to Sudan and provided financing for such shipments. Accordingly, DNI had actual knowledge that its responses to OFAC’s Administrative Subpoena concerning the facilitation of the shipment and attempted shipment of goods to Sudan and related financing were false, materially inaccurate, materially incomplete, and misleading;
  3. After supplying OFAC with responses that were false, materially inaccurate, materially incomplete, and misleading, OFAC gave DNI the opportunity to correct or clarify its original responses. However, DNI failed to appropriately amend its responses and instead confirmed its original responses; and
  4. By providing false, materially inaccurate, materially incomplete, and misleading statements, DNI did not fully cooperate with OFAC’s investigation.

OFAC found the following to be mitigating factors:

  1. DNI appears to be a small business;
  2. DNI has no prior OFAC sanctions history; and
  3. DNI’s narrative responses appear to have been filtered through DNI’s outside attorney.

And the lesson to be learned:

This enforcement action highlights the compliance obligations of persons subject to the RPPR, and the importance for all subject persons to furnish information to OFAC during the course of an investigation in a manner consistent with such obligations. Companies and individuals alike should be diligent in their review of information and documentation that may be responsive to an administrative subpoena issued by OFAC. A person’s response to an administrative subpoena must be accurate, complete, timely, and in accordance with sanctions regulations and definitions. As exhibited in this matter, failure to provide complete or accurate information to OFAC in response to an administrative subpoena constitutes a violation of the RPPR.

And Southern Cross’ behavior:

On June 27, 2016, OFAC issued an Administrative Subpoena and an accompanying letter to Southern Cross in which OFAC stated it had reason to believe that Southern Cross was recently involved in the sale of several helicopters destined for Iran via an Iranian businessman based in Ecuador (the “Iranian Businessman”). The Administrative Subpoena directed Southern Cross to provide detailed information, descriptions, and documents regarding any such transactions, as well as any other dealings with Iran during the prior five (5) years. On July 5, 2016, the President of Southern Cross sent an email to OFAC in which the company denied knowing or conducting any business with the Iranian Businessman or dealing with Iran in any way. On July 8, 2016, Southern Cross provided a written response to OFAC’s Administrative Subpoena in which Southern Cross claimed that a Southern Cross sales representative located in Ecuador (the “SC Ecuador Representative”) sent technical details to an Ecuadorian group for a potential sale of helicopters to an Iranian group for operation in Ecuador and provided no documentation to OFAC other than a copy of the company’s internal Export Management Manual.

On October 6, 2016, OFAC issued a second Administrative Subpoena to Southern Cross seeking similar information and documentation and specifically requesting certain documentation relating to the potential sale. In its October 11, 2016 response to OFAC’s second Administrative Subpoena, Southern Cross submitted correspondence relating to the potential sale, including direct email exchanges between the SC Ecuador Representative and the Iranian Businessman explicitly referenced in both of OFAC’s Administrative Subpoenas. The information and documentation submitted by Southern Cross also included: (i) email exchanges between the SC Representative and the Iranian Businessman in which they discussed a letter of intent and sale of helicopters to an agent in Iran; and (ii) email exchanges between the SC Representative and the Ecuadorian group in which they discussed the sale of two helicopters to the Iranian Businessman in greater detail, as well as a letter of intent from the Iranian Businessman in which he indicated the letters were from Iran. Southern Cross failed to produce this responsive information to OFAC’s first Administrative Subpoena.

And OFAC’s reasoning:

OFAC considered the following to be aggravating factors:

  1. Southern Cross demonstrated reckless disregard for its U.S. sanctions requirements by failing to provide accurate and complete information in response to an OFAC Administrative Subpoena;
  2. Southern Cross had actual knowledge or reason to know of the conduct that led to the violation in this instance; and
  3. Southern Cross did not fully cooperate with OFAC’s investigation.

OFAC found the following to be mitigating factors:

  1. Southern Cross appears to be a small-to- medium-sized business;
  2. Southern Cross has no prior OFAC sanctions history; and
  3. the underlying potential sale in question does not appear to have occurred.

And the lesson:

This enforcement action highlights the compliance obligation of persons subject to the RPPR, and the importance for all subject persons to cooperate with OFAC investigations. Companies and individuals alike should be diligent in their review of information and documentation that may be responsive to an Administrative Subpoena issued by OFAC. A person’s response to an Administrative Subpoena must be accurate, complete, and timely. As exhibited in this matter, failure to provide complete information to OFAC in response to an Administrative Subpoena constitutes a violation of the RPPR.

Links:

Enforcement Information: DNI Express, Southern Cross

The firm, which is in the truck business, agreed to a $1,709,325 settlement for 63 apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR), which were voluntarily self-disclosed and non-egregious violations. The base penalty is therefore $2,713,214 for selling $5,426,428 worth of products. The violations occurred between October 2013 and February 2015.

Here’s the “what” of what happened:

In June and October 2014, a DAF dealer based in Hamburg, Germany, placed two orders with DAF via its wholly owned subsidiary in Germany (“DAF Germany”) for 51 trucks. Even though the final paperwork associated with these transactions identified the ultimate end-customer as an unnamed party in Russia, the Hamburg-based dealer resold the trucks to a buyer in Iran. A former employee/manager of DAF Germany had, at a minimum, reason to know that the trucks were intended for Iran rather than for Russia. The Hamburg-based dealer initially requested a price quotation from, and then placed an order with, DAF Germany for trucks with particular specifications for an Iranian company located in Iran. The then-employee/manager of DAF Germany informed the Hamburg-based dealer that DAF Germany could not sell trucks destined for Iran. That same day, the Hamburg-based dealer submitted a pricing request for a new order of trucks purportedly destined for a customer or end-user in Russia with virtually identical specifications as the earlier order intended for Iran. Although the new pricing request was submitted on the same day on which DAF Germany refused the Iran-related purchase order and the proposed purchase involved the same types of trucks, with the same specifications, and the same delivery point as those included in the Iran-related purchase order, DAF Germany — including the former employee/manager — failed to conduct an adequate inquiry and processed the order.

Separately, DAF Trucks Frankfurt, a directly owned DAF dealer, received two trucks from DAF in October 2013 that were intended for resale to a company in Germany. After the original buyer cancelled the order, DAF Trucks Frankfurt sold the two trucks to a trader based in the Netherlands, which in turn resold the trucks to two buyers in Iran. DAF’s investigation showed that an employee of DAF Trucks Frankfurt knew or had reason to know that the two trucks sold to the Netherlands-based trader were intended for resale to buyers in Iran. Among other things, the Netherlands-based trader sent drafts of its invoices, which referenced the buyers in Iran, to a DAF Trucks Frankfurt employee.

Additionally, in June 2014, DAF sold 10 trucks to an authorized DAF sales dealer located in Sofia, Bulgaria. The Bulgarian authorized dealer subsequently sold and delivered the 10 DAF trucks to an affiliated rental company, which in turn sold the 10 trucks to a buyer in Iran. The Bulgarian authorized dealer’s parent company disclosed that a used truck sales manager employed by DAF introduced that authorized dealer to the Iranian buyers of the 10 trucks and knew or should have known that the trucks were intended for Iran prior to introducing the parties. A DAF investigation found that the sales manager ignored warning signs indicating the trucks were destined for Iran and failed to take reasonable steps in response to the warnings.

And OFAC considered the following factors in determining the penalty:

OFAC considered the following to be aggravating factors:

  1. DAF personnel — specifically, employees in DAF Germany and DAF Trucks Frankfurt and a DAF used trucks sales manager — failed to exercise a minimal degree of caution or care when they ignored warning signs regarding potential sales involving OFAC-sanctioned countries and allowed goods to be sold to customers that they knew or had reason to know intended to re-sell the goods to buyers in Iran;
  2. in each case, a DAF employee had knowledge or reason to know the goods were being re-sold to buyers in Iran;
  3. DAF’s exportation of goods from Germany to Iran conferred millions of dollars in economic benefits on Iran; and
  4. PACCAR, DAF’s parent company, is a large sophisticated entity that engages extensively in international business.

OFAC considered the following to be mitigating factors:

  1. neither PACCAR nor DAF have received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the apparent violations;
  2. at the time of the apparent violations, DAF possessed and maintained a trade sanctions compliance program that included contractual prohibitions on dealers and service partners re-selling DAF products in violation of U.S. trade sanctions;
  3. upon learning of the apparent violations, DAF took remedial action by conducting an internal investigation regarding this matter; terminating employees involved in some of the apparent violations; cancelling delivery of 20 trucks that were part of an order for a customer that appeared to have allowed other DAF trucks to be resold to buyers in Iran; providing in-person compliance training to DAF subsidiaries on an annual basis from 2015 onward; and implementing enhanced trade compliance controls — including a policy preventing direct sales agreements except for sales to final end customers — in an effort to prevent similar apparent violations from recurring; and
  4. PACCAR and DAF cooperated during the course of OFAC’s investigation, including by submitting a detailed voluntary self- disclosure; thoroughly and promptly responding to OFAC’s requests for information and by entering into a tolling agreement to extend the statute of limitations.

Some details on PACCAR’s remedial efforts:

Additionally, PACCAR and DAF have confirmed to OFAC that they have terminated the apparently violative conduct and have taken the following steps to minimize the risk of recurrence of similar conduct in the future:

• DAF hired a full-time Compliance Director who reports to DAF’s General Counsel and Chief Compliance Officer, and is responsible for developing compliance policies and procedures, advising employees about compliance, monitoring internal reports of compliance concerns and ensuring appropriate follow-up, and assisting with compliance investigations and audits;

• DAF updated its EU Trade Restrictions Compliance Manual to strengthen controls on dealer sales that might violate U.S. or other applicable trade restrictions, including by requiring more thorough end-customer and transaction due diligence;

• DAF implemented a policy that only allows direct sales agreements for sales to final end- customers and imposed a contractual ban on the resale of new trucks acquired under a direct sales agreement in the absence of an approved exception;

• DAF sent a letter to all dealers in its dealer network reminding them of their obligations to comply with U.S. and other trade sanctions and received certifications from each of its dealers regarding their compliance with all applicable trade sanctions; and

• DAF has made trade sanctions compliance training an annual requirement and has conducted such trainings at DAF’s headquarters and subsidiaries since 2016.

And the lesson you should learn from this:

This enforcement actions highlights the benefits U.S. companies can realize in conducting sanctions-related training and in taking appropriate steps to audit and monitor foreign subsidiaries for OFAC compliance. U.S. parent companies can mitigate risk to sanctions exposure by proactively establishing and enforcing a robust sanctions compliance program. Foreign subsidiaries of U.S. companies are subject to the ITSR, and their U.S. parent companies may face potential exposure to civil monetary penalties for the actions of such entities.

Link:

Enforcement Information