Category: Anti-Money Laundering

Real Estate and OFAC Compliance

650 fifth avene

The tale of 650 Fifth Avenue is one that should be closely watched by compliance professionals dealing with real estate. Last year, the Department of Justice filed a forfeiture proceeding against a 40% interest in the property held by the Assa Corporation. They recently filed a forfeiture proceeding against the other 60% held by the Alavi Foundation.

The Amended Complaint alleges that the Alavi Foundation has been providing numerous services to the Iranian Government and transferring funds from 650 Fifth Avenue Company to Bank Melli, a bank wholly owned and controlled by the Government of Iran. The Amended Complaint alleges that the properties are forfeitable as the proceeds of violations of the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., together with Executive Orders and United States Department of Treasury regulations, and as property involved in and the proceeds of money laundering offenses.

Now the tenants are in the position of having been making rent payments to the Iranian government. This may not result in any criminal or civil sanctions, but the names of those tenants are being dragged through the muck. The same is true for the property management company.

References:

OFAC has Released its Economic Sanctions Enforcement Guidelines

treasury

The final Office of Foreign Assets Control. This rule sets forth the Enforcement Guidelines that OFAC will follow in determining an appropriate enforcement response to apparent violations of the U.S. economic sanctions programs that OFAC enforces.

The final rule will appear as an Appendix to the Reporting, Procedures and Penalties Regulations, 31 C.F.R. Part 501.

These are the new General Factors that OFAC will consider in determining the appropriate administrative response:

  • Willful or Reckless Violation of Law
    • Willfulness
    • Recklessness
    • Concealment
    • Pattern of Conduct
    • Prior Notice
    • Management Involvement
  • Awareness of Conduct
    • Actual Knowledge
    • Reason to Know
    • Management involvement
  • Harm to Sanctions Program Objectives
    • Economic or Other Benefit to the Sanctioned Individual, Entity, or Country
    • Implications for U.S. Policy
    • License Eligibility
    • Humanitarian activity
  • Individual Characteristics
    • Commercial Sophistication
    • Size of Operations and Financial Condition
    • Volume of Transactions
    • Sanctions History
  • Compliance Program
  • Remedial Response
  • Cooperation with OFAC
  • Timing of apparent violation in relation to imposition of sanctions
  • Other enforcement action
  • Future Compliance/Deterrence Effect
  • Other relevant factors on a case-by-case basis

The Guidelines are the final rule and replace the Guidelines previously promulgated as an interim final rule with request for comments on September 8, 2008.

References:

Money Laundering Awareness Handbook

money laundering

The Organization for Economic Cooperation and Development issued a handbook that provides guidance designed to help tax examiners and tax auditors detect and deter money laundering: The Money Laundering Awareness Handbook for Tax Examiners and Their Auditors.

The purpose of this handbook is to raise the awareness level of tax examiners and auditors on money laundering, by providing guidance in identifying money laundering during the conduct of normal tax audits.

The handbook does not detail criminal investigation methods. But it does describe the nature of money laundering activities so that tax examiners and auditors can better understand how their contribution can assist criminal investigators in battling money laundering.

The handbook is rather basic. I focused on the section with specific indicators on real estate. It offered some typical examples of how money can be concealed in several different types of real estate transactions. The handbook failed to show how the illegal activities could be identified.

I suppose general awareness of ways to launder money is a good start.

Table of Contents:

  • Money Laundering
  • Role of Tax Examiners and Auditors
  • Money Laundering Indicators for Individuals
  • Tax Return Examination and Pre-Audit Indicators
  • Audit Indicators
  • Specific Indicators on Real Estate
  • Specific Indicators on Cash
  • Specific Indicators on International Trade
  • Specific Indicators on Loans
  • Specific Indicators on Professional Service Providers

NBA and OFAC

nba

It is unusual to see a story where the National Basketball Association intersect with the U.S. Treasury’s Office of Foreign Assets Control. But that is the lot in life for the 7-foot-2 Hamed Haddadi, a back up center for the Memphis Grizzlies.

Since Mr. Haddadi is from Iran, he is apparently subject to the decades old trade embargo. As a result of Iran’s support for international terrorism and its aggressive actions against non-belligerent shipping in the Persian Gulf, President Reagan, on October 29, 1987, issued Executive Order 12613 imposing a new import embargo on Iranian-origin goods and services. Section 505 of the International Security and Development Cooperation Act of 1985 was utilized as the statutory authority for the embargo which gave rise to the Iranian Transactions Regulations, Title 31, Part 560 of the U.S. Code of Federal Regulations.

International trade is not my area of expertise, but I assume that Mr. Haddadi fell into the category of “goods or services.”

See:

OFAC: Are You In Compliance?

attus_logo

ATTUS Technologies was kind enough to host a webinar on OFAC compliance. Bradley Allen, CAMS, gave the presentation and these are my notes.

The mission of Office of Foreign Assets Control is to administer and enforce economic and trade sanctions based on U.S. foreign policy and national security goals against selected targets. It really came into the forefront as a result of the Post 9/11 policies. OFAC is not just about terrorists and terrorism countries, but also narcotics traffickers and drug kingpins.

Bradley led us through the history of OFAC

  • Secretary Gallatin – Embargo Act of 1807
  • Civil War “Trading with the Enemy Act” (TWEA)
  • WW I “Trading with the Enemy Act of 1917”
  • WW II Office of Foreign Funds Control (FFC)
    • German Invasion of Norway 1940
    • FFC Regulations – Economic Warfare
  • FFC becomes OFAC – December 1950
    • TWEA applied to North Korea & China
  • TWEA applied to Cuba – 1963
  • IEEPA – Peacetime Sanctions – 1977

The key piece is the Specially Designated Nationals list that is gathered by several government agencies with a thorough review process before getting on the list. (It also makes it hard to get off the list.)

The enforcement options can range from no action, issuing a warning letter, a revocation of an export license, civil penalties and even criminal prosecution. There is currently a $250,000 minimum penalty or 2x the value of transaction, whichever is greater. There have been very few criminal prosecutions. The new enforcement guidelines are under IEEPA Enhancement Act October 16, 2007 (P.L. 110-96, 121 Stat 1011) The penalty depends on whether the conduct was egregious and whether you voluntarily disclosed the violation.

There are various pieces of authority for the OFAC lists and enforcement:

  • Trading With the Enemy Act (TWEA), P.L. 65- 91, 40 Stat. 411 (Oct. 6, 1917)
  • International Emergency Economic Powers Act (IEEPA), P.L. 95-223, 91 Stat. (Dec. 28, 1977)
  • Executive Order 13224
  • Various other statutes

Chiquita was fined $25 million by OFAC for paying a Columbian terrorist group for protection. Farq had threatened to kill the Chiquita workers.

Lloyds TSB was fined $350 million for doing business in Iran. Even though they were based in London, they routed wire transfers through new York. That made them subject to OFAC.

For OFAC compliance, you need to screen all new relationships before engagement in business (clients, vendors, and employees). The OFAC list is updated frequently (there were 54 updates last year.) You need to re-screen periodically and you need a policy to memorialize when you re-screen.

See:

Financial Crimes Enforcement Network 2008 Annual Report

The Financial Crimes Enforcement Network 2008 Annual Report (.pdf) has been released.

Outcome Goal 1: Financial systems resistant to abuse by money launderers, terrorists and their financial supporters, and other perpetrators of financial crime

Outcome Goal 2: Detection and deterrence of money laundering, terrorism financing, and other illicit activity.

Outcome Goal 3: Efficient management, safeguarding, and use of BSA information.

Management Goal: FinCEN’s mission is accomplished by high-performing employees and managers operating in a stimulating and responsible work environement.

Government Seizes 650 Park Avenue

650 fifth avene

According to the Wall Street Journal, the United States Attorney for the Southern District of New York has filed a forfeiture proceeding against 650 Fifth Avenue in New York.

In its press release: United States files civil forfeiture action against ASSA corporation’s interest in Manhattan office tower (.pdf), the DOJ claims that a 40% interest in the building is held by the ASSA Corporation which is acting as a front for Bank Melli. The Government of Iran controls Bank Melli and ownership is considered an export under the Iraninan Transaction Regulations (Title 31 CFR, part 560)

This post originally appeared in one of my old blogs: Real Estate Space.

Canadian Real Estate Developers and Money Laundering

Eli Udell of Perley-Robertson, Hill and McDougall LLP penned a summary of the effect of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act on Canadian real estate developers: Real Estate Developers And Money Laundering Law – What You Need To Know.

What Must a Developer Do To Comply?

1)  Implementation of a “Compliance Regime”
2)  Obligation to Report Certain Transactions
3)  New Record-keeping Requirements

See:

What You Need to Know About U.S. Sanctions Against Drug Traffickers

As part of OFAC‘s Specially Designated National List, OFAC includes narcotics kingpins. OFAC has published What You Need to Know About U.S. Sanctions Against Drug Traffickers (.pdf).

On December 3, 1999, the President signed into law the Foreign Narcotics Kingpin Designation Act (the “Kingpin Act”), 21 U.S.C. § 1901-1908, 8 U.S.C § 1182. The related regulations are styled the “Foreign Narcotics Kingpin Sanctions Regulations” (31 C.F.R. Part 598).

The Kingpin Act blocks all property and interests in property, subject to U.S. jurisdiction, owned or controlled by significant foreign narcotics traffickers as identified by the President. In addition, the Kingpin Act blocks the property and interests in property, subject to U.S. jurisdiction, of foreign persons designated by the Secretary of Treasury, in consultation with the Attorney General, the Director of Central Intelligence, the Director of the Federal Bureau of Investigation, the Administrator of the Drug Enforcement Administration, the Secretary of Defense, and the Secretary of State, who are found to be: (1) materially assisting in, or providing financial or technological support for or to, or providing goods or services in support of, the international narcotics trafficking activities of a person designated pursuant to the Kingpin Act; (2) owned, controlled, or directed by, or acting for or on behalf of, a person designated pursuant to the Kingpin Act; or (3) playing a significant role in international narcotics trafficking.

Significant foreign narcotics traffickers and foreign persons designated by the Secretary of the Treasury are referred to collectively as Specially Designated Narcotics Traffickers. Foreign persons designated under the Kingpin Act are referred to as “[SDNTK]s” on OFAC’s listing of “Specially Designated Nationals and Blocked Persons” to differentiate them from the Specially Designated Narcotics Traffickers named under Executive Order 12978.

U.S. persons are prohibited from engaging in any transaction or dealing in property or interests in property of [SDNTK]s and from engaging in any transaction that evades or avoids the prohibitions of the Kingpin Act. These prohibitions affect trade transactions as well as accounts, securities, and other assets.