Updates to OFAC’s SDN List

FinCEN updated the SDN list with companies and individuals associated with the Mugabe regime in Zimbabwe: Treasury Designates Mugabe Regime Cronies.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today designated four Mugabe regime cronies and a number of entities owned or controlled by two of them. The financial and logistical support they have provided to the regime has enabled Robert Mugabe to pursue policies that seriously undermine democratic processes and institutions in Zimbabwe.

“The Mugabe regime continues to resist the call of the Zimbabwean people to loosen its corrupt and violent hold on power,” said OFAC Director Adam J. Szubin.  “The United States supports the people of Zimbabwe in their struggle to achieve a political and economic system built on fairness and transparency rather than patronage and self-dealing.”

Today’s designations include John Bredenkamp, a well-known Mugabe insider involved in various business activities, including tobacco trading, gray-market arms trading and trafficking, equity investments, oil distribution, tourism, sports management, and diamond extraction. Through a sophisticated web of companies, Bredenkamp has financially propped up the regime and provided other support to a number of its high-ranking officials. He also has financed and provided logistical support to a number of Zimbabwean parastatal entities.

The following entities owned or controlled by John Bredenkamp also are designated: Alpha International (Private) Ltd., Breco (Asia Pacific) Ltd., Breco (Eastern Europe) Ltd., Breco (South Africa) Ltd., Breco (U.K.) Ltd., Breco Group, Breco International, Breco Nominees Ltd., Breco Services Ltd., Corybantes Ltd., Echo Delta Holdings Ltd., Kababankola Mining Company, Masters International Ltd., Masters International, Inc., Piedmont (UK) Limited, Raceview Enterprises, Scottlee Holdings (Pvt) Ltd., Scottlee Resorts, Timpani Ltd., and Tremalt Ltd.

Also designated today is Muller Conrad Rautenbach (a.k.a. Billy Rautenbach). Billy Rautenbach is a Zimbabwean businessman who has maintained close relations with the Mugabe regime. He has provided support to senior regime officials during Zimbabwe’s intervention in the Democratic Republic of the Congo and also provided logistical support for large-scale mining projects in Zimbabwe that benefit a small number of corrupt senior officials there. Today’s designations include an entity owned and controlled by Billy Rautenbach, Ridgepoint Overseas Developments Limited.

In addition, OFAC is designating Nalinee Joy Taveesin, a Thai businesswoman who has facilitated a number of financial, real-estate, and gem-related transactions on behalf of Grace Mugabe, Gideon Gono, and a number of other Zimbabwean Specially Designated Nationals (SDNs). Ironically, Nalinee Taveesin has participated in a number of initiatives on corruption and growth challenges in Africa and Southeast Asia while secretly supporting the kleptocratic practices of one of Africa’s most corrupt regimes.

Finally, OFAC is designating Mahmood Awang Kechik, a Malaysian urologist and one of Robert Mugabe’s physicians and business advisors. Kechik has used his medical practice to conceal the ultimate destination of medical equipment shipped to Zimbabwe, and he has transacted secretly with a number of SDNs, including Gideon Gono and Constantine Chiwenga, to generate wealth for these regime officials and the Government of Zimbabwe.

Today’s action was taken pursuant to Executive Order 13469, which targets, among others, individuals and entities who provide financial and other support to the Government of Zimbabwe and Zimbabwean SDNs. As a result of Treasury’s action, any assets of the individuals and entities designated today that are within U.S. jurisdiction must be frozen. Additionally, U.S. persons are prohibited from conducting financial or commercial transactions with these individuals or entities.

Specially Designated Nationals and Blocked Persons List Updated

Here are the new bad guys on the OFAC’s Specially Designated Nationals list:

AW-MOHAMED, Ahmed Abdi (a.k.a. ABUZUBAIR, Muktar Abdulrahim; a.k.a. AW MOHAMMED, Ahmed Abdi; a.k.a. “ABU ZUBEYR”; a.k.a. “GODANE”; a.k.a. “GODANI”; a.k.a. “SHAYKH MUKHTAR”); DOB 10 Jul 1977; POB Hargeysa, Somalia; nationality Somalia (individual) [SDGT]

EL HABHAB, Redouane (a.k.a. “ABDELRAHMAN”), Iltisstrasse 58, Kiel 24143, Germany; DOB 20 Dec 1969; POB Casablanca, Morocco; nationality Germany; National ID No. 1007850441 (Germany) issued 27 Mar 2001 expires 26 Mar 2011; Passport 1005552350 (Germany) issued 27 Mar 2001 expires 26 Mar 2011; currently incarcerated in Lubeck, Germany (individual) [SDGT]

ISSA, Issa Osman (a.k.a. ATTO, Abdullah; a.k.a. BUR, Abdullah; a.k.a. SUDANI, Abdala; a.k.a. “AFADEY”; a.k.a. “MUSSE”); DOB 1973; POB Malindi, Kenya; nationality Kenya (individual) [SDGT]

ROBOW, Mukhtar (a.k.a. ALI, Mujahid Mukhtar Robow; a.k.a. ALI, Mukhtar Abdullahi; a.k.a. ALI, Shaykh Mukhtar Robo; a.k.a. RUBU, Mukhtar Ali; a.k.a. “ABU MANSOUR”; a.k.a. “ABU MANSUR”); DOB 1969; alt. DOB 10 Oct 1969; POB Xudur, Somalia; alt. POB Keren, Eritrea; nationality Eritrea; National ID No. 1372584 (Kenya); Passport 0310857 (Eritrea) issued 21 Aug 2006 expires 20 Aug 2008; (Following data derived from an Eritrean passport issued under the alias name of Mukhtar Abdullahi Ali: Alt. DOB: 10 October 1969; Alt. POB: Keren Eritrea; nationality: Eritrean; National ID No.: 1372584, Kenya; Passport No.: 0310857, Eritrea, Issue Date 21 August 2006, Expire Date 20 August 2008) (individual) [SDGT]

Full SDN lists.

Treasury Issues Final Regulations for Committee on Foreign Investment in the United States

On November 14, 2008, the Department of the Treasury issued its final rule to implement the Foreign Investment and National Security Act of 2007, which provided guidelines for the Committee on Foreign Investment in the United States when reviewing investments by foreign persons in U.S. businesses for national security issues.

The Foreign Investment and National Security Act of 2007 amended section 721 of the Defense Production Act of 1950 (50 USC §2170) authorizing the President to review merger, acquisitions and takeovers by or with any foreign person which could result in foreign control of any person engaged in interstate commerce in the United States to determine the effects of such transaction on the national security of the United States.

FINSA codifies the structure, role, process and responsibilities of the Committee on Foreign Investment in the United States. Previously, CFIUS had existed only by executive order. FINSA establishes CFIUS in statute.

On April 21, 2008, the Department of the Treasury issued proposed regulations for the CFIUS . You can also get the comments on the proposed CFIUS regulations.

The final regulations go into effect 30 days after publication in the Federal Register: Regulations Pertaining to Mergers, Acquisitions, and Takeovers by Foreign Persons. (.pdf) That means they should be in effect by the end of the year.

See my blog posts:

See also:

Opening Securities and Futures Accounts from an OFAC Perspective

The Office of Foreign Assets Control published new guidance specific to the securities industry on 11/06/2008: Opening Securities and Futures Accounts from an OFAC Perspective.

A strong OFAC compliance program consists of procedures that are similar to those found in a brokerage firm’s Customer Identification Program (“CIP”). Firms should use risk-based measures for verifying the identity of each new customer who opens an account. In establishing procedures, firms should identify and consider their size (e.g., total assets under management), their location, their customer base, the types of accounts they maintain, the methods by which accounts can be opened (e.g., in person or non face-to-face), and the types of identifying information available for each customer. Firms should also assess risks posed by each customer and transaction, asking questions such as:

  • Is the customer regulated by a Federal functional regulator, widely known, or listed on an exchange?
  • Has the firm had any previous experience with the customer or does it have prior knowledge about the customer?
  • Is the firm facilitating a U.S. person’s investment in a foreign issuer or other company that conducts business in a sanctioned country?
  • Is the customer located in a high-risk foreign jurisdiction that is considered to be poorly regulated or in a known offshore banking or secrecy haven?
  • Is the customer located or does it maintain accounts in countries where local privacy laws, regulations, or provisions prevent or limit the collection of client identification or beneficial ownership information?

Prior to entering into a business relationship with a client, you should screen the new client’s identification information, as well as the customer’s proposed transaction(s), against OFAC’s Specially Designated Nationals and Blocked Persons list (“SDN list”) [which is available at
http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx], and applicable OFAC sanctions programs.

The paper highlights a few key differences between OFAC compliance and CIP requirements. OFAC requires you to look deeper into the beneficial ownership of a client. CIP is limited to the “person that opens a new account.”

The other key difference is that OFAC does not permit you to reallocate your legal liability to a third party such as an introducing firm. OFAC takes the position that you can still be “held liable for any OFAC violations that occur due to the third parties’ negligence.”

Corporate Governance of Public Web Sites

Jane K. Storero and Yelena Barychev of The Legal Intelligencer and Law.com authored an article that the system of reviewing and monitoring information posted on a company Web site should be part of the disclosure controls included in the enterprise-wide risk management system established by the company: Corporate Governance of Public Web Sites.

This article describes methods of effectively complying with the SEC guidance related to company websites: Commission Guidance on the Use of Company Websites (Release 34-58288, August 7, 2008).

That release gave some guidance as to whether a company’s website is a means of public dissemination of information under Regulation FD.

It also addresses how the anti-fraud provisions of the federal securities laws can be applied to a statements made on the internet.  One issue is whether historical information is considered “republished” each time the material is accessed on the company’s website. If they are considered republished, then the company would have a duty to update the materials.

As a general matter, we believe that the fact that investors can access previously posted materials or statements on a company’s web site does not in itself mean that such previously posted materials or statements have been reissued or republished for purposes of the antifraud provisions of the federal securities laws, that the company has made a new statement, or that the company has created a duty to update the materials or statements.

The release also notes that hyperlinks to third party information could be implicated as part of the anti-fraud provisions. The key is the context of the hyperlink. If explicit approval or endorsement is plainly evident, then the hyperlink to a third party statement can be found to be a implicit approval of the statement in the hyperlinked web page.

The release also endorses the use of blogs:

We acknowledge the utility these interactive web site features afford companies and shareholders alike, and want to promote their growth as important means for companies to maintain a dialogue with their various constituencies. As we noted in the Shareholder Forum Release, companies may find these forums “of use in better gauging shareholder interest with respect to a variety of topics,” and the forums “could be used to provide a means for management to communicate with shareholders by posting press releases, notifying shareholders of record dates, and expressing the views of the company’s management and board of directors.”

Statements made on a blog or forum will not be treated any differently than any other statements made by the company for purposes of anti-fraud provisions.

FATF on Money Laundering and Terrorist Financing Through the Real Estate Sector

The Financial Action Task Force published their report on Money Laundering & Terrorist Financing Thorugh the Real Estate Sector (June 29, 2007).

I was disappointed in the report. I have a history of structuring complex real estate transactions. The report did little to help distinguish between legitimate and illegitimate structures. All of the structures and most of the transactions described in the report have completely legitimate uses. There are lots of tax and regulatory reasons for use of structured loan, trusts and many entities.

What the report missed was how the illegitimate funds got into the structures.

For those of you who are not familiar with real estate structures and transactions, the report does provide some interesting case studies. The red flag indicators in Annex B is a useful list.

Sovereign Wealth Funds That Are Part of the IWG and Santiago Principles

The following sovereign wealth funds are part of the Internal Working Group of Soverign Wealth Funds and the Santiago Principles:

[IWG Member Sites]

The Santiago Principles

The International Working Group of Sovereign Wealth Funds created a set of 24 best practices called the Generally Accepted Principles and Practices (GAPP) or the Santiago Principles:

  • GAPP 1. Principle
    The legal framework for the SWF should be sound and support its effective operation and the achievement of its stated objective(s).

    • GAPP 1.1 Subprinciple The legal framework for the SWF should ensure the legal soundness of the SWF and its transactions.
    • GAPP 1.2 Subprinciple The key features of the SWF’s legal basis and structure, as well as the legal relationship between the SWF and the other state bodies, should be publicly disclosed.
  • GAPP 2. Principle
    The policy purpose of the SWF should be clearly defined and publicly disclosed.
  • GAPP 3. Principle
    Where the SWF’s activities have significant direct domestic macroeconomic implications, those activities should be closely coordinated with the domestic fiscal and monetary authorities, so as to ensure consistency with the overall macroeconomic policies.
  • GAPP 4. Principle There should be clear and publicly disclosed policies, rules, procedures, or arrangements in relation to the SWF’s general approach to funding, withdrawal, and spending operations.
    • GAPP 4.1 Subprinciple The source of SWF funding should be publicly disclosed.
    • GAPP 4.2 Subprinciple The general approach to withdrawals from the SWF and spending on behalf of the government should be publicly disclosed.
  • GAPP 5. Principle
    The relevant statistical data pertaining to the SWF should be reported on a timely basis to the owner, or as otherwise required, for inclusion where appropriate in macroeconomic data sets.
  • GAPP 6. Principle
    The governance framework for the SWF should be sound and establish a clear and effective division of roles and responsibilities in order to facilitate accountability and operational independence in the management of the SWF to pursue its objectives.
  • GAPP 7. Principle
    The owner should set the objectives of the SWF, appoint the members of its governing body(ies) in accordance with clearly defined procedures, and exercise oversight over the SWF’s operations.
  • GAPP 8. Principle
    The governing body(ies) should act in the best interests of the SWF, and have a clear mandate and adequate authority and competency to carry out its functions.
  • GAPP 9. Principle
    The operational management of the SWF should implement the SWF’s strategies in an independent manner and in accordance with clearly defined responsibilities.
  • GAPP 10. Principle
    The accountability framework for the SWF’s operations should be clearly defined in the relevant legislation, charter, other constitutive documents, or management agreement.
  • GAPP 11. Principle
    An annual report and accompanying financial statements on the SWF’s operations and performance should be prepared in a timely fashion and in accordance with recognized international or national accounting standards in a consistent manner.
  • GAPP 12. Principle
    The SWF’s operations and financial statements should be audited annually in accordance with recognized international or national auditing standards in a consistent manner.
  • GAPP 13. Principle
    Professional and ethical standards should be clearly defined and made known to the members of the SWF’s governing body(ies), management, and staff.
  • GAPP 14. Principle
    Dealing with third parties for the purpose of the SWF’s operational management should be based on economic and financial grounds, and follow clear rules and procedures.
  • GAPP 15. Principle
    SWF operations and activities in host countries should be conducted in compliance with all applicable regulatory and disclosure requirements of the countries in which they operate.
  • GAPP 16. Principle
    The governance framework and objectives, as well as the manner in which the SWF’s management is operationally independent from the owner, should be publicly disclosed.
  • GAPP 17. Principle
    Relevant financial information regarding the SWF should be publicly disclosed to demonstrate its economic and financial orientation, so as to contribute to stability in international financial markets and enhance trust in recipient countries.
  • GAPP 18. Principle
    The SWF’s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing body(ies), and be based on sound portfolio management principles.

    • GAPP 18.1 Subprinciple The investment policy should guide the SWF’s financial risk exposures and the possible use of leverage.
    • GAPP 18.2 Subprinciple The investment policy should address the extent to which internal and/or external investment managers are used, the range of their activities and authority, and the process by which they are selected and their performance monitored.
    • GAPP 18.3 Subprinciple A description of the investment policy of the SWF should be publicly disclosed.
  • GAPP 19. Principle
    The SWF’s investment decisions should aim to maximize risk-adjusted financial returns in a manner consistent with its investment policy, and based on economic and financial grounds.

    • GAPP 19.1 Subprinciple If investment decisions are subject to other than economic and financial considerations, these should be clearly set out in the investment policy and be publicly disclosed.
    • GAPP 19.2 Subprinciple The management of an SWF’s assets should be consistent with what is generally accepted as sound asset management principles.
  • GAPP 20. Principle
    The SWF should not seek or take advantage of privileged information or inappropriate influence by the broader government in competing with private entities.
  • GAPP 21. Principle
    SWFs view shareholder ownership rights as a fundamental element of their equity investments’ value. If an SWF chooses to exercise its ownership rights, it should do so in a manner that is consistent with its investment policy and protects the financial value of its investments. The SWF should publicly disclose its general approach to voting securities of listed entities, including the key factors guiding its exercise of ownership rights.
  • GAPP 22. Principle
    The SWF should have a framework that identifies, assesses, and manages the risks of its operations.

    • GAPP 22.1 Subprinciple The risk management framework should include reliable information and timely reporting systems, which should enable the adequate monitoring and management of relevant risks within acceptable parameters and levels, control and incentive mechanisms, codes of conduct, business continuity planning, and an independent audit function.
    • GAPP 22.2 Subprinciple The general approach to the SWF’s risk management framework should be publicly disclosed.
  • GAPP 23. Principle
    The assets and investment performance (absolute and relative to benchmarks, if any) of the SWF should be measured and reported to the owner according to clearly defined principles or standards.
  • GAPP 24. Principle
    A process of regular review of the implementation of the GAPP should be engaged in by or on behalf of the SWF.

There is also a Full Report on the Santiago Principles (.pdf).