Berkshire Hathaway’s (“BH”) $4.1 million settlement in October 2020 with the US Treasury’s Office of Foreign Assets Control (OFAC) for apparent violations of Iran sanctions by its Turkish subsidiary highlights the importance of not only ensuring a robust sanctions compliance program that incorporates strict oversight of affiliates, subsidiaries, and counterparties, but also inspects end-users of goods and services and verifies the accuracy of documentation associated with transactions in risky jurisdictions. BH’s Turkish subsidiary Iscar Kesici Takim Ticareti ve Imalati Limited Kirket (“Iscar”) intentionally worked to hide violations of OFAC’s Iran sanctions, despite being warned about doing business with Iranian entities.
On September 25, 2020, Generali Global Assistance, Inc (“Generali”) entered into an agreement with the US Treasury’s Office of Foreign Assets Control (OFAC) to pay $5,864,860 for 2,593 apparent violations of Cuba sanctions totaling $285,760. Generali attempted to circumvent the US financial system and evade sanctions in its transactions with Cuban entities, but its sanctions compliance program (SCP) exposes the company to other risks. Although Generali has an established SCP to screen transactions against OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List), its dependence on list-based screening would almost certainly allow entities and individuals located in embargoed regions or that are owned or controlled by designated individuals to slip through the cracks. Read more
Recently, Walt Disney Studios and metals and mining corporation Rio Tinto found themselves embroiled in scandals stemming from significant environmental, social, and corporate governance (ESG) failures, highlighting the need for firms to conduct research into potential reputational risks—in addition to due diligence and compliance checks—before engaging in business activities. Disney’s use of shooting locations in the Xinjiang Uyghur Autonomous Region (XUAR) in 2018 for the movie Mulan and Rio Tinto’s demolition of 46,000 year old Aboriginal caves in the Juukan Gorge on May 24, 2020 resulted in significant backlash and reputational damage for the two multinational firms. Read more
On 1 September 2020, the US Treasury’s Office of Foreign Assets Control (OFAC) issued a joint advisory with the State Department’s Bureau of International Security and Nonproliferation and the Commerce Department’s Bureau of Industry and Security to inform US and foreign entities about North Korea’s (DPRK) ballistic missile procurement activities. The advisory identifies techniques North Korean procurement entities and partners use to evade global sanctions and support continued ballistic missile production by the regime and includes an annex that flags materials and equipment key to the North Korean ballistic missile program.
As US relations with Turkey fray, we assess that US legislators will work to impose sanctions on Turkish defense companies and financial institutions that support their involvement in weapons systems purchases from America’s adversaries. These efforts will face an uphill climb in Washington because the White House and the Republican-controlled Senate have signaled a limited appetite for sanctions that will have a substantive effect on Ankara. However, US firms should exercise extra due diligence in case Turkish defense firms are included on the Bureau of Industry and Security (BIS) Entity List or if the United States or the EU sanction Turkey under other programs.
On 7 August 2020, the Treasury Department’s Office of Foreign Assets Control (OFAC) designated 11 top Chinese officials and their allies in Hong Kong, including Chief Executive Carrie Lam, pursuant to Executive Order 13936 over their role in undermining the autonomy of the former UK colony. We anticipate that Bernard Charnwut Chan—Convenor of the Executive Council of Hong Kong—and Asia Financial Holdings, of which he is the president and executive director, will most likely be next on OFAC’s sanctions radar. Chan’s US bank accounts have already been closed.
The UK Office of Financial Sanctions Implementation (OFSI) has issued a Maritime Advisory to supplement its general guidance document that was updated in July, 2020, outlining companies’ obligations under the UK’s sanctions regime, as well as OFSI’s approach to licensing and compliance issues. OFSI’s Maritime Advisory in many ways mirrors guidance issued by US Treasury and State Departments in conjunction with the Coast Guard in May and includes a list of tactics used by illicit actors to evade sanctions. Although the strategies listed in OFSI’s Maritime Advisory pertain specifically to North Korea, OFSI highlights these methodologies as common among other countries and entities eager to evade sanctions.