Anti-money laundering (AML) laws are intimately connected with the law enforcement agencies of the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC), along with the Financial Crimes Enforcement Network, the Financial Intelligence Unit, and the Financial Action Task Force. OFAC is in charge of enforcing American economic sanctions with businesses or individuals involved with a foreign bank or financial institution. One of the most common tactics used to evade these sanctions is to launder money to make it appear legitimate or to make it more difficult for law enforcement investigators to trace. For example, the Bank Secrecy Act is just one law in place with ongoing monitoring and reporting to prevent money laundering and terrorist financing.
Recent global upheaval has made these areas of law much more important than they were in the past. 2023 suggests that this trend will only continue.
Here are 5 things that Dr. Nick Oberheiden, an OFAC and Anti-money laundering defense attorney at Oberheiden P.C., thinks that people should know about these areas of law and how they are enforced in order to better comply with them and avoid prosecution in 2023.
1. Monitoring OFAC’s Sanctions Lists Has Never Been More Important
One of the most basic aspects of OFAC compliance is to stay abreast of additions to the Office’s lists of sanctioned individuals and entities. In peacetime, keeping up to date on these changes is difficult enough to do. When there is global turmoil and the United States is imposing sanctions on new people, companies, and foreign financial institutions every week, it gets even tougher.
Unfortunately, OFAC expects companies to know who is on their lists of sanctioned parties, no matter how arduous it gets.
2. Do Not Get Hung Up on the Conflict in Ukraine
Importantly, all that action on OFAC’s list of blocked persons and sanctioned entities is not relegated to the conflict in Ukraine. While many of the additions to the sanctions lists have to do with Russian oligarchs and their networks, Ukraine is far from the only place in the world to see political upheaval and armed conflict.
Just in May, other areas of the world have been subjected to economic sanctions through OFAC, including:
- Venezuela, due to its ongoing drug violence
- North Korea
- Syria, due to the fallout from its civil war that ended several years ago
- Sudan, which has exploded into a civil war between competing generals, which has in turn resuscitated an ongoing conflict in the Darfur region of the country
For companies that have international business ventures, this is important to remember: Economic sanctions are not limited to the conflict in Ukraine. Just because your business deals occur in other areas of the world does not mean that there are no OFAC compliance obligations or anti-money laundering concerns that you need to satisfy.
3. Cryptocurrency Will Not Hide Your Transactions
Particularly important for anti-money laundering issues is the fact that cryptocurrency is not as untraceable as its proponents had made it out to be. There was a time where nefarious actors felt safe laundering their ill-gotten proceeds through various cryptocurrency coins and platforms.
That time should be considered over.
As we have seen from massive law enforcement efforts regarding digital assets like Bitcoin and platforms like FTX, investigators have figured out how to trace cryptocurrency. They seem to be able to reliably trace it across platforms and virtual currencies, seemingly with ease. Gone are the days where using cryptocurrencies to mask unlawful transactions was a good idea. Now, it is a good way to get detected and convicted for a serious white collar offense.
4. Broad De-Risking Policies Finally Drawing Ire of Regulators
Financial institutions responded to the passage of the Anti-Money Laundering Act of 2020 with aggressive tactics that aimed to insulate the institution from liability at the expense of its customers. Known as “de-risking,” financial institutions adopted a scorched earth policy of indiscriminately terminating accounts or restricting the activities of wide swaths of customers rather than investigating the risks that each customer posed on the bank’s AML compliance obligations.
In many cases, the actions taken during these de-risking campaigns provided little to no notice to the customers that would be affected by them, effectively unbanking them overnight and leaving them to scramble for alternatives.
Basically, financial institutions reacted to the new law by cutting ties with customers in broad strokes, based on nothing but generalized findings of potential AML risk, rather than conducting individualized investigations to determine what risk the customer actually presented.
It took several years, but the U.S. Treasury Department has stepped in to address the issue, urging banks to provide better notice to suspected customers and to treat them more individually, rather than penalizing one for the actions of another, similarly situated customer.
While this will increase the compliance obligations that banks and other financial institutions have to face, it will also protect the customers who were doing nothing wrong but who suddenly found themselves without a bank for their private banking accounts or with assets that they could not access.
5. Always Keep Tabs on Your Foreign Business Partners
Many people and companies focus on the changes to OFAC sanctions lists and on new business ventures that smell suspiciously like financial crime- attempts to evade sanctions or as a primary money laundering concern. However, long-time and even trusted business partners can also imperil your company if they become intermediaries for sanctioned individuals or companies or if they begin to use the business transaction to launder money.
These situations pose a serious predicament for companies. On the one hand, much of business is a matter of trust, and maintaining a healthy dose of skepticism for business partners who may be representing or benefiting foreign or unlawful interests can feel disloyal. Worse, in many cases, the signs that a long-time business associate has started to use the relationship for unlawful means can be extremely difficult to pick up on.
While OFAC and other federal banking regulators working to combat money laundering seem to have at least some sympathy for companies that get dragged into these situations, relying on the agency for leniency is never a wise thing to do.