White Collar & Government Investigations Blog

Not so long ago, foreign corruption prosecutions was the cause celebre of the U.S. Department of Justice (“DOJ”), with the DOJ quadrupling its staff and sharply increasing the number of FBI agents focused on the Foreign Corrupt Practices Act (“FCPA”) investigations and prosecutions over a more than 10 year period beginning in or about 2010. Numerous foreign and domestic individuals and companies were ultimately charged with violating this extraterritorial law, including individuals from Brazil (in Operation Lava Jato ), Norway, Africa and throughout Asia. However, since Russia’s invasion of Ukraine in February 2022, the FCPA has no longer been the primary foreign focus for cross border enforcement and has given way to an emphasis on foreign sanctions under the Department of the Treasury, Office of Foreign Assets Control (“OFAC”), most particularly the Russian Harmful Foreign Activities Sanctions issued under Executive Order 14024 and others beginning on February 23, 2022 and beyond. Since then, numerous blocked persons (“SDNs”) have been added to OFAC’s sanctions list on a frequent basis. Most recently, on June 12, 2024 and again on July 3, 2024, the Treasury and State Departments, through OFAC, together with the US Department of Commerce’s Bureau of Industry & Security (“BIS”) have doubled down on Russian sanctions, issuing fresh rounds of sanctions seeking to weaken the Russian “war time economy” and choke off the Russian financial system from the rest of the world, through clamping down further on Foreign Financial Institutions (“FFIs”) and on Information Technology (“IT”), sensitive technology and transportation.

In a public statement on July 3, 2024 announcing the new round of Russian sanctions, Treasury Secretary Janet Yellen decried just that: “Today the U.S. Department of the Treasury is issuing sweeping new measures guided by G7 commitments to intensify the pressure on Russia for its continued cruel and unprovoked war against Ukraine.  Today’s actions ratchet up the risk of secondary sanctions for foreign financial institutions that deal with Russia’s war economy; restrict the ability of the Russian military industrial base to take advantage of certain U.S. software and information technology (IT) services; and together, with the Department of State, target more than 300 individuals and entities both in Russia and outside its borders  . . . whose products and services enable Russia to sustain its war effort and evade sanctions.”

Increasingly, throughout the last two years the Treasury Department has expanded its reach and authority over foreign banks and sought to extend reach into other mediums of exchange, including cryptocurrency and gold. The sanctions issued on June 12, 2024 also target a consortium of companies and individuals alleged to have assisted Russian global money laundering efforts through a network involving gold.

This recent round of sanctions, termed “secondary sanction risks” targeting foreign financial institutions, all but guarantees even greater gridlock in the traditional financial system with a direct impact on foreign banks trying to move assets or funds to or from Russia, or any transaction touching the Russian financial system and its connections.  In the last two years alone at Olshan, we have handled cases involving Olshan clients whose foreign bank has been loathe to move funds of Russians or involving Russia without a specific OFAC license authorizing the precise transaction proposed, even when a General License generally authorizing the transaction has been in place. We have helped Olshan clients who have sought assistance in efforts to unblock funds and enable transactions and money flows frozen in foreign banks.

As a result of the continuous wave of sanctions targeting the Russian financial system and its network, U.S. financial institutions have significantly beefed up their sanctions legal teams, and now focus very carefully on any potential transaction that implicates Russia, rubles, and money flows to and from Russian entities, principals and interests, directly and indirectly.

The number and frequency of sanctions issued over the past two years has been unprecedented. In more than 20 years in this space and having worked closely with OFAC for many years at the Department of Justice, I have not seen such a continuous wave of sanctions activity by OFAC, including SDN designations targeting not just foreign adversaries, but sectors of an economy. Along with the numerous waves of Russian sanctions, the Biden Administration has targeted China, Iran and North Korea as well, and OFAC has issued a complex web of China related sanctions covering many critical industries.  Along the same lines, CFIUS (the US Committee on Foreign Investment in the United States) a consortium of a number of US federal agencies led by Treasury, takes a close look at most eligible inbound purchases of U.S. companies, real estate and technology, particularly from China, or involving a China buyer examining any connection to the Chinese Government or efforts to control the US company, where there is a possible threat to U.S. national security.

Enforcement of the sanctions by the DOJ has kept pace with the sanctions regulations wave.  The DOJ has recently brought OFAC related charges against Binance, the largest cryptocurrency exchange, alleging the exchange was used to facilitate illicit movements of assets – in this case – cryptocurrency- from blocked countries, including Iran and North Korea. The CEO of Binance pleaded guilty to money laundering and sanctions evasion charges. Following the guilty pleas, the DOJ and FATCA named the appointment of Special Monitors to police the Binance platform for the next five years to ensure that the exchange is not further used to evade sanctions. 

In keeping with its focus on the worldwide financial system, the DOJ recently announced a fine against an Italian company, Mondo, which had made 18 wire transfers ultimately processed by or settled at US financial institutions.  The DOJ’s theory of liability in this civil case was that the Italian company “caused US financial institutions to: (1) deal in the blocked property or interests in property of the Government of North Korea; and (2) export financial services to the DPRK,” in violation of the U.S. sanctions against North Korea.

The sanctions prosecution framework appears to now be well established.  Even with a Trump victory in November, it will be quite difficult to unwind this sanctions regime or reverse course quickly even if a Trump Administration takes a different policy approach towards Russia and foreign sanctions.  At least for the foreseeable future, harsh Russian sanctions and an increased China focus, will be a reality, and here to stay.