OFAC Year in Review 2022 – Part 1
OFAC Year in Review 2022 – Part 1
2022 was an unprecedented year for U.S. sanctions and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). While the sweeping new U.S. sanctions imposed against Russia and Belarus in unparalleled coordination with U.S. allies were OFAC’s primary focus, the agency took significant actions last year related to its Iran, Cyber-related, Global Magnitsky, China, Venezuela, Burma, Nicaragua, Cuba, and Narcotics Trafficking sanctions programs, and launched a new Hostages and Wrongfully Detained U.S. Nationals sanctions program. OFAC also made amendments across its sanctions programs to ease the delivery of humanitarian aid, consistent with a United Nations (UN) Security Council Resolution establishing a humanitarian carveout across UN sanctions regimes.
Each year we reflect on the most significant U.S. sanctions developments of the past year in a multi-part series. This Part One summarizes OFAC’s major activities and provides programmatic updates from 2022, except for those specific to Russia, which will be detailed in Part Two. Part Three will summarize OFAC’s enforcement actions last year and their key lessons.
OFAC had a busy year for sanctions enforcement actions and targeting in 2022. It finalized 16 public enforcement actions, imposing over $42.6 million in total monetary penalties/settlements. Although OFAC conducted more enforcement activity in 2021 when it pursued 20 enforcement actions, OFAC in 2022 imposed over double the $20.9 million in fines that it imposed in 2021. The graphs below show OFAC’s 2022 enforcement activity and how it compares to the annual totals from the past decade. Additional analysis regarding these actions will be provided in Part Three of this series.
OFAC also issued 2,549 new designations (i.e., imposition of full blocking sanctions on individuals or entities) in 2022. By contrast, in 2021, OFAC only issued 765 new designations. This explosive growth in designations was clearly driven by the Biden administration’s efforts to hold Russia accountable for its invasion of Ukraine; of the 2,549 new designations last year, 1,772 were Russia-program-specific.
In addition to the Russia-specific designations, OFAC issued 777 new designations across its other sanctions programs, consistent with the general level of designations in prior years. The highest concentrations of these designations were under the Global Terrorism (207), Global Magnitsky (193), and Iran (65) sanctions programs. OFAC delisted 225 individuals/entities in 2022, compared to the agency’s 700 delistings in 2021, but consistent with the approximately 200 delistings in 2020.
Relations between the United States and Iran further deteriorated in 2022 and residual hopes for a renewed nuclear agreement faded as reports surfaced regarding Iran’s support for Russia’s war in Ukraine and Iran’s ongoing human rights abuses. Specifically, OFAC undertook a series of designations targeting Iranian government actors, including of the Iranian Morality Police, for their involvement in violence against peaceful protesters and restricting Iranians’ access to the internet. These protests began in response to the Iran Morality Police’s arrest of 22-year-old Mahsa Amini for purportedly wearing a hijab improperly. Ms. Amini died three days later in police custody. OFAC has further taken a series of steps to demonstrate the United States’ commitment to free, peaceful assembly and open communication in Iran, including issuance of a new General License D-2, which significantly expanded the scope of its general license authorization for the provision of internet services, software, and hardware incident to communications to Iran. OFAC also issued five rounds of sanctions against Iranian producers of unmanned aerial vehicles (UAVs), targeting 28 individuals and entities for their role in the development and delivery of UAVs used by Russia in its war against Ukraine.
Following the adoption of United Nations Security Council Resolution (UNSCR) 2664, OFAC took historic steps to further enable the flow of humanitarian assistance to vulnerable populations. The United States was the first country to implement UNSCR 2664, which creates a humanitarian carveout from the asset freeze provisions across United Nations sanctions programs.
To ease the delivery of humanitarian aid pursuant to UNSCR 2664, OFAC amended multiple regulations on December 19, 2022, to add or revise humanitarian general licenses across several of its sanctions programs. Specifically, OFAC provided additional license authorizations in the following four categories: the official business of the U.S. government; the official business of certain international organizations and entities; transactions in support of certain non-governmental organizations’ (NGOs) activities; and the provision of agricultural commodities, medicine, medical devices, replacement parts and components, or software updates for medical devices for personal, non-commercial use. OFAC also issued corresponding guidance, including guidance regarding OFAC’s due diligence expectations for financial institutions facilitating activity for NGOs pursuant to the expanded license authorizations.
In what has become an annual tradition, on December 10, 2022, in recognition of International Anti-Corruption Day and Human Rights Day, OFAC sanctioned pursuant to the Global Magnitsky Sanctions Regulations (GMSR), a diverse array of over 40 individuals and entities that are connected to corruption or human rights abuse across nine countries. These designations include the Russian Federation and government of Iran officials, the DPRK’s Ministry of State Security Border Guard General Bureau, and Apollo Carreon Quiboloy for human rights abuses, and current and former leaders and public officials in El Salvador, Guatemala, Guinea, and Mali for corruption.
In 2021, the Taliban, a Specially Designated Global Terrorist (SDGT), with support from related groups including the Haqqani Network, which is designated as an SDGT and a Foreign Terrorist Organization (FTO), took effective control of the government of Afghanistan. On February 25, 2022, OFAC published General License 20, which authorizes, to the extent required, transactions involving the Afghanistan government otherwise prohibited by OFAC’s sanctions against the Taliban and the Haqqani Network. This license was issued in response to OFAC’s recognition that Afghanistan is facing a humanitarian and economic crisis and provides needed clarity regarding transactions and activities in Afghanistan.
OFAC announced new sanctions actions against an array of virtual currency actors determined by OFAC to facilitate U.S. sanctions violations against Russia and North Korea. Building on its 2021 designations of virtual currency exchanges SUEX and CHATEX, OFAC on April 5, 2022, designated darknet market Hydra Market and virtual currency exchange Garantex under Executive Order 14024 for operating or having operated in the financial services sectors of the Russian economy. OFAC explained that its analysis of known Garantex transactions revealed over $100 million in transactions associated with illicit actors and darknet markets, including Hydra and Conti, a Russian ransomware as a service (RaaS) gang. These designations reinforced OFAC’s earlier warning of Russia’s attempts to circumvent sanctions, including through use of virtual currency.
On May 6, 2022, OFAC designated for the first time a virtual currency mixer, Blender.io (“Blender”). According to OFAC’s press release, North Korea had leveraged Blender to support its malicious cyber activities and money-laundering of stolen virtual currency. In March 2022, a DPRK state-sponsored cyber hacking group called the Lazarus Group had carried out the largest virtual currency heist to date, worth up to almost $620 million. OFAC determined that the DPRK used Blender to process over $20.5 million of the illicit proceeds obtained by the Lazarus Group. Three months later, on August 8, 2022, OFAC made front-page news when it designated the popular decentralized virtual currency mixer Tornado Cash under E.O. 13964 for providing material support to malicious cyber actors, including laundering over $7 billion worth of virtual currency, including over $455 million stolen by the Lazarus Group. Following the initiation of multiple lawsuits challenging OFAC’s designation of Tornado Cash arguing, inter alia, that OFAC does not have authority to impose sanctions on Tornado Cash because it is an open source, self-running software protocol, and therefore “technology,” and not a sanctionable “person” as contemplated by the relevant statutes, OFAC redesignated the mixer under both E.O. 13964 and E.O 13722, for enabling malicious cyber activities that ultimately support North Korea’s weapons of mass destruction program. OFAC also issued guidance to clarify the scope of the designation and to assert that Tornado Cash does indeed qualify as a “person” or “entity” because it constitutes a “partnership, association, trust, joint venture, corporation, group, subgroup, or other organization.” These legal challenges remain pending in federal court.
We expect OFAC—in line with the Biden administration’s “whole of government” review of cryptocurrency—to remain focused on the virtual currency industry, particularly with respect to the abuse of virtual currency platforms in support of sanctions evasion tactics.
On February 15, 2022, OFAC added regulations to implement the Chinese Military Companies Sanctions (CMCS) issued by President Trump in 2021 and amended by President Biden on June 3, 2021. (Our prior alert provides a more detailed account of the implementation of the CMCS.) OFAC also published on June 1, 2022, three new Frequently Asked Questions (FAQs) that clarified, in part, that U.S. persons are not required to divest their holdings of Chinese Military Industrial-Complex Companies’ (CMIC) securities during the relevant 365-day divestment period, and that U.S. persons who hold securities of CMICs may continue to receive cash dividends and stock splits related to such covered securities. The FAQs also clarified that the CMCS trigger reject but not blocking requirements. Notably, during 2022, OFAC did not make any new CMIC identifications or Hong Kong-related sanctions designations, though it did designate two individuals, 10 entities, and 150 vessels under the Global Magnitsky Sanctions Regulations in response to illegal, unreported, and unregulated fishing activities related to China. The Biden administration remains focused on China, and complementary developments in export controls and considerations of outbound investment suggest that we may see additional China-related sanctions in 2023, particularly in the context of any Russia sanctions evasion or China’s escalating tensions with Taiwan.
On November 26, 2022, the Maduro regime and the opposition Unitary Platform announced i) the resumption of talks in Mexico City; ii) a humanitarian agreement focused on education, health, food security, flood response, and electricity programs; and iii) an agreement on the continuation of talks focused on the 2024 election. In response to these developments, OFAC issued Venezuela General License 41, which authorizes the Chevron Corporation to resume limited natural resource extraction operations in Venezuela related to Chevron’s joint ventures in Venezuela only and does not authorize other activity with PdVSA. Moreover, General License 41 prevents PdVSA from receiving profits from the oil sales by Chevron. In addition to General License 41, OFAC issued guidance explaining that U.S. persons are authorized to provide goods and services for certain activities as specified in GL 41 and that non-U.S. persons generally do not risk U.S. sanctions exposure for facilitating transactions that are authorized by GL 41.
The United States’ Venezuela policy has been further complicated by the opposition Unitary Platform’s ousting of Juan Guaido, whom the United States had previously recognized as the Interim President of Venezuela. Future sanctions against Venezuela will largely hinge on the continued success of the Maduro regime and opposition Unitary Platform’s negotiations, as well as on the Maduro regime’s stance towards the Russian Federation in relation to the continued invasion of Ukraine and the regime’s relations with and support of Iran.
Following the February 2021 military coup in Burma, President Biden issued E.O. 14014 to re-impose sanctions on Burma. (For more information on the significance of E.O. 14014, see our prior alert.) Throughout 2022, OFAC took incremental steps to strengthen President Biden’s directive to address the leadership crisis in Burma. In January 2022, the Treasury Department, together with five other U.S. federal agencies, published a business advisory highlighting the heightened risks associated with doing business in Burma, particularly business involving the military regime. The advisory encourages businesses and financial institutions to reassess and mitigate the heightened risks posed by the military’s attempts to reassert economic and financial control in Burma. In 2022, OFAC also announced four rounds of designations relating to Burma, including a coordinated action with Canada and the United Kingdom on the one-year anniversary of the military coup (as well as similar sanctions actions this month on the two-year anniversary).
Further, in December 2022, the U.S. Congress passed the National Defense Authorization Act for Fiscal Year 2023 (the NDAA), which incorporates the Burma Unified through Rigorous Military Accountability Act of 2022 (the “BURMA Act”). The BURMA Act imposes two categories of sanctions on Burmese government officials and state-owned enterprises, subject to certain waiver authority and exceptions. First, the NDAA directs the U.S. president, subject to certain exceptions and waiver authority, to impose mandatory blocking, foreign exchange, and visa sanctions on any non-U.S. person senior official in the Burmese military or political government, the defense sector, or state-owned enterprises in the industrial or executive sector that financially benefit the Burmese military. The bill also authorizes corresponding account or payable-through account sanctions against any non-U.S. financial institution that conducts a significant transaction on behalf of any such sanctioned person. Second, the BURMA Act also authorizes the president to impose discretionary sanctions on the Myanma Oil and Gas Enterprise, any state-owned enterprise—regardless of sector—that benefits the Burmese military, any person involved in activities related to the February 2021 coup, or any entity that provides material support to the Burmese military. The BURMA Act also calls for the development of a comprehensive strategy with respect to sanctions on Burma to coordinate sanctions across the U.S. government, promote multilateral sanctions on the Burmese military and its allies, and exert additional pressure on China and Russia to enlist their support for a greater multilateral effort in Burma. For more information, please see our prior client alert.
OFAC renewed its focus on Nicaragua following the purported “victory” by President Daniel Ortega and Vice President Rosario Murillo in the fraudulent elections orchestrated by the Ortega-Murillo regime in November 2021. Ahead of the Ortega-Murillo administration’s inauguration in January 2022, OFAC, in coordination with the European Union, designated six officials of the government of Nicaragua. OFAC also targeted officials of the Nicaraguan military, the Nicaraguan minister of defense, and the Nicaraguan Institute of Telecommunications and Mail, and targeted the Nicaragua gold sector by designating the director of the state-owned Nicaraguan Mining Company (“ENIMINAS”). On June 17, 2022, OFAC designated EMINAS itself and on October 24, 2022, OFAC designated the Nicaraguan mining authority General Directorate of Mines.
Also on October 24, President Biden signed new E.O. 14088, expanding OFAC’s authority to hold the Ortega-Murillo regime accountable for its continued attacks on Nicaraguans’ freedom of expression and assembly by explicitly authorizing the designation of certain persons that operate or have operated in the gold sector of the Nicaraguan economy, or in any other sector identified by the U.S. Treasury Secretary in consultation with the Secretary of State. Moreover, E.O. 14088 authorizes the imposition of new sanctions that would prohibit new U.S. investment in certain identified sectors in Nicaragua and restrict the importation of certain products of Nicaraguan origin into the United States, or the exportation from the United States, or by United States persons, of certain items to Nicaragua. These authorities give the Biden administration significant flexibility to target additional industries in, and restrict trade with, Nicaragua.
On June 8, 2022, OFAC amended the Cuban Assets Control Regulations (CACR) to implement elements of policy changes by the Biden administration that seek to support the Cuban people. With respect to personal and donative remittances to Cuba, OFAC removed the prior $1,000 quarterly limit on close relative remittances, authorized donative remittances to most Cuban nationals, and authorized the unblocking and return of previously blocked remittances, provided they would be authorized under the revised CACR.
OFAC also amended the CACR to include a general license that authorizes certain travel-related and other transactions incident to attending or organizing professional meetings or conferences in Cuba. For example, these potential meetings could include professional conferences to support expanded internet access and to provide additional support and training to independent Cuban entrepreneurs.
With respect to educational activities, OFAC removed certain restrictions on authorized academic educational activities and authorized group people-to-people educational travel conducted under the auspices of U.S. organizations that sponsor such exchanges to promote people-to-people contact. OFAC FAQ 1056 clarifies that this “amendment does not authorize individual people-to-people travel. Travel for tourist activities is not permitted.”
Last year also saw developments related to the Trump administration’s 2019 decision to permit lawsuits to proceed against traffickers in property confiscated by the Cuban government under Title III of the Helms-Burton Act. Most recently, U.S. District Judge Beth Bloom in Miami ordered four major cruise lines to pay approximately $440 million in damages to a former Havana port operator for use of a port that Cuba’s government confiscated in 1960. The cruise lines have announced their intent to appeal.
On July 19, 2022, President Biden issued E.O. 14078, Bolstering Efforts to Bring Hostages and Wrongfully Detained United States National Home. E.O. 14078 authorizes the imposition of sanctions against non-U.S. persons determined by the Secretary of State to be responsible for or complicit in, to have directly or indirectly engaged in, or to be responsible for ordering, controlling, or otherwise directing, the hostage-taking of a United States national or the wrongful detention of a United States national abroad; to have attempted to engage in such activity; or to have been a leader or official of an entity that has engaged in such activity. The Biden administration intends to be “be judicious and strategic in [its] use of this authority,” with a “primary focus on helping to secure . . . release.” No designations have been made under this authority to date.
On December 19, 2022, OFAC published the Illicit Drug Trade Sanctions Regulations to address the trafficking of illicit drugs into the United States. The new regulations were issued to implement President Biden’s December 2021 E.O. 14059, “Imposing Sanctions on Foreign Persons Involved in the Global Illicit Drug Trade,” issued in light of the administration’s determination that the trafficking of illicit drugs into the United States, including fentanyl and other synthetic opioids, is causing the death of tens of thousands of Americans annually. OFAC published these regulations in abbreviated form and intends to supplement them with a more comprehensive set of regulations, which may include additional interpretive guidance and definitions, general licenses, and other regulatory provisions.
While not a sanctions action, the June 28, 2022 joint notice issued by FinCEN and BIS regarding Russia sanctions evasion and financial institutions’ obligations under the Export Administration Regulations (EAR) and Bank Secrecy Act (BSA) is a prime example of how the lines between export controls, money laundering requirements, and sanctions continue to blur. The EAR prohibit facilitation of, including the provision of financing or other services in connection with, an export prohibited by the EAR with knowledge that the activity has violated or would violate the EAR. The joint notice explicitly warns financial institutions to exercise increased vigilance and take a risk-based approach to diligence to ensure they are not knowingly financing or otherwise servicing a transaction that violates export controls. The joint notice is written in the context of Russia, but the obligations extend to all provisions of the EAR. Financial institutions, particularly those operating in the trade finance space, should evaluate the adequacy of their internal controls with respect to preventing the facilitation of export control evasion. These controls are in addition to, but should work in tandem with, institutions’ OFAC compliance processes.
2022 was an active and extraordinary year in the world of sanctions. MoFo’s National Security Practice would be happy to discuss any of the issues raised in this alert in more detail and looks forward to keeping our readers current on key OFAC developments in 2023.
Law-clerk Diego Negron-Reichard contributed to this alert.