TRADE TIP OF THE MONTH: New Companies Have More Time To Report Ownership
The Treasury Department’s Financial Crimes Enforcement Network issued a final rule in late November to delay the deadline for newly created companies to comply with its beneficial ownership information reporting requirements. The change takes effect January 1, 2024, and extends the deadline from 30 days to 90 days after the company is created; it applies only to companies created or registered on or after January 1, 2024, and before January 1, 2025. The extension will give those entities more time to understand the new reporting obligations, which aim to provide more information to law enforcement and national security agencies as they look to prevent sanctioned parties and others from hiding money or property in the United States.
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1. DOJ Increasingly Targeting Executives for Compliance Failures
On November 28, during the New York City Bar Association’s International White Collar Crime Symposium, Principal Associate Deputy Attorney General Marshall Miller addressed the Department of Justice’s (DOJ) efforts to hold corporate executives responsible for compliance violations. Miller also noted that DOJ expects companies to use compensation systems to align their executives’ financial interests with the companies’ compliance interests. If companies can “claw back” compensation from corporate wrongdoers, they can reduce their financial penalties by the amount of the clawback. Companies should ensure their compensation policies, clawback provisions, and other compliance materials are well positioned to address this enforcement strategy.
2. Treasury Levies Record Billion-Dollar Fine Against Binance
The U.S. Department of the Treasury reached record-breaking settlements with Binance, the world’s largest virtual currency exchange, totaling $4.368 billion. Binance faces a $3.4 billion penalty from the Financial Crimes Enforcement Network and a $968 million penalty from the Office of Foreign Assets Control (OFAC).
Binance admitted to willfully operating as an unregistered money services business and failing to establish an effective anti-money laundering (AML) program. The settlements arise from a series of serious violations, including Binance’s failure to prevent and report transactions linked to terrorist groups, ransomware attacks, and child exploitation, resulting in significant risks to the integrity of the financial system. Binance will appoint a monitor for five years to ensure compliance and will completely exit the U.S. market.
These settlements highlight the commitment of the Treasury Department to actively enforce AML and sanctions laws within the virtual currency industry. If Binance fails to adhere to its obligations, it will face a $150 million suspended penalty.
3. Settlement Agreement Between the U.S. Department of the Treasury’s Office of Foreign Assets Control and daVinci Payments
On November 6, OFAC settled with Swift Prepaid Solutions Inc. d/b/a daVinci Payments, a financial services and payments firm, for $206,213 over daVinci’s apparent violations of OFAC sanctions targeting Cuba, Iran, Syria, and the Crimea region of Ukraine between 2017 and 2022. DaVinci provides digital or physical payment reward card programs for corporate, nonprofit, and government clients through an online platform, which allows daVinci clients to issue payment cards to employees, customers, and others. To redeem the gift card, recipients enter their name, address, and email address on the daVinci website.
DaVinci prevented users from entering an address in a sanctioned jurisdiction and screened usernames against sanctions lists. However, daVinci did not implement geolocation tools to prevent access by users from sanctioned regions or analyze other information in its possession to identify sanctioned parties. Users with internet protocol addresses associated with Iran, Syria, Cuba, and Crimea accessed and used the platform. DaVinci also redeemed prepaid cards for recipients using email addresses with suffixes associated with sanctioned jurisdictions (such as .ir for Iran). OFAC considered daVinci’s failure to incorporate this information into its compliance program as a lack of due caution or care and an aggravating factor in OFAC’s penalty analysis. However, since daVinci voluntarily disclosed and undertook a variety of steps considered to be mitigating factors, OFAC reduced the penalty from a potential maximum of $4.4 billion to less than $300,000.
4. German Tool Co. Pays $1.9M To End Customs Fraud Case
King Kong Tools GMbH & Co KG, a German tool company, paid $1.9 million to settle a whistleblower suit brought by a competitor under the False Claims Act (FCA). King Kong Tools allegedly manufactured cutting tools in China but transshipped them through Germany on the way to the United States and labeled them “made in Germany” to avoid paying the 25 percent Section 301 duty on imports from China. This decision illustrates the U.S. government’s continued use of the FCA to prosecute companies for customs compliance failures.
5. U.S. Government Highlights Export Compliance Errors and Disclosures
At a recent government and defense industry conference, Jae Shin, Acting Director of the Directorate of Defense Trade Controls (DDTC), and Eric Longnecker, Director of the Bureau of Industry and Security’s Office of Strategic Industries and Economic Security, discussed the number and nature of recent disclosures of unauthorized exports of technical data and hardware. Many of these disclosures included deemed export violations. Shin and Longenecker pointed out that companies are mishandling controlled technical data and technology within their own organizations, transmitting controlled information to non-U.S. persons located in the United States in violation of U.S. export rules. Inadvertent and unwitting violations can be prevented with adequate internal controls and regular training, including procedures to ensure that controlled technology is appropriately marked. While deemed export compliance errors are nothing new, they are attracting a renewed focus from enforcement agencies.
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