You are an AML officer in a bank and you have to take a decision regarding the following transactions. These transactions were blocked automatically by the internal software of the bank, because the internal system considers them suspicious based on the info of the transactions (beneficiary, details, payer, amount, country of origin). However, as a software, this system may not be 100% trustable, and maybe the transactions are not really suspicious. Answer the following questions: Would you allow them? Why? If not, why? Are they suspicious? Do you consider the amount of money relevant? Do you consider that the country of origin or destiny is risky? Would you contact the client to ask about the transaction? If the transaction is suspicious, what else would you do? If the client doesn’t want to collaborate, what would you do? You can use this system https://sanctionssearch.ofac.treas.gov/ to check if some names or details of the transactions are part of a sanction programme of the United States.
- Martina, a client of your bank in Germany sends 5.000 euros. The beneficiary of this transaction is Mike Poleman in his bank account in Raiffeisen Bank Aval in Ukraine. Details of the transaction: Payment of rent Pavel GUBAREV.
In this particular case, the analysed transaction doesn’t arouse any suspicion, because the amount is not unusually high, it is directed to perform a rental payment, we don’t have any negative information about either the sender and beneficiary of the transaction.
However, what we can find as suspicious is the name written in the details of transaction, which corresponds to Paul Gubarev. A targeted control within the Sanction List provided by the OFAC has showed the presence of this Ukrainian citizen, subjected to the economic sanctions stated by the United States Treasury. The same person is listed in the Council Decision 2014/145/CFSP, which provides more specific information about him, declaring that Paul Gubarev was responsible for recruiting people for the Russian separatist armed forces in Donetsk region.
Through the Executive Order (E.O.) 13660 issued by U.S. Government and European Council Decision 2014/145/CFSP, an international emergency was declared, to deal with the threat posed by the actions and policies of certain persons who had undermined democratic processes and institutions in Ukraine; threatened the peace, security, stability, sovereignty, and territorial integrity of Ukraine; and contributed to the misappropriation of Ukraine’s assets. This means that all assets of the listed persons and entities should be frozen. It is also prohibited to make any funds or assets directly or indirectly available to them, as laid down by article 2, Decision 2014/145 CFSP.
In order to both allow or deny the transaction, we should figure out if it is likely to be considered safe or not. Therefore, we should contact our client and ask her any further information about the business relationship with the beneficiary person, questions about his identity, who is the person specified in the transaction’s details, if she knows him and if she knows this person has been sanctioned. If the client doesn’t want to cooperate, then we couldn’t proceed with the unblocking of the transaction, as Mike Poleman could be a fake customer identity or a person who deals with the sanctioned Ukrainian citizen, with the aim of terrorism financing threating Ukraine sovereignty. Otherwise, we should submit a report to the FIU as provided for article 36, paragraph 1 of the Directive 2015/849 or OFAC authorities and cancel the transaction because it could be violating the concerned sanctions.
- Laura, a Spanish businesswoman is receiving 20.000 euros in her bank account in Italy. The money comes from a bank account in Ukraine, and the payer is Transaviame LTD. Details of the transaction: FEODOSIYA ENTERPRISE.
In the present case, we can notice that the amount of the transaction received by this client is unusually high. As issued by the EU Directive 2015/849, at article 11, letter b, subparagraph i), we should perform customer due diligence measures as the amount received exceeds €15000. So, first of all, we should apply the procedure described in article 13, asking the client her identity on the basis of independent document; assessing and, as appropriate, obtaining information on the purpose and intended nature of the business relationship; conducting ongoing monitoring of the business relationship.
However, as the internal system of the bank has blocked the transaction, we may need to perform further analysis about the subjects of the transaction. As we noticed, the details of the transaction specify FEODOSIYA ENTERPRISE. The same enterprise has been included in OFAC sanctions list, which informs that this is an oil enterprise located in Crimea Region of Ukraine, where it has been supporting, materially or financially, or benefitting from Russian decision-makers responsible for the annexation of Crimea or the destabilisation of Ukraine. The same enterprise has not been concerned by European sanctions.
We should ask our client any information about the money she received, any explanation about the enterprise specified in details and why she is receiving money. In case she couldn’t answer adequately to our questions or she refused to fulfil her duties, then we should be legitimate to suspect money laundering activity or terrorism financing, so we should submit a report to the FIU as provided for article 36 of EU Directive 2015/849.
Consequently, we should not approve this transaction because of the well-founded suspicion of terrorism financing in Crimea Region. In fact, any relationship with this entity could result in the imposition of secondary sanctions by the OFAC authority, which could involve a tightening of relations with the American authorities and heavy economic sanctions.
- Mateus, a real estate agent in Portugal, receives 300.000 euros from Ukraine. He receives the money in his bank account in a Portuguese bank. The payer is Dmitry Mihajlovich POLONSKY. Details of the transaction: Apartment in Porto.
As mentioned in the other case, the elevated amount of this transaction is the reason of our suspicion, since the limit concerned by the Directive 2015/849, article 11, letter b, is €15000, so we should proceed with ordinary customer due diligence measures, provided for article 13, which include: the identification of the customer; asking information about the nature and purpose of business relation; conducting ongoing monitory of the business relationship.
Nevertheless, we have to consider that our client is a real estate agent and this transaction is probably the result of a purchase agreement about an apartment in Porto, so the price would not to be considered as “unusual”. In fact, we could ask the client further information about this transaction, for example any documentation proving that this amount is due by the reason of a sale; a signed copy of the payment invoice; any proof about the origin of the funds. In addition, we could ask to the Ukraine bank information about the payer in order to assure his reliability.
All these information could not be enough to allow the unblocking of this transaction, since the OFAC sanction list includes Dmitry Mihajlovich POLONSKY in UKRAINE EO-13660 program, qualifying him as sanctioned person. Secondary sanctions are inflicted against banks that violate the OFAC provisions, supporting financial and/or commercial activities subject to a ban. Sanctions consists in denying access to the US market, the prohibition to have correspondence accounts and transit accounts until the prohibition of currency trading in exchange with USD.
- Why did the USA include Russia in a sanctions list programme? What is the USA aiming when doing this?
By the mean of these list of sanctions, the U.S. Government, personified by the OFAC, aimed to penalize Russian Government due to the illegal admission of Crime in its territory. In March 6, 2014, the President, in Executive Order (E.O.) 13660, declared a national emergency to deal with the threat posed by the actions and policies of certain persons who had undermined democratic processes and institutions in Ukraine; threatened the peace, security, stability, sovereignty, and territorial integrity of Ukraine; and contributed to the misappropriation of Ukraine’s assets. These sanctions include the imposition of sanctions against persons responsible for or complicit in certain activities with respect to Ukraine; against officials of the Government of the Russian Federation; against persons operating in the arms or related materiel sector of the Russian Federation; and against individuals and entities operating in the Crimea region of Ukraine. E.O. 13662 also authorizes the imposition of sanctions on certain entities operating in specified sectors of the Russian Federation economy. Finally, E.O. 13685 also prohibits the importation or exportation of goods, services, or technology to or from the Crimea region of Ukraine, as well as new investment in the Crimea region of Ukraine by a United States person, wherever located. By order of these sanctions, any person living in U.S.A. or economically related with this country could not maintain any commercial business with sanctioned persons present in the list.
Furthermore, another blocking executive order named E.O. 14024 of April 15, 2021 has been declared in order to challenge national security threats posed by specified harmful foreign activities of the Russian Federation, including: its efforts to undermine the conduct of free and fair democratic elections and democratic institutions in the United States and its allies and partners; engaging in and facilitating malicious cyber-enabled activities against the United States and its allies and partners; fostering and using transnational corruption to influence foreign governments; pursuing extraterritorial activities targeting dissidents or journalists; undermining security in countries and regions important to United States national security; and violating well-established principles of international law, including respect for the territorial integrity of states. E.O. 14024 permits the United States to impose blocking and short-of-blocking sanctions.
- Imagine that a natural person receives money from a sanctioned company included in the OFAC lists. The natural person receives the money in his account in a French bank. Should this bank block the transfer? If yes, why? Why is this French bank complying with USA law outside the USA?
Before proceeding, it is essential to know that OFAC sanctions are divided into two categories: primary and secondary sanctions. Primary sanctions do apply to U.S. persons, that is any individual within the territory of United States, any citizen of the United States or permanent residents anywhere in the world and US entities. Instead, secondary sanctions are considered “extra-territorial”, since they can be applied to any person or entity making certain transactions, regardless of nationality or domicile. The latter have the aim to discourage trading and commercial activities within persons or entities included into OFAC sanction programs, through the imposition of severe economic sanctions imposed against the reference bank.
Therefore, the bank in issue should block this transfer, since despite of not being subject to USA law, it could be sanctioned by U.S. Government and included into SDN list for doing business with the targets of the issuing country’s sanctions regime.