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The most significant action that the Administration has taken over the reporting period is working to establish G-7 sanctions coordination and monitoring activity, and expand Russia sanctions. Additionally, the large fines for egregious violations of sanctions may be indicative of those types of fines that the Administration may pursue for future sanctions violations, particularly under the Russia sanctions regime.
The Biden Administration has imposed a series of notable civil fines for sanctions violations in recent months, with two notable examples during the reporting period. The first was the fine of the digital asset trading platform Poloniex by the Treasury Department of over $7.5 million for violating sanctions on Crimea, Cuba, Iran, Sudan and Syria. The Administration alleged that Poloniex knew the geolocation of the sanctions violations based on their ISP addresses and failed to take effective action. The Administration also fined British American Tobacco (BAT) over $500 million to settle a potential civil liability for apparent violations of U.S. sanctions on North Korea and weapons of mass destruction (WMD) proliferators. According to the Treasury, the BAT agreement is the largest settlement it has made with a non-financial institution.
Russia
The reporting period saw the G7 finance ministers meet and agree to new sanctions against Russia to include targeting sanctions evasion involving third countries, and seek to undermine Russia’s future energy production and curb trade that supports Russia’s military. Separately, U.S. officials have stated that they also expect G7 members to agree to a new approach to sanctions where all exports to Russia are banned unless they are on a list of approved items list rather than the inverse, which would be a major change from the way that sanctions against Russia are currently constructed. The G7 Enforcement Coordination Mechanism met on April 27th and the U.S. and German finance ministers met in early May to discuss ways to strengthen coordination on the enforcement of sanctions and export controls, including through the sharing of information from and with the private sector, and improvements to guidance issued by the member states. Other diplomatic activities included multilateral and interagency delegations to Kazakhstan and U.S. high-level visits to the EU to coordinate sanctions enforcement.
The Administration is continuing to engage in multiple enforcement and related actions. The reporting period saw the first transfer of forfeited property of a sanctioned Russian individual to Ukraine and a flurry of diplomatic activity that will likely shape the future direction of Russia sanctions, particularly given Ukraine’s looming counter-offensive. News reports indicated that the Department of Justice (DOJ) is investigating whether global digital asset trading platform Binance was used by designated Russian individuals or entities to evade sanctions. During the reporting period, the Department of Justice also indicted two separate individuals for laundering or attempting to launder tens of millions for sanctioned Russian persons. The Administration, including the DOJ, may increase their focus on “gatekeepers,” such as investment advisers, hedge funds, law firms, private equity managers, and other company service providers to counter Russian sanctions evasion efforts independent of congressional efforts.
Iran
The Administration engaged in multiple designation actions with respect to Iran over the reporting period, in coordination with international partners as well as on its own. First, the Administration continued to target Iran for its human rights abuses, including those attached to Iran’s security services. The Administration also issued the first designations under Executive Order (E.O.) 14078, “Bolstering Efforts to Bring Hostages and Wrongfully Detained U.S. Nationals Home,” which was issued last year and builds on the 2020 Hostage Recovery and Hostage Taking Accountability Act, targeting both Iranian and Russian individuals. Finally, the Supreme Court issued an opinion stating that the United States District Court for the Southern District of New York has jurisdiction over the prosecution of state-owned Turkish bank Halkbank, which reportedly laundered billions of dollars of Iranian oil and gas proceeds. If the Court had ruled otherwise, it would have placed serious constraints on the ability of the U.S. to impose sanctions on any state-owned entities.
Miscellaneous
The Treasury Department issued the 2023 De-Risking Strategy, recommending that the Administration consider regulations to require that money service businesses serving non-profit organizations operating abroad in high-risk jurisdictions have reasonably designed and risk-based AML/CFT programs that do not curtail humanitarian operations.
After a rocky start, Congress, with the House in particular, is now increasing its activities in the national security space. The National Defense Authorization Act (NDAA) schedule in the House will likely see the legislation considered by the full House Armed Services Committee at the end of May, with the legislation considered by the whole House in early June. The Senate will likely be acting in the Committee in June, with July or September Floor consideration. The NDAA is important to watch, and sanctions, anti-money laundering, export controls and other such legislative initiatives are usually attached to it in the form of amendments to the legislation in Committee or the Floor.
China
During the reporting period, Senate Majority Leader Charles Schumer (D-NY) announced his intent to consider broad legislation taking aim at China and will likely consider any legislation related to Tik Tok in that effort. Prior to Senator Schumer’s announcement, Senate Banking Committee Chair Sen. Sherrod Brown (D-OH) and Senate Banking Committee Ranking Member Sen. Tim Scott (R-SC) introduced sanctions legislation taking aim at Chinese money laundering organizations and precursor flows related to the fentanyl trade. They were joined by Sen. Jack Reed (D-RI) and Sen Roger Wicker (R-MS), the Chairman and Ranking Member of the Senate Armed Services Committee, indicating that this legislation may be integrated into the NDAA process. Expect a companion to that legislation, which now has 31 bipartisan cosponsors in the Senate, to be introduced in the House soon, with quick movement in that body expected. The House Foreign Affairs Committee is also marking up legislation that strengthens fentanyl-related sanctions, carrying similar provisions to those in the Senate legislation.
Russia
While there is continued focus on Russia, the only legislation introduced during the reporting period was the reintroduction of bipartisan legislation in the House and Senate focused on establishing a congressional nomination process for Russian human rights abusers in Ukraine. Expect more oversight measures from Congress.
Iran
The reporting period saw the introduction of a number of bipartisan bills on Iran either introduced or moved through the legislative process. The House Foreign Affairs Committee Chairman and Ranking Member introduced sanctions legislation targeting Iran’s ballistic missile development and production in the first major bipartisan Iran sanctions bill coming from that Committee in years. The Committee also marked up legislation requiring that the Biden Administration determine whether the Supreme Leader of Iran and much of Iran’s other leadership should be designated for human rights abuses. If the Administration were to designate the Supreme Leader, it would likely close off any hope of renewing the Iran nuclear agreement. Additionally, a bipartisan coalition in the House and Senate reintroduced legislation that would terminate the sunset provision in the Iran Sanctions Act, which is set to expire in 2026, extending those sanctions indefinitely. A slate of partisan Iran sanctions bills introduced during the reporting period may also indicate the intent by House Republicans to attach a number of provisions to the NDAA.
Expect an increase in Russia-related sanctions designations targeting military and dual-use procurement networks ahead of the coming Ukrainian offensive and revisions to G7 sanctions regimes after the spate of meetings this month. As the NDAA moves to the Floor in early to mid-June, expect an increase in the number of sanctions bills introduced; those that are considered by the various committees of jurisdiction (i.e., House Foreign Affairs, House Financial Services, etc) stand the best chance of making it into the House bill.