Economic sanctions and export controls have become an increasingly important tool in the US foreign policy and national security toolbox, with a renewed emphasis on individual responsibility for corporate compliance failures. That is, the sanctions compliance stakes have never been higher for companies and their C-suite executives.
In this alert, we summarize recent key developments that will materially increase companies’ compliance risk this year, particularly for the commodities sector. These developments are stoking government investigations and enforcement efforts. Commodities companies should review and strengthen their sanctions compliance programs.
US enforcement agencies have access to more business and banking information than ever before to detect, investigate and enforce sanctions violations
The enactment of the Anti-Money Laundering Act of 2020 (the AML Act) has ushered in several significant changes to anti-money laundering and corporate transparency laws, and their reach extends beyond the financial sector.
It was the express intention of Congress that the AML Act improve coordination and information sharing across government agencies and “assist national security, intelligence, and law enforcement agencies with the pursuit of crimes." To meet these goals, the AML Act expanded the government’s bank subpoena authority, permitted the sharing of suspicious activity reports with more foreign entities, increased incentives for whistleblowers, and created a beneficial ownership information reporting requirement for certain companies.
- Expanded subpoena authority: Subpoena power under the AML Act was expanded beyond a foreign bank’s records related to a US correspondent account to any account at the bank, so long as the records are relevant to certain types of investigations. This is a powerful tool that will give the government an ability to obtain and scrutinize a wider range of foreign bank transactions and to more effectively investigate cross-border transactions and conduct linked to sanctions violations.
- Sharing of suspicious activity reports (SARs) with foreign affiliates: Before the AML Act, financial institutions could only share SARs outside of the US with certain controlling entities. A pilot program initiated under the AML Act permits SARs to be shared with foreign branches, subsidiaries, and affiliates (excepted are China, Russia, and jurisdictions subject to US sanctions).
- Increased cap on whistleblower incentives: The United States already offers rewards for tips that lead to successful prosecutions of money laundering and other financial crimes. The AML Act removes the cap on such rewards, permitting them to reach as high as 30 percent of all monetary sanctions recovered from the related enforcement action. In this regard, the financial incentives under the AML Act are now comparable to similar False Claims Act financial incentives that have spawned a wave of private sector relator actions.
- Divulgence of beneficial ownership information: The AML Act marks the first time the United States has required companies to provide beneficial ownership information to the government on a widespread basis. President Biden also asked Congress to increase funding for this initiative by roughly 50 percent. As a result, US enforcement agencies will now have a powerful tool to detect and investigate potential sanctioned person investments in US businesses.
Implementation of the government’s expanded authorities is under way
Last month, FinCEN released more detailed implementing regulations with a Notice of Proposed Rulemaking (NPRM) that focuses on the new beneficial ownership information (BOI) reporting requirement. The information, according to the NPRM, will be used to support law enforcement and tax investigations and will be shared with “intelligence and security professionals."
This creates yet another centralized source of information for agencies to access for investigative and intelligence purposes, which will, in turn, only increase the odds that a company which does business with a reporting entity – such as any number of commodities entities – could get swept up in an investigation and enforcement action.
The Biden Administration signals it is laser-focused on sanctions enforcement
In October, the US Department of Justice publicly underscored the critical role of export control and sanctions compliance for corporations and corporate management. The sanctions and export control investigations continue to grow, as Justice has promised continued innovation and expansion of enforcement actions in close partnership with the Treasury and Commerce Departments. The commodities sector is expected to be one of the key industrial sectors subject to this renewed scrutiny.
The US government is looking closely at the commodities sector
The US government’s interest in the commodities sector is reflected in OFAC’s Sanctions Advisory for the Maritime Industry, Energy and Metals Sectors, and Related Communities, released in 2020. The Advisory includes due diligence recommendations for the commodities sector, particularly for global commodity trading, supplier and brokering companies.
Companies in the sector should closely review this advisory and OFAC’s related Framework for Compliance to see if their own policies and procedures measure up.
These factors are particularly relevant to compliance risk in the commodities sector
The government’s focus on sanctions and the increased visibility into financial transactions and business entities could have a measurable effect on compliance risk within the commodities sector for several reasons:
- The volume and velocity of financial transactions across commodities supply chains increase the odds that more commodities transactions will come under scrutiny from government law enforcement, national security and intelligence agencies.
- Significant enforcement actions in the last three years have demonstrated that bad actors, sometimes supported by foreign governments, pursue the illicit acquisition of a wide range of commodities, such as agricultural products, oil, coal, and minerals.
- Financial institutions already are required to implement strict controls to detect and prevent financial transactions linked to suspected economic sanctions violations. Recent legislation and enforcement priorities will only increase financial institution screening of commodities transactions.
- Global cooperation in sanctions enforcement is likely to increase as well. For example, the current Administration is forging partnerships with foreign countries that can be expected to enhance cooperation in the areas of investigations and enforcement. This may have a unique impact on the commodities sector, which involves a high volume of cross-border transactions.
In sum, sanctions enforcement is clearly a priority for the current administration. And with more investigative tools and more information at the US government’s disposal, the commodities sector can expect more investigative and enforcement actions in 2022. The compliance stakes have never been higher.
No kidding, commodities sector, it’s time to check your compliance program.
For more information, please contact DLAPiperCommodities@dlapiper.com or any of the authors of this alert.