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sanctions

The US government, acting through the US Department of the Treasury and the Office of Foreign Assets Control has issued a second set of sanctions against foreign cryptocurrency exchange, this time as part of a larger action against the biggest and longest established Dark Web Market, which is also subject to sanctions. That's all very interesting but buried in the story is something fascinating: a one-stop, global, hawala service.

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Luke Raven provides an accessible and clearly set out explanation of the issues surrounding the imposition and effect of financial sanctions.

It was in 2014, in Sochi, shortly after Russian-backed terrorists in Eastern Ukraine shot down Malaysia Airlines flight MH17 that Formula One granted Russian President Vladimir Putin a unique privilege: at the first Formula One race in Russia in modern times, he was allowed to go into the cool-down room and to talk to drivers, teams and officials. He had had special treatment throughout: drivers were required to come to the front of the grid and to stand for the Russian national anthem and he sat, in pride of place, next to the then undisputed boss of F1, Bernie Ecclestone. But the world didn't really care about one plane from a minor nation far away from the centres of commerce, industry...

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US President Biden has signed a new Executive Order Blocking Property Of Certain Persons And Prohibiting Certain Transactions With Respect To Continued Russian Efforts To Undermine The Sovereignty And Territorial Integrity Of Ukraine (the capitals are exactly how the US department of the Treasury wrote this in its notice).

OFAC has issued Ukraine General License (sic) Numbers 17, 18, 19, 20, 21 and 22.

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It sounds very American but the "Office of Financial Sanctions Implementation" is a part of the UK Treasury, effectively the equivalent of the USA's Office of Foreign Assets Control, OFSI as against OFAC, then. OFSI is gaining increased attention since the UK left the EU, as the UK begins to develop its own financial sanctions regime.

This case is brought under EU-era law. Importantly, it is also against a FinTech company, a sector widely considered under-regulated and lacking in compliance structures.

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OFAC has long restricted dealings by US citizens - and others that it can claim jurisdiction over - in relation to ships and aircraft. These are usually in support of some other sanctions. There's no point in applying sanctions to an airline if the aircraft aren't owned by the airline so they can just continue under a new name. So individual aircraft as sanctioned which means it's next to impossible to operate at any airport and to pay for bunkering supplies.

On 16th July 2021, the US Department of the Treasury through its Office of Foreign Assets Control (OFAC) added to its list of sanctioned persons as part of the USA's continued action relating to legal and regulatory changes made in Hong Kong. They are imposed by Biden under a Trump era Act created to impose sanctions with respect to foreign persons involved in the erosion of certain obligations of China with respect to Hong Kong, and for other purposes."

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German software company SAP SE has done a deal with the USA's OFAC to avoid court proceedings relating to transactions with Iran. But that's not the important part of this story: what matters is that services were provided "in the cloud" and OFAC claims jurisdiction over it.

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The United States' Office of Foreign Asset Control has issued a penalty to a company that provides "security and scalability platforms for digital assets and offers non-custodial secure digital wallet management services." The case is interesting because it establishes that, for sanctions purposes, the internet is not a borderless world. It also demonstrates issues with Know Your Customer processes in non-face-to-face business - and the fact that, you know, people lie.

It raises serious questions for those who deliver services via the internet and which have any US footprint.

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Below is a notice from FinCEN, the USA's Financial Intelligence Unit. But there's a subliminal message. It's issued out of the FinCEN distribution system but it makes it very obvious that FinCEN is part of Treasury. And, as we know, you don't mess with Treasury, ergo you don't mess with FinCEN.

The actual subject is scary, too.

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Deutsche Bank will, in the not too distant future, become a cause of study in universities, colleges and business schools across the world. It will become the iconic example of how not to run a bank.

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Essentra FZE Limited, a manufacturer of cigarette filters and tear tape has agreed to forfeit USD 665,112 in respect of "apparent" breaches of US sanctions relating to North Korea. Essentra is a company registered in the United Arab Emirates with no physical presence in the USA.

The USA describes it as "egregious."

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This is the full text of the UK's initial sanctions list published 6 July 2020, segregated into topics. We have also reproduced the UK's statement about the status of sanctions.

See here for commentary.

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