1. MTRA, MSBs, & OFAC A Synergy of Compliance Gerard (Jerry) W. LiVigni Senior Compliance Officer Office of Foreign Assets Control PH: 202/622-2490 FAX: 202/622-2426 November 13, 2006

2. Sanctions and Embargo Programs Customs THE PRESIDENT Commerce State FBI PROGRAM POLICY Assistant Secretary for Money Laundering and Terrorist Financing Secretary of the Treasury National Security Council Local Law Enforcement Justice (U.S. Attorneys) MSB/IVTS & Bank Regulatory Agencies Intelligence Community Mission, Jurisdiction, and Objectives

3. What is OFAC? Administers and enforces economic sanctions –Imposed by President or mandated by Congress –Apply to all U.S. persons, not just financial institutions Not a Securities Industry Regulator –We cannot mandate compliance –We can (and do) impose penalties for violations –We work with the regulators in their role of ensuring compliance by U.S. financial institutions

4. Regulator’s Role To observe if MSBs have an effective risk based compliance program An effective program will vary by Money Service Business – types, products, and size New AML/BSA Exam & OFAC guidelines – risk assessment for banks – YES BANKS but may be used by MSBs for guidance in developing their own programs Elements to consider User base Types of transactions Level of automation

5. Sanctions (general) In varying degrees, U.S. sanctions restrict or prohibit trade and financial transactions with targeted countries and their agents, as well as terrorists and narcotics traffickers. Use of sanctions goes back to the earliest days of the republic, when embargoes and naval blockades were imposed during times of war to weaken the enemy. Today, sanctions are employed not only to augment armed force, but increasingly in times of peace to achieve a range of foreign policy and national security goals.

6. Underlying Statutes Trading with the Enemy Act International Emergency Economic Powers Act Iraq Sanctions Act Antiterrorism and Effective Death Penalty Act of 1996 Drug Kingpin Act

7. Penalties and Consequences Criminal Penalties Up to $10 million and 30 years in jail IEEPA – up to 20 years for willful violation beginning 05/22/2006 Civil Penalties Up to $1,075,000 per violation –TWEA: $65,000 –IEEPA: $50,000 as of 05/22/2006 –Kingpins: $1,075,000 Violations may result in: Blocked funds and seized goods Negative publicity and loss of business good will

8. Antiterrorism Act of 1996 Criminal Penalties (Terrorism List Governments Sanctions Regulations ; Foreign Terrorist Organizations Sanctions Regulations) –fines under Title 18 of the United States Code –imprisonment for up to 10 years –Or both Civil Penalties (Foreign Terrorist Organizations Sanctions Regulations) –the greater of $55,000 per violation or twice the amount the financial institution was required to block * Syria, Cuba, Iran, Iraq, Libya, North Korea, Sudan; * Foreign Terrorist Organizations

9. OFAC Jurisdiction

10. Who must comply with U.S. sanctions?  American citizens and permanent resident aliens wherever located in the world  Any individual physically located in the United States  Corporations organized under U.S. law, including foreign branches of U.S. companies (and subsidiaries - Cuba and North Korea)  Corporations physically located in the United States, including US branches, agencies and representative offices of foreign corporations

11. Money Service Businesses Currency dealers or exchangers Check cashers Issuers of traveler’s checks, money orders and stored value cards Sellers or redeemers of traveler’s checks, money orders or stored value cards Money transmitters

12. Informal Value Transfer Systems (IVTS) IVTS include various ethnic traditions or practices Hawala Hundi Fei Chen Phoe Kuan Black Market Peso Exchange

13. Primary Tools Blocking Property Trade Controls * Selective or Comprehensive

14. Definitions Blocking Property Property Interest General License Specific License Specially Designated National

15. Blocked Property Title to “blocked” property remains with the sanctions target (designated country, national, or blocked person), but the exercise of rights normally associated with ownership is relegated to the U.S. Treasury Department and controlled by OFAC specific licenses

16. 31 CFR 550.314 Sec. 550.314 Property; property interests. The terms property and property interest or property interests shall include, but not by way of limitation, money, checks, drafts, bullion, bank deposits, savings accounts, debts, indebtedness, obligations, notes, debentures, stocks, bonds, coupons, any other financial securities, bankers' acceptances, mortgages, pledges, liens or other rights in the nature of security, warehouse receipts, bills of lading, trust receipts, bills of sale, any other evidences of title, ownership or indebtedness, letters of credit and any documents relating to any rights or obligations thereunder, powers of attorney, goods, wares, merchandise, chattels, stocks on hand, ships, goods on ships, real estate mortgages, deeds of trust, vendors' sales agreements, land contracts, real estate and any interest therein, leaseholds, ground rents, options, negotiable instruments, trade acceptances, royalties, book accounts, accounts payable, judgments, patents, trademarks or copyrights, insurance policies, safe deposit boxes and their contents, annuities, pooling agreements, contracts of any nature whatsoever, and any other property, real, personal, or mixed, tangible or intangible, or interest or interests therein, present, future or contingent. [51 FR 2463, Jan. 16, 1986]

17. 31 C.F.R. §550.315 Interest … the term “interest” when used with respect to property shall mean interest of any nature whatsoever, direct or indirect. “Interest”

18. Licenses Allows something that is otherwise prohibited General License * Regulatory Provision Specific License * Case by case

19. Specially Designated Nationals and Blocked Persons Individuals or entities all over the globe Owned, controlled by or acting on behalf of targeted governments or groups May be front companies, parastatals, high-ranking officials or specifically identified persons Designated narcotics traffickers, terrorists, terrorist groups, and support networks

20. Specially Designated Nationals SDN SDT SDGT SDNT FTO SDNTK FRYM Persons or entities owned or controlled by, or acting for or on behalf of a targeted country; Specially Designated Terrorists; Specially Designated Global Terrorists; Specially Designated Narcotics Traffickers; Foreign Terrorist Organizations; Specially Designated Kingpins; Milosevic Supporters.

21. Terrorist Targets (SDGT’s) All previously designated SDTs and FTOs are now SDGTs; Have authority to designate supporters of terrorism; Thus far, mostly individuals and charities.

22. SDN List Over 5,000 SDNs and blocked persons identified by OFAC Published and accessible on: –OFAC website –Federal Register

23. Sanctions at a Glance Comprehensive Sanctions Against: Terrorists Narcotic Traffickers Cuba Iran Sudan

24. Sanctions at a Glance Limited Sanctions Against: Balkans Belarus Burma (Myanmar) Cote D’Ivoire (Ivory Coast) Diamonds Iraq Liberia Non – Proliferation (WMD) North Korea Syria Zimbabwe

25. Blocks and Rejects Blocks  SDNs  Cuban citizens unless U.S. residents  Individuals or entities in Cuba  Governmental entities and officials of Cuba, Cote D’Ivoire, and Sudan  Named banks in Burma Rejects  Commercial transactions involving Iran, Sudan and Burma, unless an SDN is involved  Accounts belonging to persons or entities in Iran  SDN vessels

26. Cuba All Cuban Nationals Blocked Applies to foreign subs as well as branches All trade prohibited –Limited exceptions (food, medicine, info material) –Limited remittances allowed –Travel transactions severely limited

27. FFIEC BSA/AML Examination Manual Complete OFAC section of the manual; Although meant for banks, provides guidance that can be used across industries; Requires OFAC Risk Assessment; Quality/Quantity of Risk Matrices; OFAC’s Enforcement Guidance issued on January 12, 2006.

28. Who’s at High Risk? International transactions, including foreign transmissions or wires Foreign customers or consumers Non-resident alien customers or consumers

29. What Does This Mean? No SDN clients or Customers/Consumers No sending funds to or through SDN No business with a sanctioned country (SC) –Certain Nationals or Locations.

30. When There is an SDN or Sanctioned Country What should U.S. institution do if there is an SDN or sanctioned country?

31. What should be done? Research SDN or SC reference Contact Compliance and/or Legal in your firm or institution Refuse new accounts or transactions Block (or reject) and report Submit license application, as appropriate

32. Manual or Electronic Screen Interdict Software –Sold by private vendors –PC based to mainframe Is it necessary? –Depends on customer base and transactions –International at far greater risk –Manual program may be fine for small institutions

33. Effective Compliance Strategies Designate an OFAC compliance officer within the MSB even in “mom & pop operations,” someone must take responsibility. Make sure sanctions information/SDN list is up-to- date. Using a risk-based approach, check all individuals using the MSB services to ensure that your business is not party to a prohibited transaction with SDNs or sanctions programs Make OFAC regulations an integral part of overall compliance efforts. Take full advantage of OFAC compliance resources.

34. OFAC Compliance Resources OFAC Website http://www.treas.gov/ofac OFAC automated fax-on-demand service (202) 622-0077 OFAC Hotline (800) 540-6322 Monday - Friday 7:00 am to 7:00 pm EST

35. OFAC Contacts www.treas.gov/offices/enforcement/ofac/contacts.shtml

36. OFAC Homepage www.treas.gov/ofac