Historic whole-of-government effort to sanction Russia: what financial institutions need to know

The US government’s tight focus on economic sanctions and export controls addressing Russia’s ongoing war in Ukraine means that multinational, regional and potentially even community banks face a heightened enforcement environment and complex sanctions and anti-money laundering compliance requirements.

We anticipate that the Department of Justice will probe whether any bank or banker facilitated evasion of the sanctions aimed at Russia.

In this alert, we highlight key aspects of the US government’s recent activity in this area, and then offer three takeaways for financial institutions to consider.

• Deputy Attorney General Lisa Monaco said in a March 2, 2023, speech at the American Bar Association’s White Collar Crime Conference: “What was once a technical area of concern for select businesses should now be at the top of every company’s risk compliance chart. . . . In today’s world, sanctions are the new FCPA. And across the [DOJ] and indeed across the globe, we are handling corporate investigations that involve sanctions evasion” in a variety of industries, including banking and fintech.


• Early in March 2023, three executive branch agencies – the US Department of Justice (DOJ), the US Treasury Department’s Office of Foreign Asset Control (OFAC), and the US Department of Commerce’s Bureau of Industry and Security (BIS) – announced coordinated efforts to surge resources and penalize Russia for its ongoing illegal war in Ukraine through powerful sanctions and export controls.


• The surge includes significantly more resources for the DOJ’s National Security Division (NSD), the Money Laundering and Asset Recovery Section’s (MLARS) Bank Integrity Unit, and federal law enforcement agents within BIS.
  
  
  • NSD will add as many as two dozen prosecutors to the section responsible for supervising and approving all DOJ export control and sanctions investigations and prosecutions, and the Bank Integrity Unit – which works regularly with the NSD – will gain prosecutors as well.
  
  
  • In its fiscal year 2023 budget, BIS requested – and ultimately received – increased funding to hire 20 new special agents and law enforcement analysts “to identify, investigate, and disrupt malign actors who leverage the U.S. technology ecosystem.”
  
  
  • NSD will be hiring its first Chief Counsel for Corporate Enforcement. This coincides with DOJ’s repeated public statements that corporate crimes are increasingly a national security issue (eg, recent public statements made by AAG Polite and DAG Monaco).
  
  
  • Additionally, DOJ launched a new technology strike force to ensure US technology does not end up in bad actors’ hands.
  
  
  • DOJ’s Task Force KleptoCapture – an interagency body designed to enforce the sweeping sanctions against Russia, enters its second year.
  
  
  • Task Force KleptoCapture presumably has joined forces with MLARS’s Kleptocracy Asset Recovery Initiative, which, according to AAG Polite, “has targeted and restrained more than $3.6 billion relating to foreign official corruption and associated money laundering affecting the U.S. financial system.”
  
  
• DOJ also recently updated its Corporate Enforcement Policies relating to corporate crime. As relevant to sanctions and money laundering violations, the updated Corporate Enforcement Policies provide:
  
  
  • The NSD has its own voluntary self-disclosure (VSD) guidance that differs from the Criminal Division’s and regulatory agencies’ respective VSD policies (for example, in terms of what is considered “voluntary” to receive resolution credit). Also, a company that identifies potentially willful conduct, but chooses to self-report only to a regulatory agency and not to DOJ, will not qualify for the benefits of a VSD under NSD’s policy if there is a DOJ investigation.
  
  
  • For companies that voluntarily resolve violations with DOJ, DOJ will require executive compensation incentives tied to compliance. DOJ also launched a three-year pilot program that encourages companies to claw back compensation from wrong-doer employees.
  
  
  • DOJ has cautioned companies concerning the use of ephemeral messaging apps. Companies facing DOJ investigations need to adapt by assessing employees’ use of such apps and devising risk-based policies and compliance controls and procedures designed to reduce or eliminate the possibility that an employee accused of wrongdoing is able to delete their work-related communications, and to ensure that companies can access and produce third party communications if called upon to do so.
  
  
• Additionally, multinational banks or those with a subsidiary, customer or counterparty base located in the UK or EU face an additional layer of complex sanctions compliance because the UK and EU’s sanctions regimes do not always overlap directly with the US sanctions’ designations.

Three takeaways

• The private sector and financial institutions have long been considered gatekeepers under the US Bank Secrecy Act (BSA). However, enforcement agencies are placing increasing emphasis on, and increasing resources devoted to, combatting sanctions evasion. This move coincides with DOJ’s renewed emphasis on corporate criminal enforcement and recent message that corporate crime is a national security issue.


• Financial institutions should regularly review and ensure they consider the frequently updated OFAC, EU, and UK sanctions lists, including for sectoral sanctions – through updates to existing BSA/anti-money laundering (AML) compliance software, manual reviews, or both. They should also regularly monitor administrative and criminal cases published by OFAC, BIS and DOJ as these actions highlight ways in which private sector actors have been caught in export control and sanctions-related investigations and enforcement actions.


• Financial institutions should also consult counsel to (i) develop risk-based compliance policies, procedures, and controls with respect to employees’ use of ephemeral messaging applications; and (ii) design thoughtful plans in the event they or their employees receive a subpoena, outreach or contact from law enforcement, and/or questions from the press related to Russia sanctions.

 

DLA Piper’s global sanctions and compliance team includes former DOJ NSD, MLARS and other federal prosecutors and financial regulators, including attorneys who speak Russian. We have significant experience in federal regulatory and law enforcement investigations involving sanctions and anti-money laundering in the banking sector, as well as significant experience with matters in Russia, Eastern Europe and Asia. If you would like to discuss the topics in this alert or your concerns about sanctions or BSA/AML compliance, please contact any of the authors or your relationship attorneys.