OFAC Settlement Illustrates Sanctions Compliance Risks for Foreign Asset Managers Trading U.S. Securities

Hunton Andrews Kurth released a client alert on the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) settlement with EFG International AG. On March 14, 2024, OFAC announced a settlement (the “Settlement”) with EFG International AG, a global private banking group based in Switzerland with many global subsidiaries (collectively, the “Manager”) regarding violations of OFAC rules alleged to have occurred as a result of the Manager’s buying, selling and, in many cases, merely holding, U.S. securities on behalf of persons sanctioned by OFAC. 

The Bottom Line

In a compliance note issued by OFAC on March 6, 2024 (Tri-Seal Compliance Note: Obligations of foreign-based persons to comply with U.S. sanctions and export control laws) (“Compliance Note”), the U.S. Department of Justice (“DOJ”) and the Bureau of Industry and Security (“BIS”) of the U.S. Department of Commerce (collectively, the “tri-seal agencies” ) provided key guidance on the legal exposure of non-U.S. persons arising from U.S. sanctions and export controls. Among other things, the Compliance Note explains that even though foreign persons generally are not prohibited from dealing with blocked persons by virtue of OFAC sanctions (as U.S. persons would be), many of those sanction programs extend to foreign persons who “cause” U.S. persons to violate sanctions. For further information on the Compliance Note, see our client alert here.

In the case of the Manager, OFAC applied the principles set forth in the Compliance Note and found that the Manager’s transacting in U.S. securities for, or holding U.S. securities on behalf of, blocked persons resulted in various U.S. market participants unknowingly processing securities transactions on behalf of persons sanctioned by OFAC. As discussed further in our client alert, although the Settlement does not specifically identify these U.S. market participants, it is likely that they included major U.S. banking or securities firms and one or more centralized securities depositories.

Foreign financial institutions and other foreign firms should conduct ongoing due diligence on their clients and have in place appropriately responsive controls as part of a risk-based sanctions compliance program.

Read the full client alert.

About Author

AndyC

Andy Curtis is an award-winning security consultant, researcher and public speaker. He has been working in the computer security industry since the early 1990s, having been employed by state and federal government, leading healthcare and banking providers across three continents. He has given talks about computer security for some of the world’s largest companies, worked with law enforcement agencies on investigations into hacking groups, and is a regular voice on TV and radio explaining IT security threats.

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