On November 12, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the designations of Altaf Khanani Money Laundering Organization (Khanani MLO) and Al Zarooni Exchange  pursuant to Executive Order 13581, the transnational criminal organization designation authority. OFAC designated  Khanani MLO  as a transnational criminal organization[1] and concurrently listed Al Zarooni Exchange  based on its being owned or controlled by, or providing support or services to Khanani MLO. Al Zarooni Exchange is located in Deira, Dubai, an international financial center for Iran. It is therefore not surprising that Khanani MLO provides money laundering services for associates of Hizballah, according to OFAC.

These are the second recent OFAC designations in the past few weeks based on the provision of money laundering services. On October 7, 2015, OFAC designated Honduran international narcotics trafficking money launderers and several of their prominent businesses, including Banco Continental pursuant to the Kingpin Act. While the Specially Designated Nationals (SDN) List  and the Sectoral Sanctions Identification (SSI) List contain many banks, Banco Continental is the first bank designated pursuant to the Kingpin Act. The immediate effect of this designation was quite clear, as the Government of Honduras placed Banco Continental under the management of a government-appointed liquidator in response to the listing.

Is OFAC the New Anti-Money Laundering Enforcer?

The Financial Crimes Enforcement Network (FinCEN)  enforces  money laundering controls and related regulatory requirements pursuant to the Bank Secrecy Act. FinCEN also has the authority to identify banks of “primary money laundering concern” pursuant to Section 311 of the USA PATRIOT Act, codified at 31 U.S.C. 5318A. Such a finding requires domestic financial institutions to take certain “special measures” specified in the agency’s final rule. The most significant requirement is the severance of U.S. correspondent and payable through accounts.

FinCEN is only authorized to place special measures on jurisdictions, financial institutions, international transactions, and types of accounts. Thus, it could not have placed Special Measures on the Khanani MLO or the Honduran individuals. The lack of 311 actions against Al Zarooni Exchange  and Banco Continental probably reflects resource allocation within the U.S. Treasury Department. FinCEN’s inaction may also be a temporary response to the August 7, 2015 preliminary injunction granted by the United States District Court for the District of Columbia, which enjoins the Final Rule  imposing a special measure against FBME Bank Ltd. Of course, it remains highly unlikely that any U.S. financial institution would maintain accounts or provide indirect use of accounts in the United States for FBME following the July 2014 Notice of Finding.

Coordinated Domestic and International Enforcement to Combat Money Laundering  

These money laundering designations were possible because of the close collaboration and coordination with:

  • The Drug Enforcement Agency (DEA)
  • Homeland Security Investigations
  • Customs and Border Protection, National Targeting Center
  • U.S. Attorney’s Office for the Southern District of New York (SDNY)
  • U.S. Attorney’s Office for the Southern District of Florida
  • The Australian Federal Police
  • The Australian Crime Commission
  • The Central Bank of the United Arab Emirates
  • The Dubai Police General Headquarters Anti-Money Laundering Unit

Domestic law enforcement took significant steps to protect the U.S. financial system from these alleged criminals. The SDNY U.S. Attorney’s Office indicted the Honduran individuals  for alleged violations of 18 U.S.C. 1956. One of the Honduran designees was also arrested in the United States. Additionally, the DEA arrested Altaf Khanani pursuant to a sealed indictment.

We will continue to monitor efforts to combat money laundering and  publish updates as significant developments arise.