On 15 April 2016, the US Department of the Treasury’s Office of Foreign Assets Control ("OFAC") issued regulations to implement the Hizballah International Financing Prevention Act of 2015, authorizing secondary sanctions against foreign financial institutions ("FFIs") that facilitate or conduct certain activities for the benefit of Hizballah.
The Hizballah International Financing Prevention Act of 2015 ("HIFPA") was signed into law by President Obama on December 18, 2015. The legislation provides the Obama administration with additional tools to impose secondary sanctions targeting Hizballah's financial infrastructure. Section 102(a)(1) of HIFPA requires the administration to promulgate regulations to prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account by an FFI that the President determines to have engaged in certain activities benefitting Hizballah. The sanctionable activities include:
- knowingly facilitating a significant transaction or transactions for Hizballah;
- knowingly facilitating a significant transaction or transactions of a Specially Designated National (SDN) acting on behalf of or at the direction of, or being owned or controlled by, Hizballah;
- knowingly engaging in money laundering to carry out an activity described above; or
- knowingly facilitating a significant transaction or transactions or providing significant financial services to carry out an activity described above.
The new regulations provide guidance, interpretation and exceptions for the implementation of the secondary sanctions provided under the HIFPA. OFAC will be responsible for administering the secondary sanctions and will maintain a Hizballah Financial Sanctions Regulations List ("HFSR List") of FFIs that have been sanctioned. In addition, OFAC has revised the current SDN list by adding the reference to secondary sanctions to Hizballah-related SDNs.
The regulations provide further details regarding the type of restrictions that can be imposed on the correspondent or payable-through accounts, including prohibitions or restrictions in relation to the provision of trade finance, personal remittances, or foreign exchange transactions, or limitations (including pre-approval requirements) in the form of transaction volume limitations.
The new regulations also contain a general license allowing for transactions related to closing a correspondent or payable-through account, so that a US bank can terminate its relationship with a foreign financial institution that becomes the target of the Hizballah secondary sanctions. The US bank terminating such a relationship will also need to file a report with OFAC.
The legislation authorizes the administration to waive the prohibitions or restrictions in the interests of US national security. The President has delegated this waiver authority to the Department of State.
US banks should closely monitor developments related to the HFSR List and, if needed, take timely actions to terminate relationships with listed FFIs to take advantage of the general license. FFIs should review sanctions risks in their business which may be impacted by these new Hizballah-related secondary sanctions, ensuring that appropriate compliance policies and procedures are in place to avoid exposure to US secondary sanctions. Herbert Smith Freehills has extensive experience advising clients with respect to US, EU and other relevant sanctions regimes.