• Price volatility being a threat to the nation’s economic and financial stability
• Reasserting control over the market for fluctuations in important goods and assets
• Attempting to prevent a bubble from bursting
• A belief that cryptocurrency represents a threat to state monetary sovereignty and the ability to effectively print money
• The incredibly high energy demand for cryptocurrency mining (for context, bitcoin mining alone uses more energy than the country of Argentina)

Until this recent clampdown, an astounding 70% of global bitcoin mining took place in China. However, soon after the crackdown, Chinese cryptocurrency miners and traders alike have scrambled to find new homes. For cryptocurrency miners, this was an urgent matter because the less time the mining machines are running, the less money that’s coming in. Interestingly, Austin, TX has become a hub for many of China’s cryptocurrency miners and traders.

Texas Governor Greg Abbott has been a vocal supporter for cryptocurrency mining and trading occurring in the Lone Star State. “It’s happening! Texas will be a crypto leader,” he tweeted in June 2021. Texas has proven to be an optimal cryptocurrency destination for many reasons, including:

• Affordable electricity due to its deregulated power grid
• Recognition of cryptocurrency and the blockchain in its commercial law
• Minimal regulation
• Belief that both the federal and state government will not crack down on cryptocurrencies like the Chinese government has done
• Economic freedom

Interestingly, other countries have also sought to become cryptocurrency hubs. El Salvador became the first country to adopt bitcoin as a national currency, but has failed to get adequate traction as a bitcoin mining and trading destination. Meanwhile, Kazakhstan now ranks as the third-largest bitcoin miner in the world after China and the United States, respectively (and China’s lead is falling fast).

Trade & Sanctions Implications

Cryptocurrencies are gaining significant transaction in the United States and abroad as a legitimate system of currency. Cryptocurrencies offer an alternative means of payment that could be significantly more efficient and potentially even more secure than traditional means of payment. However, an array of U.S. government agencies appear to be wary and have offered limited guidance.

The U.S. Securities & Exchange Commission has cautioned about the increased risk of fraud and manipulation in the cryptocurrency asset class because of the lack of regulation and enforcement. Meanwhile, the Internal Revenue Service (“IRS”) has also stepped up its compliance efforts, adding a question at the top of the Form 1040 asking taxpayers to disclose whether they received or transmitted any financial interest in virtual currency in 2020.

Cryptocurrencies have important international trade and sanctions implications, too. The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) has increased enforcement in recent months against cryptocurrency service providers whose products and services violate U.S. sanctions laws. For example, in February 2021, OFAC announced a settlement with Bitpay, Inc., a U.S.-based payment processing services provider that helps merchants accept digital currency as payment. OFAC accused Bitpay of violating U.S. sanctions over 2,000 times by allowing individuals and entities located in Crimea, Cuba, North Korea, Iran, Sudan, and Syria to transact with U.S. merchants using the Bitpay application. The half-million-dollar settlement created awareness in the sector about OFAC cryptocurrency compliance obligations. OFAC has underscored that sanctions compliance obligations are the same regardless of whether a transaction involved digital currency or traditional fiat currency. Until there is more regulation and clarity, we recommend continuing to utilize traditional and reliable methods of payment such as wire transfers for international trade transactions as fraud and security risks are rampant in cryptocurrency payments.

What You Should Do

Violations of U.S. sanctions laws can result in heavy penalties and even criminal liability. To ensure you are proactive about your sanctions compliance, you should:

• Develop an effective sanctions compliance program– A key foundation of proactive and effective sanctions compliance requires the development of a sanctions compliance plan. A sanctions compliance plan establishes a set of procedures for your organization to ensure that everyone is on the same page about how standard processes work, who is responsible for what, how to identify violations, what to do when violations occur, etc. A sanctions compliance plan helps build consciousness in your organization that compliance is critical – both to avoid costly penalties and also to protect national security. Diaz Trade Law helps businesses create sanctions compliance manuals that help prove you have a process in place to vet proposed transactions and ensure you can prove you can take compliance seriously and implement all of the important great weight mitigating factors. Diaz Trade Law has significant experience in developing sanctions compliance plans for organizations without plans. Additionally, Diaz Trade Law can assist your business in auditing and improving your current plan so that it is in its best shape.
• Perform sanctions compliance training – A foundation of a strong sanctions compliance program is sanctions compliance training. Training is important because it (1) ensures that all employees understand the sanctions regulations and reinforces internal policies and procedures, (2) demonstrates to federal government agencies that your business is proactive about sanctions compliance, and (3) avoids your business from being subject to costly penalties and even criminal liability. Fortunately, sanctions compliance training can be highly tailored to meet your company’s needs. All of your training events include assessments for comprehension, certificates for successful participation, and ample opportunities for Q&A. For your next sanctions compliance training event, trust Diaz Trade Law to provide highly-effective, engaging training.
• Properly vet transactions– Unsure whether a proposed transaction violates OFAC sanctions? Diaz Trade Law has significant experience vetting your potential transaction against U.S. sanctions laws. Through research and due diligence, Diaz Trade Law ensures that your transaction won’t get you in trouble later down the road. In particular, it is important to vet end-uses (how is your product going to be used?), end-users (who will be using your product?), and destinations (where will your product be used?).
• Submit voluntary self-disclosures when appropriate – If your business believes it may have violated OFAC sanctions, it can be in your business’ strategic interest to submit a voluntary self-disclosure (“VSD”). OFAC encourages anyone who may have violated OFAC-administered regulations to disclose the apparent violation to OFAC voluntarily. A voluntary self-disclosure to OFAC is considered a mitigating factor by OFAC in enforcement actions, and pursuant to OFAC’s Enforcement Guidelines, may result in a reduction in the base amount of any proposed civil penalty. Diaz Trade Law has significant experience filing VSDs and mitigating penalties. For detailed information on filing a VSD with OFAC, check out our article Submitting a Voluntary Self-Disclosure to OFAC published by Bloomberg Law.
• Ensure specific license applications are applied for when necessary – A specific license is an authorization from OFAC to engage in a transaction that otherwise would be prohibited. Businesses may apply for OFAC specific licenses to release blocked funds, generally authorize transactions, and many other purposes. Diaz Trade Law has significant experience submitting specific license applications and receiving authorization for proposed transactions on behalf of our clients.
• Have a process in place for corrective action when necessary – If your business has violated U.S. sanctions laws, there is a lot you should do to get back into compliance, ensuring you work to prevent future violations, training your employees, updating your manuals, and this work can assist in mitigating potential penalties. Diaz Trade Law has significant experience representing businesses in dealing with the U.S. Treasury Department’s Office of Foreign Assets Control. Specifically, Diaz Trade Law has successfully assisted clients in (1) submitting voluntary self-disclosures to mitigate penalties, (2) negotiated agreements with OFAC, (3) built corrective action systems to help ensure that your business does not make the same violation again, and (4) updating and enhancing your current export compliance plan.

Contact Us

If you have questions or require assistance on sanctions, trade, or cryptocurrency-related matters, contact Diaz Trade Law today at info@diaztradelaw.com or 305-456-3830.

Largest FCPA Settlement to Date

The U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) announced in October that Goldman Sachs Group, Inc. (“Goldman Sachs”) agreed to pay $2.9 billion as part of a settlement agreement. The settlement was a result of the agencies’ enforcement action after they learned that Goldman Sachs had allegedly paid $1.6 billion in bribes to officials in Malaysia and the United Arab Emirates (“UAE”) to secure its position as the underwriter of $6.5 billion in three bond deals with 1Malaysia Development Berhad. The settlement constitutes the largest Foreign Corrupt Practices Act (“FCPA”) settlement ever recorded.

The SEC and DOJ found that Goldman Sachs’ internal controls were deficient because employees were able to engage in corrupt activities despite a comprehensive anti-corruption and compliance program that had been implemented. Furthermore, the agencies explained that Goldman Sachs and ignored “significant red flags” and had failed to voluntarily disclose its conduct.

Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office said:

“When government officials and business executives secretly work together behind the scenes for their own illegal benefit, and not that of their citizens and shareholders, their behavior lends credibility to the narrative that businesses don’t succeed based on the quality of their products, but rather their willingness to play dirty. Greed eventually exacts an immense cost on society, and unchecked corrupt behavior erodes trust in public institutions and government entities alike.  This case represents the largest ever penalty paid to U.S. authorities in an FCPA case.”

FCPA Background

Under U.S. anti-bribery laws, U.S. citizens, nationals, residents, and businesses are prohibited from giving a corrupt payment to a foreign government official for the purpose of influencing a decision of the official in his or her official capacity. Specifically, a “corrupt payment” is the payment of money or an offer or promise to give anything of value to influence the official in his or her official capacity, to influence the official to violate his or her lawful duty, or to seek an improper advantage. Under the law, even making an offer of payment, as long as it is made with the intent to influence, obtain improper advantage, or induce improper influence, is all that is required for a violation. Even if the official refuses to accept the benefit, or accepts the benefit but does not take the desired action, it is still a violation.

There are limited exceptions for common business practices, however. For example, paying the costs of a foreign official to travel to a plant for a plant visit may be legal. In addition, certain payments transmitted as part of a routine government action may be allowed. Because the exceptions are extremely limited, companies should be proactive to investigate whether such payments could violate U.S. anti-bribery laws. The SEC and DOJ jointly publish an FCPA resource guide that further explain FCPA standards.

Building a Strong FCPA Program

Does your business have a strong FCPA compliance program? Or does the strength of your FCPA compliance program need to be reviewed and audited?

Diaz Trade Law, P.A. offers a number of services pertaining to FCPA compliance, including:

• Auditing your company’s operations and building a strong FCPA compliance plan that reflects your organization
• Reviewing your existing FCPA compliance plan to ensure that it’s strong and reflects the latest changes to anti-corruption laws
• Training your employees in avoiding FCPA violations
• Establishing clear lines of responsibility to determine how potential violations are proactively addressed
• Representing your firm in mitigating penalties and reaching settlements with federal agencies after violations have occurred
• Creating corrective action plans so that violations don’t occur again

Contact Us

If you have questions about your firm’s FCPA compliance plan or are interested in scheduling a training, reach out to us at info@diaztradelaw.com or call us at 305-456-3830. For information on Diaz Trade Law’s other training programs, check out our recent article.