All Things Sanctions

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The Sudan Circus: Bashir government laying heavy against sanctions

Posted by on Sep 25, 2013 in Sanctions Blog | Comments Off on The Sudan Circus: Bashir government laying heavy against sanctions

The Sudan Circus: Bashir government laying heavy against sanctions

Sudan has been quite vocal about U.S. sanctions and their own diplomacy recently, particularly with the UN assembly going on. A while back the Sudanese government tried to emotionally blackmail the U.S. out of sanctions for fear that it is hurting South Sudan. Then President Bashir attempted to start a diplomatic riff by threatening to travel to New York for the General Assembly, an action that will most likely land him in jail. And to top it off, the Sudanese government is now claiming that sanctions are creating a humanitarian crisis in Sudan.   Why Omar al-Bashir is allowed to have a hissy-fit in New York, despite U.S. sanctions   Considering that the UN assembly is already underway and anyone working or living near Turtle Bay probably hates their life/commute/city right now, this post is a bit late on the news. However, there has been a bit of controversy over whether Sudanese President/indicted criminal Omar al-Bashir would travel, and would be able to travel to the U.S. Most of the media focus has been on the fact that al-Bashir has been indicted by the ICC and there is a very real possibility that should he travel to the U.S. he would be arrested and sent to face justice. One question I got however is if he would be able to travel here under U.S. sanctions. After all, the Government of Sudan is considered blocked property and thus as his visit would constitute an action on behalf of the GoS, any transactions would be blocked. The answer is that good ole Omar would be able to travel to the U.S. despite the sanctions. First, there are generally carve-outs such as those found in 31 CFR 538.515 which allow for transactions for the official business of the Sudanese diplomatic mission, particularly in relation to the UN. More importantly, this is a good time to reiterate that under the International Emergency Economic Powers Act (IEEPA), travel is also exempt. The legislation forming IEEPA specifically exempts information materials, travel, humanitarian donations and communications. This is often reinforced in each of the regulations under IEEPA (it does not apply to Cuba which falls under the Trading With the Enemy Act however) and is generally found under the prohibitions section (often times referred to as the 200 section) titled exemptions. It is a broad exemption in which the language in the SSR is indicative of language in other regulations: [31 CFR 538.210] (d) Travel. The prohibitions contained in this part do not apply to transactions ordinarily incident to travel to or from any country, including exportation or importation of accompanied baggage for personal use, maintenance within any country including payment of living expenses and acquisition of goods or services for personal use, and arrangement or facilitation of such travel including non-scheduled air, sea, or land voyages. As you can see, the travel exemption covers not only transportation but also housing, reasonable living expenses and buying goods for personal use such as food, drink and a toothbrush. So whichever hotel that wants to shoulder the burden of his arrival can certainly take his money.   Sudan clearly likes throwing stones in glass houses   Last week we debunked how sanctions are hurting South Sudan. This week, the Sudanese justice minister declared that U.S. sanctions were creating...

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Alternative Options for Syria (Part II): Sanctions of course

Posted by on Sep 19, 2013 in Sanctions Blog | Comments Off on Alternative Options for Syria (Part II): Sanctions of course

Alternative Options for Syria (Part II): Sanctions of course

Several decades back in grade school I took Latin as a language, primarily because the teacher was attractive. While to this day I still can’t remember how to properly conjugate a verb, I did take the time back then to read up a bit on both Greek and Roman literature which yielded this quote: Nervos Belli, Pecuniam – Infinite Money are the Sinews of War. – Cicero in Phillipicae Too be fair, the above statement’s author was criticizing his rich enemy and actually resulted in the orator being stabbed to death by said enemy, but hopefully this might play out differently in modern day. Particularly because we make our guns bigger in the U.S. than they do in Syria. Oddly, there has been a lack of serious talk on further sanctions against Syria. The first round of sanctions in Executive Order 13582 was initially successful and prohibits the exportation of goods and services (i.e. financial services) to Syria. That was when ports such as Latakia and Tartous actually had commercial activity going in and out of them and we could catch their financial institutions off guard. However, by this point all ports of entry are primarily serving the Assad regime directly, mainly in a military capacity that doesn’t involve transactions through the U.S. financial system. Likewise, I think Assad has figured out his finances to the point that he can avoid going through the U.S. financial system. So far we have pursued the diplomatic route and have threatened the military route, yet in my opinion cutting off the sources of funding and supply to Syria will do much more to vastly undercut the Assad regime and force an expedient political resolution to this crisis. Assad’s war machine requires fuel, ammunition, communication devices, spare parts, technical labor and a lot of other extremely expensive things. If anyone has access to a study that estimates the cost of daily combat operations for the Syrian regime I would certainly like to see it. Standard expenditures for the military are $1.8 billion under peace time, or about 5 million a day. Under current conditions with the country on full alert and engaged in combat operations I would estimate the cost of operations at easily four or five times that on a daily basis. Albeit, don’t take my guess to heart as it’s literally coming off the top of my head from a quick Fermi estimate. Directly undercutting his sources of funding would do more to hamper the Assad regime then neutralizing a few units and would fall in line with an actual strategic objective. Even if 25% of the regimes sources of funding were cut off, this would decrease Syrian military capacity substantially. Arguments could even be made that a decrease in funding and thus ammunition may encourage more judicious use of munitions and thus reduce collateral damage. So why haven’t we pursued this funding more vigorously? What can we do about it? OFAC has made some efforts to combat this evasion, particularly with the Foreign Sanctions Evaders act (EO 13608). However, there has yet to be a Syria related FSE designation. I’m not a pioneer in suggesting how we can enhance sanctions against Syria, however there are several options which aren’t necessarily mutually exclusive: Option 1: The Russia Problem Despite a very...

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Is the SSR actually hurting South Sudan?

Posted by on Sep 19, 2013 in Sanctions Blog | Comments Off on Is the SSR actually hurting South Sudan?

Is the SSR actually hurting South Sudan?

Yesterday, an article showed up on Corruption Currents claiming that sanctions on Sudan are hurting South Sudan. Sanctions have been in place on Sudan since the 1990s as a result of their support of terrorism and of course we have had no qualms about keeping them there for additional reasons including grave human rights abuses. This was well before South Sudan existed and U.S. policy has always been to aid in the humanitarian support of the marginalized areas of Sudan. This can be seen in 31 CFR 538.212(g)(1) and its corresponding definition 538.220 which exempted transactions to those parts of Sudan. Most of these areas became part of South Sudan after Juba declared independence in 2011 and the Sudanese Sanctions Regulations thus did not apply to them afterwards. With that said, due diligence was urged and still is encouraged when dealing with South Sudan to ensure that no Sudanese individuals or entities would be involved in a way that would otherwise prohibit the transaction. Mombasa is a nicer port than Port Sudan, so just truck it from the south, not the north and you should generally be fine. With that said, and contrary to what the cited article would have you believe, authorizations do exist for two things: 1. Transhipment of goods, technology and services to South Sudan [by way of Sudan] and 2. Activities relating to the petroleum industry of South Sudan In fact, to show how disingenuous the article is, I would rather just quote the general license which fully counteracts the assertion that U.S. sanctions prevent South Sudan from collecting profits on oil from Sudan: 538.536 (a) To the extent they are not exempt from the prohibitions of this part, all activities and transactions relating to the petroleum and petrochemical industries in the Republic of South Sudan are authorized, including but not limited to the transshipment of goods, technology,and services to or from the Republic of South Sudan through Sudan; exploration; development; production; field auditing services; oilfield services; activities related to oil and gas pipelines; investment;  payment to the Government of Sudan or to entities owned or controlled by the Government of Sudan of pipeline, port, and other fees; and downstream activities such as refining, sale, and transport of petroleum from the Republic of South Sudan, except for the refining in Sudan of petroleum from the Republic of South Sudan. Yep. Despite that the article says that sanctions are preventing Sudan from refining South Sudanese oil, the general license explicitly states that “downstream activities such as refining, sale and transport” are indeed allowed. According to the next paragraph, “all financial transactions ordinarily incident” are also allowed, so its also not a question of payment. To be fair, just because OFAC issued a general license doesn’t mean that everything is in the clear. The biggest hurdle is often getting through the culture of fear in which although you can specifically point someone to the legal document or passage that permits the activity, the party is still uncomfortable and unwilling to engage in the transaction. That being said, I don’t think this realistically applies to the oil sector in Sudan as I can point to one company that was more than enthusiastic to fill in the void when all the US companies left Sudan during the initial sanctions....

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SDN Moves: Jamaah Islamiya still exists, SDN on SDN violence, Templars decapitated…again

Posted by on Sep 18, 2013 in Sanctions Blog | Comments Off on SDN Moves: Jamaah Islamiya still exists, SDN on SDN violence, Templars decapitated…again

SDN Moves: Jamaah Islamiya still exists, SDN on SDN violence, Templars decapitated…again

Today, OFAC designated two SDGTs for their support of terrorist organizations in Indonesia, primarily Aceh rebels and Jamaah Islamiya. The latter organization was responsible for the Bali bombing and is an AQ affiliate. It’s been a long time since I’ve even thought of those organizations, but I’m glad they are still on OFAC’s radar. Counter-Narcotics News On the Mexico front, forces recently captured Oscar Cornejo Tello, a regional (well, now past) leader of The Knights Templar cartel, an offshoot of La Familia and one of the stranger organizations down there. Apparently he used to be a police administrator…ugh. He was not designated but certainly not someone whose property you want to deal with. Counter-Terrorism News And in other news, two cases of SDN-on-SDN violence. Because the enemy of my enemy…is designated!!! 1. SOMALIA designation Omar Hammami was killed by Al Shabaab. Hammami was an AQ affiliate so I wouldn’t suggest shedding any tears. I also don’t think the FBI will be doling out the 5 million reward to Al Shabaab anytime soon, but I hear we would be more than happy to place it in a blocked account at a bank of their choosing… 2. Who needs a bunch of 18 bravos to take out Syria’s air defense when we can just outsource it to AQI…awkward. 3. Al Nusrah continues to gain ground, and this time in partnership with Ahrar al Sham Islamic Movement. The latter isn’t designated but is good filter material. Also looking at the armament they are using is a bit terrifying. Until Syria, I don’t think an AQ affiliate has had this type of firepower since we Hulk Smashed Afghanistan in 2001....

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Alternative options for Syria (Part I): Why we need them

Posted by on Sep 18, 2013 in Sanctions Blog | Comments Off on Alternative options for Syria (Part I): Why we need them

Alternative options for Syria (Part I): Why we need them

A week ago it looked like we were going to get to trash another countries air defense systems and lob some cruise missiles at a few strategically placed targets. I always thought that was a bad option1. This week, we are hammering out the details of a diplomatic arrangement for Syria to give up their chemical weapons. Even if this initiative is successful, the war will continue, the international community will continue to pretend that while twitching bodies expiring from chemical attacks are bad, torn up and dismembered bodies from indiscriminate artillery strikes are acceptable, U.S. sanctions will remain in place and in fact, the U.S. will have lost some of its best strategic options that can do more damage then a few well placed CALCMs. I am very skeptical about the mechanics of this deal. Like any good Blackstone consultant, the first thing to pop into my head is how we can ensure compliance. The munitions are most likely dispersed and how do we ensure that every single pound of toxic goo2 is accounted for, particularly without blowing some of our intel agencies sources and methods. Once it is accounted for, how do we maintain accountability? Obviously through the use of inspectors, which will place U.N. or other individuals at great risk. But oddly, compliance is the smallest bit of the equation, with security and disposal paramount. I’m not a chemical weapons expert, but from my understanding of people more knowledgeable than I (weirdly, a ton of my commissioning class wound up branching chemical corps), you either have to flash heat it using specialized facilities or for some of the munitions, the gas can be rendered inert with a specific chemical. Of course, this requires multi-million dollar facilities whose construction in a country under war is probably not the most logical option. Furthermore, because the munitions have to be separated from the warhead at these sites, the process paints a big red bullseye for anyone willing to disrupt the process, steal chemical weapons or detonate them in place. Of course we could always ship the munitions out of the country, because convoying sensitive weapons through areas populated by terrorist elements who desperately want them is totally a good idea. As for the site security, do we really trust the Syrian Army to secure them and remain in compliance with the terms? If not, are U.N. peace keepers capable of such a mission in this hostile environment? If not the U.N., that leaves either the U.S. or Russia. Given that the Russians helped develop Syria’s chemical arsenal, even if they are trust-worthy I don’t think their military is capable and disciplined enough to be trusted with this mission. As for the U.S. providing security, what ever happened to no boots on the ground?     1Not my article obviously, but it’s pretty in line with my thinking and saves me some carpel tunnel syndrome. Plus it’s a good read. Minus his stab on the drone campaign. 2Clearly a technical...

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OFAC tired of reacting to every earthquake ever…adds two new GLs to Iran program

Posted by on Sep 13, 2013 in Sanctions Blog | Comments Off on OFAC tired of reacting to every earthquake ever…adds two new GLs to Iran program

OFAC tired of reacting to every earthquake ever…adds two new GLs to Iran program

In a very good move, OFAC issued two general licenses that should both assist in clarifying and bolstering a passage of the CFR as well as substituting for the possibility of a plethora of other general licenses in the future for humanitarian crises in Iran.   General License E   Generally when a tectonic plate is named after your country, it’s bad news. It’s even worse when that isn’t the only fault line to run through you. In a year long period we saw three earthquakes and in this past decade we have had about 30,000 deaths from earthquakes in Iran. But even for earthquakes where fatalities may not be particularly high, property damage is excessive. This means destruction of infrastructure, clogging of critical supply routes (think of how barren an NYC grocery store would be if the GW Bridge and Lincoln Tunnel collapsed), loss of homes, possible inaccessibility to well water, the list of misery goes on. Without relief, it is quite possible more people will die from starvation, disease and the elements than were killed by the event itself. A good way to mitigate the misery is through humanitarian donations, which is  of itself a very broad category. For the actual donation of goods, 31 CFT 560.201 (b) covers that: (b) Humanitarian donations. The prohibitions of §§ 560.204 and 560.206 do not apply to donations by United States persons of articles, such as food, clothing, and medicine, intended to be used to relieve human suffering. What this passage does not cover however is the multitude of other non-profit activities that are required for the relief of human suffering. 210(b) only covers the donation of these articles but does not cover the exportation of financial services to provide funds for humanitarian operations. For instance, lets say a bridge is down on a critical supply route and a temporary bridge needs to be put up. The Iranian army is too busy conducting terrorism and human rights violations somewhere else and thus can’t get the appropriate bridging equipment on site, and thus to relieve human suffering an NGO has to contract out to have a temp strung up. This would generally warrant a specific license if it is for earthquake relief and typically instead of OFAC tackling tons of specific licenses, they will issue a general license covering that specific earthquake. The problem is, issuing a GL takes time and OFAC still has to deal with the initial wave of licenses. Instead, they have issued General License E which covers all future natural disasters. Not only does this relieve the burden on OFAC, but it also allows NGOs to swing into action quicker. Interestingly, GL E has also worked in some language that was very similar to one of the earlier Burma GLs that supports both democracy and peace building. In fact, the language in paragraph (a)(1) of GL E is almost the same word-for-word for the language in GL 14-C under the Burma program, while the language in paragraph (a)(4) is very similar as well.   General License F     As for the other general license issued, GL F now explicitly authorizes the exportation and importation of financial services to and from Iran for sports games. If anyone remembers, there was a bit of controversy regarding an Iranian soccer...

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SDN Moves: Iran Designations, Trevino found guilty, SDGTs KIA and why not to have a cartel member in the family

Posted by on Sep 6, 2013 in Sanctions Blog | Comments Off on SDN Moves: Iran Designations, Trevino found guilty, SDGTs KIA and why not to have a cartel member in the family

SDN Moves: Iran Designations, Trevino found guilty, SDGTs KIA and why not to have a cartel member in the family

Because the fun don’t stop until the big man says so… Yesterday OFAC released a handful of designations under the Iran tag, but no press release forthcoming.   This is also the first time that an [IRAN] designation has had an annotation stating its subject to secondary sanctions. While OFAC doesn’t explicitly come out and explain the tag, its no doubt in reference to the IFCA provisions, particularly section 2(i). Happily, OFAC has modified their own proprietary filter to reflect these changes on the small sample I checked (okay, n=2…it’s Friday and I’m apparently a lazy blogger) and warn users of the threat of secondary sanctions. The only entities exempt from these secondary sanctions are those that were designated “solely pursuant to Executive Order 13599,” i.e. those banks that are blocked for the sole nature of being owned or controlled by CBI (reflected appropriately in their own filter). On another note, Erich at Sanction Law noted that OGT has been all quiet on the east-middle-eastern-ish front (okay, give me a break, I’m trying to mix Remarque and Iran and its just not working) for almost exactly two months since some IFCA designations and three months since regular Iran designations. Mr. Ferrari thinks the dearth could be political, so does this designation package signal a swing back to the stick-over-carrot approach? Or is summer vacation just finally finished and foreign policy continues as usual? On the Mexico front, things are going swimmingly…so long is you aren’t a bro of a kingpin. A literal bro that is. Miguel Trevino’s brother was sentenced to 20 years for money laundering as Z-40 waits for his own trial to begin. Alberto Carillo Fuentes, brother of Vincente Carillo Fuentes was also arrested in Mexico. Neither individuals are designated but both were engaged in cartel operations. Borderland Beat does report that Alberto had taken control of the New Juarez Cartel1 after Vincente retired, but that’s unconfirmed at best. As much as it pains me to cite a Huffington Post article (what’s next, USAToday?), even U.S. officials aren’t exactly sure of Alberto’s role. Most likely the reason why he isn’t designated yet. Moving back to the MENA region, SDGT Sangeen Zadran is suspected of taking a dirt nap. The report in unconfirmed and sometimes these guys have a habit of rising from the dead. Just because the ISI says it’s so doesn’t make it accurate. Particularly because this guy is part of the Haqqani network.   1Super interesting article by the...

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What to make of the DB settlement

Posted by on Sep 5, 2013 in Sanctions Blog | Comments Off on What to make of the DB settlement

What to make of the DB settlement

This morning, OFAC posted an enforcement action against Deutsche Bank Trust Company for a small amount of money, less than twenty grand. Nonetheless, the settlement is now of public record and its a foregone conclusion that legal fees, regulators demands and other items will most likely dwarf the cost of the penalty. Plus nowadays bad press is the last thing a large bank needs. Sadly, the staff at DB work very hard and have a monumental task and tend to be very dedicated, but certain items slip through the cracks. So the best thing to do in a situation such as this is to learn from the lessons and apply them to your own programs. The two best lessons I can bring from just looking at the settlement are both of a technical and human capital nature: 1. Let’s take a look at what happened with the first violation: On October 24, 2008, DBTCA processed a $3,177 funds transfer originated by Hansabanka’s customer, Air Baltic Corporation, destined for the account of “I.A.C.” at Commerzbank AG, Frankfurt, Germany. The originator to beneficiary information field of the payment instructions contained the reference “MELIGB2L,” the Business Identifier Code (“BIC”)for the London branch of Bank Melli. Only DB bank and the compliance officer working the case at OFAC know the full facts, however the failure to stop the Bank Melli payment for its SWIFT code produces a couple of questions you may want to test on your own filter. When OFAC designates an entity, sometimes certain items like a bank’s SWIFT code are left out of the designation and your institution will need to be able to fill in the gaps. Either you can purchase lists from private vendors or generate your own. Given this occured in 2008, it is unknown if DB had taken either of those courses of actions or simply placed what came in from the OFAC XML file into their filtering system. Yet in any event, assuming they had purchased a list it brings up a second and often overlooked issue: data quality. You know, that thing that plagues every database manager’s nightmares and gets compliance officers all loopy over their 8:00am coffee whenever they talk about it. But when you are testing your filters you need to make sure your data is consistent, full and if the datapoint is indeed unknown, at least it is marked as unknown. The worst case scenario is when a client, wire or filter data is marked with something incorrect that serves as a placeholder for an unknown data point. So don’t go putting your anniversary date in place of a new customers unknown DOB (seriously, this has happened). From a first glance at the settlement, and barring a quirk in the filter, my thoughts are that the Bank Melli payment slipped through from either incomplete entries on a prime sanctions target (I mean, Bank Melli and Saderat are basically the OFAC boogeymen) or there was an inconsistency within the data that caused the filter to overlook it. 2. The second transaction involved a wire that was ultimately intercepted by DB was rejected and not blocked, most likely from human error after a peer review: A total of seven DBTCA employees, including a senior member of the review team who was the final...

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Look’s like OGT has been busy

Posted by on Aug 23, 2013 in Sanctions Blog | Comments Off on Look’s like OGT has been busy

Look’s like OGT has been busy

Two days ago OFAC quietly slipped in the designation of a MUJAO operative. This is probably a coincidence, but the designation comes at the same time as the group reported that it is allying with Mohktar Belmohktar’s group, the man responsible for the Algerian oil refinery fiasco. The momentum of MUJAO makes me think that we will likely see a shift from Al-Qaeda in the Islamic Magreb designations over to MUJAO as they become the primary threat in the region. But I’m not really an expert in this area, so anyone who is should feel free to weigh in. Yesterday we had designations for both the SDGT and SDNTK programs. Treasury also did an extremely good press release for both with bios and everything. Kind of stole my thunder… Also, no designation could be possible without an analyst notebook chart, so I give you the Azul Network before (from October of 2012):       And after:     Overall, I think the boys at OGT deserve a nice round of applause for their hard...

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OFAC Reporting Requirements (Part II): What is blocked property?

Posted by on Aug 21, 2013 in Sanctions Blog | Comments Off on OFAC Reporting Requirements (Part II): What is blocked property?

OFAC Reporting Requirements (Part II): What is blocked property?

As we saw with the Visa case, blocked assets reporting is a matter that OFAC takes seriously. It is also something your auditors and regulators are guaranteed to understand. While an FOV from OFAC for violating the RPPR is rare, having your ducks in order can save you a headache when your favorite examiner comes stomping on by. Before we go into the question of what to report and when, we should take a look at what blocked assets are. Because sanctions are divided up depending on the program, blocked property is defined multiple times for each program. Fortunately for us, the definitions are copy/paste jobs with the program and targets ad-libbed into the text. For instance, the definition taken from my favorite fall-back program to pick on, Zimbabwe: The terms blocked account and blocked property shall mean any account or property subject to the prohibitions in § 541.201 held in the name of a person whose property or interests in property are blocked pursuant to § 541.201(a), or in which such person has an interest, and with respect to which payments, transfers, exportations, withdrawals, or other dealings may not be made or effected except pursuant to an authorization or license from the Office of Foreign Assets Control expressly authorizing such action. That’s the technical definition. But what does it mean? Well, first… OFAC DOESN”T HAVE YO MONEYZ. Sorry. I had to get that off my chest… When property becomes blocked, the financial institution places it into a separate account in which only the FI has access to. The blocked party certainly doesn’t have access to it, and while OFAC can authorize its release, OFAC also does not have access to it. For the majority of the programs the account may bear reasonable interest and your institution may deduct fees from the account based on a published fee schedule. Making an SDN broke over minimum balance fees is not something that keeps me up at night. Generally, we block property for certain things: Transactions and accounts involving specially designated nationals including Governments that we have designated such as Iran and Sudan Cuban Nationals There are a few exceptions. Vessels are generally not blocked (the main exception being the sale of the vessel) and banks that have been issued a special license called an MUL don’t block for Cuban nationals or other specific conditions (generally because of a conflict of law). So what do they do? They reject and report, of course! Generally if a transaction is prohibited but does not contained a blocked or designated SDN, the transaction is simply returned to the originator. For instance, if someone is sending a commercial transaction to Sudan that does not involve an SDN or the government of Sudan or any other blocked interest, instead of placing the money into a blocked account the wire would be returned to the originating party and OFAC would be notified with a rejected transaction report (still within 10 days). This is a much more frequent occurrence than blocked property. While rejected transactions are not put into the annual report of blocked property form, it is important to report them to OFAC so that OFAC can assess patterns and potential violations. Because rejects are much more common than blocked assets, the reports filed by the institution are perhaps...

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