Office of Foreign Assets Control Enforcement Guidelines

1971

Federal Register / Vol. 71, No. 8 / Thursday, January 12, 2006 / Rules and Regulations

1 68 FR 4422–4429 (2003).

party and that are incorporated by

reference as product terms.

(3) * * *

(ii) * * *

(F) Securities Indexes. Routine

changes to the composition,

computation or method of security

selection of an index that is referenced

and defined in the product’s rules, and

which are made by an independent

third party.

I 35. Section 40.7 is amended by adding

paragraphs (a)(3) and (b)(3) to read as

follows:

§ 40.7

Delegations.

(a) Procedural matters * * *

(3) The Commission hereby delegates

to the Director of the Division of Market

Oversight or to the Director’s delegate,

with the concurrence of the General

Counsel or the General Counsel’s

delegate, the authority to determine

whether a rule change submitted by a

DCM for a materiality determination

under § 40.4(b)(9) is not material (in

which case it may be reported pursuant

to the provisions of § 40.6(c)), or is

material, in which case he or she shall

notify the DCM that the rule change

must be submitted for the Commission’s

prior approval.

(b) Approval authority. * * *

(3) Establish or amend speculative

limits or position accountability

provisions that are in compliance with

the requirements of the Act and

Commission regulations;

*

*

*

*

*

I 36. Section 40.8 is amended by

revising paragraph (b) to read as follows:

§ 40.8

Availability of public information.

*

*

*

*

*

submitted for the Commission’s

prior approval.

(b) Approval authority. * * *

(3) Establish or amend speculative

limits or position accountability

provisions that are in compliance with

the requirements of the Act and

Commission regulations;

*

*

*

*

*

I 36. Section 40.8 is amended by

revising paragraph (b) to read as follows:

§ 40.8

Availability of public information.

*

*

*

*

*

(b) Any information required to be

made publicly available by a registered

entity under Sections 5(d)(7), 5a(d)(4)

and 5b(c)(2)(L) of the Act, respectively,

will be treated as public information by

the Commission at the time an order of

designation or registration is issued by

the Commission, a registered entity is

deemed to be designated or registered,

or a rule or rule amendment of the

registered entity is approved or deemed

to be approved by the Commission or

can first be made effective the day

following its certification by the

registered entity.

I 37. Appendix D to Part 40 is amended

by revising the first paragraph to read as

follows:

Appendix D to Part 40—Submission

Cover Sheet and Instructions

A properly completed submission

cover sheet must accompany all rule

submissions submitted electronically by

a designated contract market, registered

derivatives transaction execution

facility, or registered derivatives

clearing organization to the Secretary of

the Commodity Futures Trading

Commission, at submissions@cftc.gov in

a format specified by the Secretary of

the Commission. Each submission

should include the following:

*

*

*

*

*

Issued in Washington, DC, this 5th day of

January, 2006, by the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 06–242 Filed 1–11–06; 8:45 am]

BILLING CODE 6351–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9234]

RIN 1545–AU98

Obligations of States and Political

Subdivisions; Correction

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Correction to final regulations

y of

January, 2006, by the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 06–242 Filed 1–11–06; 8:45 am]

BILLING CODE 6351–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9234]

RIN 1545–AU98

Obligations of States and Political

Subdivisions; Correction

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Correction to final regulations.

SUMMARY: This document corrects final

regulations (TD 9234) that was

published in the Federal Register on

Monday, December 19, 2005 (70 FR

75028). The final regulations relates to

the definition of private activity bond

applicable to tax-exempt bonds issued

by State and local governments.

DATES: This correction is effective

February 17, 2006.

FOR FURTHER INFORMATION CONTACT:

Johanna Som de Cerff, (202) 622–3980

(not a toll-free call).

SUPPLEMENTARY INFORMATION:

Background

The final regulations (TD 9234) that is

the subject of this correction is under

section 141 of the Internal Revenue

Code.

Need for Correction

As published, TD 9234 contains error

that may prove to be misleading and is

in need of clarification.

Correction of Publication

I Accordingly, the publication of the

final regulations (TD 9234), that was the

subject of FR Doc. 05–23944, is

corrected as follows:

§ 1.141–15

[Corrected]

I On page 75035, column 2, § 1.141–

15(j), lines 7 and 8, the language, ‘‘on or

after February 17, 2006 and that are

subject to the 1997 regulations.’’ is

corrected to read ‘‘on or after February

17, 2006, and that are subject to the

1997 regulations (defined in paragraph

nal regulations (TD 9234), that was the

subject of FR Doc. 05–23944, is

corrected as follows:

§ 1.141–15

[Corrected]

I On page 75035, column 2, § 1.141–

15(j), lines 7 and 8, the language, ‘‘on or

after February 17, 2006 and that are

subject to the 1997 regulations.’’ is

corrected to read ‘‘on or after February

17, 2006, and that are subject to the

1997 regulations (defined in paragraph

(b)(1) of this section).’’.

Cynthia Grigsby,

Acting Chief, Publications and Regulations

Branch, Legal Processing Division, Associate

Chief Counsel, (Procedure and

Administration).

[FR Doc. 06–250 Filed 1–11–06; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY

Office of Foreign Assets Control

31 CFR Part 501

Economic Sanctions Enforcement

Procedures for Banking Institutions

AGENCY: Office of Foreign Assets

Control, Treasury.

ACTION: Interim final rule with request

for comments.

SUMMARY: The Office of Foreign Assets

Control (‘‘OFAC’’) of the U.S.

Department of the Treasury is issuing

this interim final rule, ‘‘Economic

Sanctions Enforcement Procedures for

Banking Institutions,’’ along with a

request for comments. This interim final

rule supercedes OFAC’s proposed rule

of January 29, 2003,1 to the extent that

the proposed rule applies to ‘‘banking

institutions,’’ as defined below. These

administrative procedures are published

as an appendix to the Reporting,

Procedures and Penalties Regulations,

31 CFR Part 501.

DATES: The interim final rule is effective

for enforcement cases involving banking

institutions commencing on or after

February 13, 2006. Written comments

may be submitted on or before March

13, 2006.

ADDRESSES: You may submit comments

by any of the following methods:

• Federal eRulemaking Portal: http://

www.regulations.gov. Follow the

instructions for submitting comments.

• Agency Web site: http://

www.treas.gov/offices/enforcement/

ofac/comment.html.

• Fax: Assistant Director of Records,

n or after

February 13, 2006. Written comments

may be submitted on or before March

13, 2006.

ADDRESSES: You may submit comments

by any of the following methods:

• Federal eRulemaking Portal: http://

www.regulations.gov. Follow the

instructions for submitting comments.

• Agency Web site: http://

www.treas.gov/offices/enforcement/

ofac/comment.html.

• Fax: Assistant Director of Records,

(202) 622–1657.

• Mail: Assistant Director of Records,

ATTN: Request for Comments

(Enforcement Procedures), Office of

Foreign Assets Control, Department of

the Treasury, 1500 Pennsylvania

Avenue, NW., Washington, DC 20220.

VerDate Aug<31>2005

16:12 Jan 11, 2006

Jkt 205001

PO 00000

Frm 00057

Fmt 4700

Sfmt 4700

E:\FR\FM\12JAR1.SGM

12JAR1

rwilkins on PROD1PC63 with RULES

1972

Federal Register / Vol. 71, No. 8 / Thursday, January 12, 2006 / Rules and Regulations

2 These matrices can be found in Annex A to the

interim final rule and can be accessed online at

http://www.treas.gov/offices/enforcement/ofac/faq/

matrix.pdf.

Instructions: All submissions received

must include the agency name and the

FR Doc. number that appears at the end

of this document. Comments received

will be posted without change to

http://www.treas.gov/ofac, including

any personal information provided.

FOR FURTHER INFORMATION CONTACT:

Assistant Director of Records, (202)

622–2500 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

Electronic Availability

This document and additional

information concerning OFAC are

available from OFAC’s Web site

(http://www.treas.gov/ofac) or via

facsimile through a 24-hour fax-on-

demand service, tel.: 202/622–0077.

Procedural Requirements

Because this interim final rule

imposes no obligations on any person,

but instead simply explains OFAC’s

enforcement practices based on existing

substantive and procedural rules, prior

notice and public procedure are not

required pursuant to 5 U.S.C. 553(b)(A)

http://www.treas.gov/ofac) or via

facsimile through a 24-hour fax-on-

demand service, tel.: 202/622–0077.

Procedural Requirements

Because this interim final rule

imposes no obligations on any person,

but instead simply explains OFAC’s

enforcement practices based on existing

substantive and procedural rules, prior

notice and public procedure are not

required pursuant to 5 U.S.C. 553(b)(A).

Because no notice of proposed

rulemaking is required, the provisions

of the Regulatory Flexibility Act (5

U.S.C. chapter 6) do not apply. Finally,

this interim final rule is not a significant

regulatory action for purposes of

Executive Order 12866.

Although a prior notice of proposed

rulemaking is not required, OFAC is

soliciting comments on this interim

final rule in order to consider how it

might make improvements in its

enforcement procedures in the future.

Comments must be submitted in

writing. The addresses and deadline for

submitting comments appear near the

beginning of this notice. OFAC will not

accept comments accompanied by a

request that all or part of the submission

be treated confidentially because of its

business proprietary nature or for any

other reason. All comments received by

the deadline will be a matter of public

record and will be made available on

OFAC’s Web site: http://www.treas.gov/

offices/enforcement/ofac/index.html.

Background

On January 29, 2003, OFAC

published, as a proposed rule, Economic

Sanctions Enforcement Guidelines.

Though this proposed rule has not been

finalized, OFAC has used the

Guidelines as a general framework for

its enforcement actions. OFAC has

decided that the enforcement

procedures with respect to banking

institutions should be modified and is

publishing enforcement procedures for

these entities as an interim final rule.

OFAC is also requesting comments on

this interim final rule

elines.

Though this proposed rule has not been

finalized, OFAC has used the

Guidelines as a general framework for

its enforcement actions. OFAC has

decided that the enforcement

procedures with respect to banking

institutions should be modified and is

publishing enforcement procedures for

these entities as an interim final rule.

OFAC is also requesting comments on

this interim final rule.

In conjunction with issuing this

interim final rule, OFAC is withdrawing

the January 29, 2003 proposed rule to

the extent it applies to banking

institutions, as defined herein. For

purposes of this interim rule, ‘‘banking

institutions’’ means depository

institutions regulated or supervised by

one of the regulators that belongs to the

Federal Financial Institutions

Examination Council (‘‘FFIEC’’), i.e., the

Board of Governors of the Federal

Reserve System, the Federal Deposit

Insurance Corporation, the National

Credit Union Administration, the Office

of the Comptroller of the Currency, and

the Office of Thrift Supervision. Please

note that a depository institution may be

a ‘‘banking institution,’’ as that term is

defined in OFAC regulations, see, e.g.,

31 CFR 500.314, 515.314, but not a

‘‘banking institution’’ for purposes of

these enforcement procedures. Because

this interim final rule only applies to

enforcement procedures for banking

institutions, as defined herein, OFAC

plans to issue guidance on its

enforcement procedures for other types

of institutions and other sectors in the

future.

OFAC is publishing enforcement

procedures for banking institutions

because of their unique role in the

implementation of OFAC sanctions

programs and the nature of the

transactions in which such institutions

engage. The new enforcement

procedures take into account that each

banking institution’s situation is

different and that its compliance

program should be tailored to its unique

circumstances. This includes an

analysis of its size, business volume,

customer base, and product lines

the

implementation of OFAC sanctions

programs and the nature of the

transactions in which such institutions

engage. The new enforcement

procedures take into account that each

banking institution’s situation is

different and that its compliance

program should be tailored to its unique

circumstances. This includes an

analysis of its size, business volume,

customer base, and product lines.

In order to implement this new

approach, OFAC has been working and

will continue to work in partnership

with the federal banking regulators.

OFAC worked with FFIEC members to

develop standards to evaluate

compliance programs at banking

institutions. In June 2005, the FFIEC

released its Bank Secrecy Act Anti-

Money Laundering Examination

Manual. Portions of this manual relate

to compliance with various OFAC

sanctions programs. In addition,

working with FFIEC members, OFAC

has developed risk matrices, which may

be used by depository institutions as

‘‘best practices.’’ 2 The matrices provide

a guide for evaluating a banking

institution’s risk of encountering

accounts or transactions subject to

OFAC regulations and for determining

the quality of an institution’s

compliance program. As indicated in

the FFIEC examination manual, the

banking regulators evaluate a banking

institution’s overall OFAC compliance

program using a similar methodology.

Also, in administering its enforcement

authority with respect to various

sanctions statutes, Executive orders, and

regulations, OFAC will provide the

federal banking regulators with

information related to apparent

violations or compliance concerns as it

becomes aware of them. In turn, OFAC

will receive information from the

banking regulators, including, for those

institutions with apparent violations,

evaluations of the sufficiency of each

such institution’s implementation of

policies, procedures, and systems for

ensuring OFAC compliance

eral banking regulators with

information related to apparent

violations or compliance concerns as it

becomes aware of them. In turn, OFAC

will receive information from the

banking regulators, including, for those

institutions with apparent violations,

evaluations of the sufficiency of each

such institution’s implementation of

policies, procedures, and systems for

ensuring OFAC compliance.

Prior to taking enforcement actions,

OFAC generally will review apparent

violations by a particular institution

over a period of time, rather than

evaluating each apparent violation

independently. However, in regard to

what appears to be a particularly

egregious violation, OFAC may evaluate

the situation as it presents itself and

take prompt enforcement action.

Under the revised procedures, OFAC

will periodically evaluate a banking

institution’s apparent OFAC-related

violations in the context of the

institution’s overall OFAC compliance

program and specific OFAC compliance

record. OFAC will not conduct such a

review if there are no apparent

violations. The information reviewed

will include but not necessarily be

limited to: the evaluation of the banking

institution’s OFAC compliance program

by its primary federal banking regulator;

the institution’s history of OFAC

compliance; the circumstances

surrounding any apparent violation,

including what appear to be patterns or

weaknesses in an institution’s

compliance program and whether they

indicate negligence or a fundamental

flaw in the compliance effort or system

and whether they were voluntarily

disclosed; enforcement information

provided by the institution to OFAC; the

number of transactions or accounts that

the institution handled improperly

during the period under review and its

responses to any administrative

subpoenas that OFAC sent with regard

to those transactions or accounts; the

number of transactions successfully

blocked or rejected by the banking

institution during the period; the

actions taken by the banking institu

institution to OFAC; the

number of transactions or accounts that

the institution handled improperly

during the period under review and its

responses to any administrative

subpoenas that OFAC sent with regard

to those transactions or accounts; the

number of transactions successfully

blocked or rejected by the banking

institution during the period; the

actions taken by the banking institution

to correct any violations and to ensure

VerDate Aug<31>2005

15:48 Jan 11, 2006

Jkt 205001

PO 00000

Frm 00058

Fmt 4700

Sfmt 4700

E:\FR\FM\12JAR1.SGM

12JAR1

rwilkins on PROD1PC63 with RULES

1973

Federal Register / Vol. 71, No. 8 / Thursday, January 12, 2006 / Rules and Regulations

that similar violations do not happen

again; and other relevant information

available to OFAC at the time of the

evaluation.

After a review of apparent violations,

OFAC will contact the banking

institution, either by phone, in-person,

or in writing, regarding OFAC’s

preliminary assessment of the

appropriate action with respect to the

institution. OFAC’s staff will discuss the

results of its review with the institution,

including any patterns or weaknesses in

an institution’s compliance program.

With respect to particular transactions,

the discussion will cover the actions

taken by the banking institution to

ensure that similar transactions do not

take place in the future and the

adequacy of responses to any

administrative subpoenas OFAC has

sent with regard to the transactions.

OFAC will indicate the intended

administrative action to be taken for

each transaction or set of related

transactions that appear to constitute

violations of OFAC-administered

sanctions programs.

Once OFAC has reached a decision, it

will notify the institution in writing as

to its proposed action with regard to

each apparent violation during the

period under review. OFAC will

provide a copy of this letter to the

institution’s primary federal banking

regulator

transaction or set of related

transactions that appear to constitute

violations of OFAC-administered

sanctions programs.

Once OFAC has reached a decision, it

will notify the institution in writing as

to its proposed action with regard to

each apparent violation during the

period under review. OFAC will

provide a copy of this letter to the

institution’s primary federal banking

regulator. In the event that OFAC has

notified the institution of its intent to

pursue a civil penalty with regard to any

or all of the apparent violations, existing

civil penalty procedures under OFAC

regulations will be followed. These

include the opportunity for informal

settlement prior to formal initiation of

penalty action through the issuance of a

prepenalty notice.

In subsequent periodic reviews

relating to the institution’s apparent

violations, all prior actions and

decisions taken by OFAC, including

cases in which the decision is to take no

action, will be considered in deciding

what action to take.

In addition to detailing these new

procedures, the interim final rule

clarifies that, for a banking institution,

a voluntary disclosure, a factor that

OFAC considers in its enforcement

decisions, does not include a disclosure

when another party is required to file a

report concerning the same transaction.

This is the case whether or not the other

party actually files a report. However,

OFAC considers reporting of violations

important for its compliance and

enforcement programs and will consider

such reports by a banking institution a

mitigating factor in its enforcement

decisions even if they do not meet the

definition of ‘‘voluntary disclosure’’

contained in these enforcement

procedures. While reports that are not

voluntary disclosures will generally not

be accorded the same importance as

voluntary disclosures, OFAC will give

such cooperation due consideration

nd will consider

such reports by a banking institution a

mitigating factor in its enforcement

decisions even if they do not meet the

definition of ‘‘voluntary disclosure’’

contained in these enforcement

procedures. While reports that are not

voluntary disclosures will generally not

be accorded the same importance as

voluntary disclosures, OFAC will give

such cooperation due consideration.

Though this interim final rule

becomes effective in 30 days, OFAC is

soliciting comments for a 60-day period

with a view to improving its

enforcement procedures.

In particular, commenters are invited

to address how much significance,

separately or collectively, OFAC should

attribute in its enforcement decisions to

such factors as a banking regulator’s

assessments of a banking institution’s

compliance program, a banking

institution’s historical OFAC

compliance record, and a comparison of

that record to similarly situated banking

institutions.

Also, this interim final rule does not

apply to entities regulated by the

Securities and Exchange Commission

(‘‘SEC’’) and the Commodity Futures

Trading Commission (‘‘CFTC’’), such as

broker-dealers, mutual funds,

investment advisers, hedge fund

advisers, futures commission

merchants, commodity trading advisers,

and commodity pool operators, even if

such legal entities are affiliated with a

banking institution. OFAC plans to

issue separate enforcement procedures

for SEC- and CFTC-regulated entities in

recognition that the regulatory regimes

administered by the SEC and the CFTC

are significantly different from the

regime administered by federal banking

regulators. Commenters are asked to

address whether there is current

information about the compliance

programs of SEC- and CFTC-regulated

entities that OFAC could use in a

similar manner to the way compliance

information will be used for making

enforcement decisions for banks

administered by the SEC and the CFTC

are significantly different from the

regime administered by federal banking

regulators. Commenters are asked to

address whether there is current

information about the compliance

programs of SEC- and CFTC-regulated

entities that OFAC could use in a

similar manner to the way compliance

information will be used for making

enforcement decisions for banks.

Commenters are also requested to

provide any suggestions concerning

how the enforcement procedures

described in this interim final rule

should be modified for entities

regulated by the SEC or CFTC.

OFAC also plans to issue enforcement

procedures for certain financial sector

entities regulated by state government

agencies but not by federal financial

regulators. This sector includes entities

that are similar to federally-regulated

banking institutions, such as certain

credit unions and banks not insured by

an agency of the U.S. Government, and

it includes some money service

businesses. Commenters are asked for

suggestions concerning how the

enforcement procedures in the interim

final rule should be modified for the

purpose of providing separate

enforcement procedures for these

entities.

The interim final rule does not apply

to other financial sector entities, such as

insurance companies (including

property and casualty, life, and

reinsurance lines of business), pension

funds, finance companies, mortgage

bankers, and government-sponsored

enterprises. Commenters are asked for

their suggestions on how enforcement

procedures should be modified to apply

to these other financial sector entities

and whether and how enforcement

procedures for financial sector firms

should vary depending on the

regulatory regime, if any, to which

various financial sector firms are

subject

ce companies, mortgage

bankers, and government-sponsored

enterprises. Commenters are asked for

their suggestions on how enforcement

procedures should be modified to apply

to these other financial sector entities

and whether and how enforcement

procedures for financial sector firms

should vary depending on the

regulatory regime, if any, to which

various financial sector firms are

subject.

Commenters are also requested to

provide suggestions concerning

appropriate enforcement procedures for

non-financial sectors, such as import-

export businesses, the computer and

software industries, and e-commerce.

These procedures apply to banking

institutions that may be part of a larger

corporate structure, with a parent

holding company. Commenters are

asked how OFAC should consider for

enforcement purposes complex

corporate structures, which may include

entities regulated by the Board of

Governors of the Federal Reserve

System, the Office of the Comptroller of

the Currency, the Office of Thrift

Supervision, the SEC, and the CFTC.

Other affiliates, such as insurance

companies, may be regulated by state

regulators; some affiliates may be

subject to the jurisdiction of foreign

regulators; and some entities may not

have a functional regulator. Such

complicated structures pose challenges

for assessing compliance programs and

making determinations about

enforcement actions when there are

violations. Commenters are invited to

address the proper enforcement

approach for complicated holding

company structures.

List of Subjects in 31 CFR Part 501

Administrative practice and

procedure, Banks, banking, Reporting

and recordkeeping requirements.

I For the reasons set forth in the

preamble, 31 CFR part 501 is amended

as follows:

PART 501—REPORTING,

PROCEDURES AND PENALTIES

REGULATIONS

I 1. The authority citation for Part 501

continues to read as follows:

Authority: 18 U.S.C. 2332d; 21 U.S.C.

1901–1908; 22 U.S.C. 287c; 22 U.S.C.

2370(a); 31 U.S.C. 321(b); 50 U.S.C

cedure, Banks, banking, Reporting

and recordkeeping requirements.

I For the reasons set forth in the

preamble, 31 CFR part 501 is amended

as follows:

PART 501—REPORTING,

PROCEDURES AND PENALTIES

REGULATIONS

I 1. The authority citation for Part 501

continues to read as follows:

Authority: 18 U.S.C. 2332d; 21 U.S.C.

1901–1908; 22 U.S.C. 287c; 22 U.S.C.

2370(a); 31 U.S.C. 321(b); 50 U.S.C. 1701–

VerDate Aug<31>2005

15:48 Jan 11, 2006

Jkt 205001

PO 00000

Frm 00059

Fmt 4700

Sfmt 4700

E:\FR\FM\12JAR1.SGM

12JAR1

rwilkins on PROD1PC63 with RULES

1974

Federal Register / Vol. 71, No. 8 / Thursday, January 12, 2006 / Rules and Regulations

1706; 50 U.S.C. App. 1–44; Pub. L. 101–410,

104 Stat. 890 (28 U.S.C. 2461 note); E.O.

9193, 7 FR 5205, 3 CFR, 1938–1943 Comp.,

p. 1174; E.O. 9989, 13 FR 4891, 3 CFR, 1943–

1948 Comp., p. 748; E.O. 12854, 58 FR 36587,

3 CFR, 1993 Comp., p. 614.

I 2. Part 501 is amended by adding the

following appendix A, with annexes, to

read as follows:

Appendix A to Part 501—Economic

Sanctions Enforcement Procedures for

Banking Institutions

Note: This appendix provides a general

procedural framework for the enforcement of

all economic sanctions programs

administered by the Office of Foreign Assets

Control (‘‘OFAC’’) only as they relate to

banking institutions, as defined herein.

I. Definitions

A. Banking regulator means the Board of

Governors of the Federal Reserve System, the

Federal Deposit Insurance Corporation, the

National Credit Union Administration, the

Office of the Comptroller of the Currency, or

the Office of Thrift Supervision.

B. Banking institution, for purposes of this

appendix to Part 501, means a depository

institution supervised or regulated by a

banking regulator.

C. OFAC means the Department of the

Treasury’s Office of Foreign Assets Control.

D. Voluntary disclosure means notification

to OFAC of an apparent sanctions violation

by the banking institution that has committed

it

ffice of Thrift Supervision.

B. Banking institution, for purposes of this

appendix to Part 501, means a depository

institution supervised or regulated by a

banking regulator.

C. OFAC means the Department of the

Treasury’s Office of Foreign Assets Control.

D. Voluntary disclosure means notification

to OFAC of an apparent sanctions violation

by the banking institution that has committed

it. However, such notification to OFAC is not

deemed a voluntary disclosure if OFAC has

previously received information concerning

the conduct from another source, including,

but not limited to, a regulatory or law

enforcement agency or another person’s

blocking or funds transfer rejection report.

Notification by a banking institution is also

not a voluntary disclosure if another person’s

blocking or funds transfer rejection report is

required to be filed, whether or not this

required filing is made. Responding to an

administrative subpoena or other inquiry

from OFAC is not a voluntary disclosure. The

submission of a license request is not a

voluntary disclosure unless it is

accompanied by a separate disclosure.

II. Enforcement of Economic Sanctions in

General

A. OFAC Civil Investigation and

Enforcement Action. OFAC is responsible for

civil investigation and enforcement with

respect to economic sanctions violations

committed by banking institutions. In these

efforts, OFAC may coordinate with banking

regulators. OFAC investigations may lead to

one or more of the following: an

administrative subpoena, an order to cease

and desist, a blocking order, an evaluative

letter summarizing concerns, or a civil

penalty proceeding. In addition to or instead

of such actions, if the banking institution

involved is currently acting pursuant to an

OFAC license, that license may be suspended

or revoked.

B. OFAC’s Evaluation of Violative

Conduct

ne or more of the following: an

administrative subpoena, an order to cease

and desist, a blocking order, an evaluative

letter summarizing concerns, or a civil

penalty proceeding. In addition to or instead

of such actions, if the banking institution

involved is currently acting pursuant to an

OFAC license, that license may be suspended

or revoked.

B. OFAC’s Evaluation of Violative

Conduct. The level of enforcement action

undertaken by OFAC involving a banking

institution depends on the nature of the

apparent violation, the enforcement

objectives, and the foreign policy goals of the

particular sanctions program involved. In

evaluating whether to initiate a civil penalty

action, OFAC determines whether there is

reason to believe that a violation of the

relevant regulations, statutes, or Executive

orders has occurred. In making

determinations about the disposition of

apparent violations by banking institutions,

including evaluative letters and civil

penalties, OFAC will consider information

provided by the banking institution and its

banking regulator concerning the institution’s

compliance program and the adequacy of that

program based on its OFAC risk profile.

Further information about the evaluation of

compliance programs commensurate with the

risk profile of a banking institution and a

description of a sound OFAC compliance

program are provided in Annexes A and B.

C. Criminal Investigations and

Prosecutions. If the evidence suggests that a

banking institution has committed a willful

violation of a substantive prohibition or

requirement, OFAC may refer those cases to

other federal law enforcement agencies for

criminal investigation. Cases that an

investigative agency has referred to the

Department of Justice for criminal

prosecution also may be subject to OFAC

civil penalty action.

III. Periodic Institutional Review

A

at a

banking institution has committed a willful

violation of a substantive prohibition or

requirement, OFAC may refer those cases to

other federal law enforcement agencies for

criminal investigation. Cases that an

investigative agency has referred to the

Department of Justice for criminal

prosecution also may be subject to OFAC

civil penalty action.

III. Periodic Institutional Review

A. Except for those significant violations

for which prompt action, such as a civil

penalty proceeding or referral to other federal

law enforcement agencies, is appropriate,

OFAC will review institutions with

violations or suspected violations on a

periodic basis. OFAC will review each such

institution’s apparent violations over a

period of time deemed appropriate in light of

the number and severity of apparent

violations and the institution’s OFAC

compliance history.

B. Upon completing this review, OFAC

will preliminarily determine the type of

enforcement action it will pursue for each

apparent violation or related apparent

violations. OFAC will then seek comment

from the banking institution and ask it to

provide additional information with regard to

the apparent violation or violations. OFAC

also will ask the institution to explain what

actions led to the apparent violation or

violations and what actions, if any, it has

taken to overcome the deficiencies in its

systems that led to the apparent improper

handling of the transactions or accounts.

Depending on the number and complexity of

the apparent violations, OFAC may grant up

to 30 days for a banking institution to

respond and may grant further extensions at

its sole discretion where it determines this is

appropriate. Upon receipt of the institution’s

response, OFAC will decide whether to

pursue the intended administrative action or

whether some other action would serve the

same purpose.

C

he number and complexity of

the apparent violations, OFAC may grant up

to 30 days for a banking institution to

respond and may grant further extensions at

its sole discretion where it determines this is

appropriate. Upon receipt of the institution’s

response, OFAC will decide whether to

pursue the intended administrative action or

whether some other action would serve the

same purpose.

C. OFAC will subsequently send the

banking institution a letter detailing its

findings and further actions, if any,

concerning the apparent violations. OFAC

will provide the banking institution’s

primary banking regulator with a copy of this

letter.

IV. Factors Affecting Administrative Action

In making its decision as to administrative

action, if any, OFAC will consider a number

of factors, including, but not limited to, the

following:

A. The institution’s history of sanctions

violations.

B. The size of the institution and the

number of OFAC-related transactions

handled correctly compared to the number

and nature of transactions handled

incorrectly.

C. The quality and effectiveness of the

banking institution’s overall OFAC

compliance program, as determined by the

institution’s primary banking regulator and

by its history of compliance with OFAC

regulations.

D. Whether the apparent violation or

violations in question are the result of

systemic failures at the banking institution or

are atypical in nature.

E. The voluntary disclosure to OFAC of the

apparent violation or violations by the

banking institution.

F. Providing OFAC a report of, or useful

enforcement information concerning, the

apparent violation or violations. Providing a

report, but not a voluntary disclosure, of the

apparent violation or violations will

generally be accorded less weight as a

mitigating factor than would provision of a

voluntary disclosure.

G. The deliberate effort to hide or conceal

from OFAC or to mislead OFAC concerning

an apparent violation or violations or its

OFAC compliance program.

H

apparent violation or violations. Providing a

report, but not a voluntary disclosure, of the

apparent violation or violations will

generally be accorded less weight as a

mitigating factor than would provision of a

voluntary disclosure.

G. The deliberate effort to hide or conceal

from OFAC or to mislead OFAC concerning

an apparent violation or violations or its

OFAC compliance program.

H. An analysis of current or potential

sanctions harm as a result of a violation or

series of related violations. This analysis will

focus both on the specifics of the apparent

violation or violations and the institution’s

compliance effort.

I. Technical, computer, or human error.

J. Applicability of a statute of limitations

and any waivers thereof.

K. Actions taken by the banking institution

to correct the problems that led to the

apparent violation or violations.

L. The level of OFAC action that will best

lead to enhanced compliance by the banking

institution.

M. The level of OFAC action that will best

serve to encourage enhanced compliance by

others.

N. Evidence that a transaction or

transactions could have been licensed by

OFAC under an existing licensing policy.

O. Whether other U.S. government

agencies have taken enforcement action.

P. Qualification of the banking institution

as a small business or organization for the

purposes of the Small Business Regulatory

Enforcement Fairness Act, as determined by

reference to the applicable regulations of the

Small Business Administration.

V. License Suspension and Revocation

In addition to or in lieu of other

administrative actions, OFAC authorization

to engage in a transaction or transactions

pursuant to a general or specific license may

VerDate Aug<31>2005

15:48 Jan 11, 2006

Jkt 205001

PO 00000

Frm 00060

Fmt 4700

Sfmt 4700

E:\FR\FM\12JAR1.SGM

12JAR1

rwilkins on PROD1PC63 with RULES

ns of the

Small Business Administration.

V. License Suspension and Revocation

In addition to or in lieu of other

administrative actions, OFAC authorization

to engage in a transaction or transactions

pursuant to a general or specific license may

VerDate Aug<31>2005

15:48 Jan 11, 2006

Jkt 205001

PO 00000

Frm 00060

Fmt 4700

Sfmt 4700

E:\FR\FM\12JAR1.SGM

12JAR1

rwilkins on PROD1PC63 with RULES

1975

Federal Register / Vol. 71, No. 8 / Thursday, January 12, 2006 / Rules and Regulations

be suspended or revoked with respect to a

banking institution for reasons including, but

not limited to, the following:

A. The banking institution has made or

caused to be made in any license application,

or in any report required pursuant to a

license, any statement that was, at the time

and in light of the circumstances under

which it was made, false or misleading with

respect to any material fact, or it has omitted

to state in any application or report any

material fact that was required;

B. The banking institution has failed to file

timely reports or comply with the

recordkeeping requirements of a general or

specific license;

C. The banking institution has violated any

provision of the statutes enforced by OFAC

or the rules or regulations issued under any

such provision or relevant Executive orders

and such violation or violations are

significant and merited civil penalty or other

enforcement action;

D. The banking institution is reasonably

believed to have counseled, commanded,

induced, procured, or knowingly aided or

abetted the violation of any provision of any

legal authority referred to in paragraph C;

E. Based on the information available to it,

OFAC considers the banking institution’s

compliance program inadequate; or

F. The banking institution has committed

any other act or omission that demonstrates

unfitness to conduct the transactions

authorized by the general or specific license.

VI

ided or

abetted the violation of any provision of any

legal authority referred to in paragraph C;

E. Based on the information available to it,

OFAC considers the banking institution’s

compliance program inadequate; or

F. The banking institution has committed

any other act or omission that demonstrates

unfitness to conduct the transactions

authorized by the general or specific license.

VI. Civil Penalties

The procedures for addressing the actions

of banking institutions that OFAC decides

merit civil penalty treatment are provided in

the regulations governing the particular

sanctions program involved, or, in the case

of sanctions regulations issued pursuant to

the Trading with the Enemy Act, in this Part.

The factors listed in Section IV will be

considerations in the civil penalty process.

ANNEX A.—OFAC RISK MATRICES

[The following matrices can be used by banking institutions to evaluate their compliance programs. Matrix A is from the FFIEC Bank Secrecy Act

Anti-Money Laundering Examination Manual published in 2005, Appendix M (‘‘Quantity of Risk Matrix—OFAC Procedures’’)]

Low

Moderate

High

Matrix A

Stable, well-known customer base in a local-

ized environment.

Customer base changing due to branching,

merger or acquisition in the domestic mar-

ket.

A large, fluctuating client base in an inter-

national environment.

Few high-risk customers; these may include

nonresident aliens, foreign customers (includ-

ing accounts with U.S. powers of attorney)

and foreign commercial customers.

A moderate number of high-risk customers ....

A large number of high-risk customers.

No overseas branches and no correspondent

accounts with foreign banks.

Overseas branches or correspondent ac-

counts with foreign banks.

Overseas branches or multiple correspondent

accounts with foreign banks.

No electronic banking (e-banking) services of-

fered, or products available are purely infor-

mational or non-transactional.

The bank offers limited e-banking products

and services

ers.

No overseas branches and no correspondent

accounts with foreign banks.

Overseas branches or correspondent ac-

counts with foreign banks.

Overseas branches or multiple correspondent

accounts with foreign banks.

No electronic banking (e-banking) services of-

fered, or products available are purely infor-

mational or non-transactional.

The bank offers limited e-banking products

and services.

The bank offers a wide array of e-banking

products and services (i.e., account trans-

fers, e-bill payment, or accounts opened via

the Internet).

Limited number of funds transfers for cus-

tomers and non-customers, limited third-party

transactions, and no international funds

transfers.

A moderate number of funds transfers, mostly

for customers. Possibly, a few international

funds transfers from personal or business

accounts.

A high number of customer and non-customer

funds transfers, including international funds

transfers.

No other types of international transactions,

such as trade finance, cross-border ACH,

and management of sovereign debt.

Limited other types of international trans-

actions.

A high number of other types of international

transactions.

No history of OFAC actions. No evidence of ap-

parent violation or circumstances that might

lead to a violation.

A small number of recent actions (i.e., actions

within the last five years) by OFAC, includ-

ing notice letters, or civil money penalties,

with evidence that the bank addressed the

issues and is not at risk of similar violations

in the future.

Multiple recent actions by OFAC, where the

bank has not addressed the issues, thus

leading to an increased risk of the bank un-

dertaking similar violations in the future.

Matrix B. This matrix consists of additional factors that may be considered by banking institutions in assessing compliance programs

in addition to Appendix M of the FFIEC Bank Secrecy Act Anti-Money Laundering Examination Manual

ple recent actions by OFAC, where the

bank has not addressed the issues, thus

leading to an increased risk of the bank un-

dertaking similar violations in the future.

Matrix B. This matrix consists of additional factors that may be considered by banking institutions in assessing compliance programs

in addition to Appendix M of the FFIEC Bank Secrecy Act Anti-Money Laundering Examination Manual.

Management has fully assessed the bank’s

level of risk based on its customer base and

product lines. This understanding of risk and

strong commitment to OFAC compliance is

satisfactorily communicated throughout the

organization.

Management exhibits a reasonable under-

standing of the key aspects of OFAC com-

pliance and its commitment is generally

clear

and

satisfactorily

communicated

throughout the organization, but it may lack

a program appropriately tailored to risk.

Management does not understand, or has

chosen to ignore, key aspects of OFAC

compliance risk. The importance of compli-

ance is not emphasized or communicated

throughout the organization.

The board of directors, or board committee, has

approved an OFAC compliance program that

includes policies, procedures, controls, and

information systems that are adequate, and

consistent with the bank’s OFAC risk profile.

The board has approved an OFAC compli-

ance program that includes most of the ap-

propriate policies, procedures, controls, and

information systems necessary to ensure

compliance, but some weaknesses are

noted.

The board has not approved an OFAC com-

pliance program, or policies, procedures,

controls, and information systems are sig-

nificantly deficient.

Staffing levels appear adequate to properly

execute the OFAC to properly execute the

OFAC compliance program.

Staffing levels appear generally adequate, but

some deficiencies are noted.

Management has failed to provide appropriate

staffing levels to handle workload

approved an OFAC com-

pliance program, or policies, procedures,

controls, and information systems are sig-

nificantly deficient.

Staffing levels appear adequate to properly

execute the OFAC to properly execute the

OFAC compliance program.

Staffing levels appear generally adequate, but

some deficiencies are noted.

Management has failed to provide appropriate

staffing levels to handle workload.

Authority and accountability for OFAC compli-

ance are clearly defined and enforced, in-

cluding the designations of a qualified OFAC

officer.

Authority and accountability are defined, but

some refinements are needed. A qualified

OFAC officer has been designated.

Authority and accountability for compliance

have not been clearly established. No

OFAC compliance officer, or an unqualified

one, has been appointed. The role of the

OFAC officer is unclear.

VerDate Aug<31>2005

15:48 Jan 11, 2006

Jkt 205001

PO 00000

Frm 00061

Fmt 4700

Sfmt 4700

E:\FR\FM\12JAR1.SGM

12JAR1

rwilkins on PROD1PC63 with RULES

1976

Federal Register / Vol. 71, No. 8 / Thursday, January 12, 2006 / Rules and Regulations

ANNEX A.—OFAC RISK MATRICES—Continued

[The following matrices can be used by banking institutions to evaluate their compliance programs. Matrix A is from the FFIEC Bank Secrecy Act

Anti-Money Laundering Examination Manual published in 2005, Appendix M (‘‘Quantity of Risk Matrix—OFAC Procedures’’)]

Low

Moderate

High

Training is appropriate and effective based on

the bank’s risk profile, covers applicable per-

sonnel, and provides necessary up-to-date

information and resources to ensure compli-

ance.

Training is conducted and management pro-

vides adequate resources given the risk

profile of the organization; however, some

ares are not covered within the training pro-

gram.

Training is sporadic and does not cover im-

portant regulatory and risk areas.

The institution employs strong quality control

methods.

The institution employs limited quality control

methods

ces to ensure compli-

ance.

Training is conducted and management pro-

vides adequate resources given the risk

profile of the organization; however, some

ares are not covered within the training pro-

gram.

Training is sporadic and does not cover im-

portant regulatory and risk areas.

The institution employs strong quality control

methods.

The institution employs limited quality control

methods.

The institution does not employ quality control

quality control methods.

Annex B—Sound Banking Institution OFAC

Compliance Programs

A. Identification of High Risk Business

Areas. A fundamental element of a sound

OFAC compliance program rests on a

banking institution’s assessment of its

specific product lines and identification of

the high-risk areas for OFAC transactions. As

OFAC sanctions reach into virtually all types

of commercial and banking transactions, no

single area will likely pass review without

consideration of some type of OFAC

compliance measure. Relevant areas to

consider in a risk assessment include, but are

not limited to, the following: retail

operations, loans and other extensions of

credit (open and closed-ended; on and off-

balance sheet, including letters of credit),

funds transfers, trust, private and

correspondent banking, international, foreign

offices, over-the-counter derivatives, internet

banking, safe deposit, payable through

accounts, money service businesses, and

merchant credit card processing.

B. Internal Controls. An effective OFAC

compliance program should include internal

controls for identifying suspect accounts and

transactions and reporting to OFAC. Internal

controls should include the following

elements:

1. Flagging and Review of Suspect

Transactions and Accounts. A banking

institution’s policies and procedures should

address how it will flag and review

transactions and accounts for possible OFAC

violations, whether conducted manually,

through interdiction software, or a

combination of both methods

ansactions and reporting to OFAC. Internal

controls should include the following

elements:

1. Flagging and Review of Suspect

Transactions and Accounts. A banking

institution’s policies and procedures should

address how it will flag and review

transactions and accounts for possible OFAC

violations, whether conducted manually,

through interdiction software, or a

combination of both methods. For screening

purposes, a banking institution should

clearly define procedures for comparing

names provided on the OFAC list with the

names in its files or on the transaction and

for flagging transactions or accounts

involving sanctioned countries. In high-risk

and high-volume areas in particular, a

banking institution’s interdiction filter

should be able to flag close name derivations

for review. New accounts should be

compared with the OFAC lists prior to

allowing transactions. Established accounts,

once scanned, should be compared regularly

against OFAC updates.

2. Updating the Compliance Program. A

banking institution’s compliance program

should also include procedures for

maintaining current lists of blocked

countries, entities, and individuals and for

disseminating such information throughout

the institution’s domestic operations and its

offshore offices, branches and, for purposes

of the sanctions programs under the Trading

with the Enemy Act, foreign subsidiaries.

3. Reporting. A compliance program

should also include procedures for handling

transactions that are validly blocked or

rejected under the various sanctions

programs. These procedures should cover the

reporting of blocked and rejected items to

OFAC as provided in § 501.603 of this Part

and the annual report of blocked property

required by § 501.604 of this Part.

4. Management of blocked accounts. An

audit trail should be maintained in order to

reconcile all blocked funds

actions that are validly blocked or

rejected under the various sanctions

programs. These procedures should cover the

reporting of blocked and rejected items to

OFAC as provided in § 501.603 of this Part

and the annual report of blocked property

required by § 501.604 of this Part.

4. Management of blocked accounts. An

audit trail should be maintained in order to

reconcile all blocked funds. A banking

institution is responsible for tracking the

amount of blocked funds, the ownership of

those funds, interest paid on those funds, and

the release of blocked funds pursuant to

license.

5. Maintaining License Information. Sound

compliance procedures dictate that a banking

institution maintain copies of customers’

OFAC specific licenses on file. This will

allow a banking institution to verify whether

a customer is initiating a legal transaction. If

it is unclear whether a particular transaction

is authorized by a license, a banking

institution should confirm this with OFAC.

Maintaining copies of licenses will also be

useful if another banking institution in the

payment chain requests verification of a

license’s validity. In the case of a transaction

performed under general license (or, in some

cases, a specific license), it is sound

compliance for a banking institution to

obtain a statement from the licensee that the

transaction is in accordance with the terms

of the license, assuming the banking

institution does not know or have reason to

know that the statement is false.

C. Testing. Except for a banking institution

with a very low OFAC risk profile, a banking

institution should have a periodic test of its

OFAC program performed by its internal

audit department or by outside auditors,

consultants, or other qualified independent

parties. The frequency of the independent

test should be consistent with the

institution’s OFAC risk profile; however, an

in-depth audit of each department in the

banking institution might reasonably be

conducted at least once a year

hould have a periodic test of its

OFAC program performed by its internal

audit department or by outside auditors,

consultants, or other qualified independent

parties. The frequency of the independent

test should be consistent with the

institution’s OFAC risk profile; however, an

in-depth audit of each department in the

banking institution might reasonably be

conducted at least once a year. The person(s)

responsible for testing should conduct an

objective, comprehensive evaluation of

OFAC policies and procedures. The audit

scope should be comprehensive and

sufficient to assess OFAC compliance risks

across the spectrum of all the institution’s

activities. If violations are discovered, they

should be promptly reported to both OFAC

and the banking institution’s banking

regulator.

D. Responsible Individuals. It is sound

compliance procedure for an institution to

designate a qualified individual or

individuals to be responsible for the day-to-

day compliance of its OFAC program,

including at least one individual responsible

for the oversight of blocked funds. This

individual or these individuals should be

fully knowledgeable about OFAC statutes,

regulations, and relevant Executive orders.

E. Training. A banking institution should

provide adequate training for all appropriate

employees. The scope and frequency of the

training should be consistent with the OFAC

risk profile and the particular employee’s

responsibilities.

Dated: December 22, 2005.

Robert W. Werner,

Director, Office of Foreign Assets Control.

Approved: December 23, 2005.

Stuart A. Levey,

Under Secretary of the Treasury, Office of

Terrorism and Financial Intelligence.

[FR Doc. 06–278 Filed 1–11–06; 8:45 am]

BILLING CODE 4810–35–P

POSTAL SERVICE

39 CFR Part 111

Sack Preparation Changes for

Periodicals Mail

AGENCY: Postal Service.

ACTION: Final rule.

SUMMARY: This final rule adopts new

mailing standards for Periodicals mail

prepared in sacks

r 23, 2005.

Stuart A. Levey,

Under Secretary of the Treasury, Office of

Terrorism and Financial Intelligence.

[FR Doc. 06–278 Filed 1–11–06; 8:45 am]

BILLING CODE 4810–35–P

POSTAL SERVICE

39 CFR Part 111

Sack Preparation Changes for

Periodicals Mail

AGENCY: Postal Service.

ACTION: Final rule.

SUMMARY: This final rule adopts new

mailing standards for Periodicals mail

prepared in sacks. The standards

include two new types of sacks—a 3-

digit carrier routes sack and a merged 3-

digit sack—and a new minimum of 24

pieces for most other sacks.

DATES: Effective Date: May 11, 2006.

FOR FURTHER INFORMATION CONTACT: Joel

Walker, 202–268–7266.

SUPPLEMENTARY INFORMATION:

Background

The Postal Service published a

proposal in the Federal Register on

August 15, 2005 (70 FR 47754), to

VerDate Aug<31>2005

15:48 Jan 11, 2006

Jkt 205001

PO 00000

Frm 00062

Fmt 4700

Sfmt 4700

E:\FR\FM\12JAR1.SGM

12JAR1

rwilkins on PROD1PC63 with RULES