US economic sanctions targeting Latin America: Recent changes, developments and compliance challenges

The United States — specifically through the US Department of the Treasury's Office of Foreign Assets Control (OFAC) and the Department of State — has maintained economic sanctions against certain Latin American countries since the 1950s. Starting with broad-based sanctions against Cuba, where OFAC prohibited virtually all transactions, the Department of the Treasury has instituted more-targeted sanctions regimes against Venezuela and Nicaragua, where non-government dealings are, for the most part, authorised. Together, the Departments of State and the Treasury also administer sanctions against various narcotics and terrorist organisations operating in Latin America. Most notable is the Foreign Narcotics Kingpin Designation Act, which has targeted trafficking organisations, foreign officials and their money laundering empires. To that end, sanctions, while initially imposed to fight certain political regimes, have developed into sanctions targeting all kinds of wrongdoing such as sponsoring terrorism, aiding and abetting drug trafficking, corruption and the commission of human rights violations. US sanctions violations are assessed under a strict liability standard (ie, no knowledge of the violation is required to trigger liability) and impact not only those directly subject to the jurisdiction of the US but also may carry implications for non-US persons undertaking certain ‘significant transactions' with sanctioned persons and jurisdictions. Further, while sanctions apply to US persons, OFAC can institute penalties on non-US persons for causing a US person to violate their compliance obligations. In addition, OFAC (or the Department of State) may sanction persons (individuals or entities) by adding them to the Specially Designated and Blocked Nationals (SDN) List. US persons must block the property and interests in property of SDNs, and are prohibited from virtually all, direct and indirect, transactions involving an SDN. SDN restrictions also apply to ‘Shadow SDNs' which are entities owned 50 per cent or more, directly or indirectly, by one or more SDNs in the aggregate. A Shadow SDN receives the same treatment as SDNs, regardless of whether such entity is itself on the SDN List. The challenge with Shadow SDNs is that they can only be discovered through rigorous due diligence into beneficial ownership structures of sometimes opaque corporate entities. This is where the world of sanctions compliance and enforcement crosses with that of anti-money laundering. The evolving customer due diligence, ongoing customer monitoring, suspicious activity investigations and reporting, and know your customer (KYC) (and know your customer's customer [KYCC]) evidenced are reflected through the evolving Financial Action Task Force (FATF) Recommendations, the Financial Action Task Force on Money Laundering in South America (GAFISUD) and domestic regulations. As a result of the increasingly unpredictable political changes in Latin America, and the concurrent changes in sanctions regimes, financial institutions (FIs) should maintain a proper understanding of the current sanctions prohibitions, the trends and updates in the area, but equally important, they should also maintain a good understanding of the complex legal provisions authorising certain behaviours — including the general licences and exemptions — that may apply. FIs must balance mitigating the risks of sanctions violations, and the associated hefty penalties, with the risks of a cumbersome and overly restrictive compliance regimen. An appropriately risk-based compliance programme that achieves both of these objectives is very much an art and not a ‘one size fits all’ model.