FinCEN Advisory FIN-2018-A005: Advisory to Financial Institutions on the Risk of Proceeds of Corruption in Nicaragua

FIN-2018-A005 October 4, 2018

Advisory to Financial Institutions on the Risk of Proceeds of Corruption in Nicaragua

The growing instability in Nicaragua may result in proceeds of crime and corruption from high-level foreign political figures entering the U.S. financial system.

This advisory should be shared with: • Private Banking Units • Risk Officers • Compliance Officers • AML Analysts • Sanctions Analysts • Legal Departments

Background

The Financial Crimes Enforcement Network (FinCEN) is issuing this advisory to warn financial institutions against the growing risk that proceeds of political corruption in Nicaragua could enter or pass through the U.S. financial system. In particular, FinCEN expects that high-level foreign political figures1

1. The term “foreign political figure,” as defined in 31 CFR § 1010.605(p), means a senior foreign political figure who is or has been in office in the executive, legislative, administrative, military, or judicial branches of a foreign government (whether or not elected); a senior official of a major foreign political party; or a senior executive of a commercial enterprise that is owned by a foreign government; an entity, business, or other organization that has been formed by or for the benefit of any such person; an immediate family member of any such person; and a person generally known to the public (or actually known by the covered financial institution in question) as an intimate associate of such person. For purposes of this definition, “senior official or executive” means a person with considerable authority over government policy, operations, or the use of resources, and “immediate family member” means spouses, parents, siblings, and children, as well as the parents and siblings of a spouse.” See 31 CFR § 1010.605(p). See also FIN-2017-A006 “Advisory on Widespread Public Corruption in Venezuela,” dated September 20, 2017.

linked to the regime of Nicaraguan President Daniel Ortega may react to the perceived threat of facing further unrest, possible sanctions, or other factors by transferring assets derived from corruption from their accounts in Nicaragua or elsewhere.

FinCEN requests that financial institutions file Suspicious Activity Reports (SARs), in accordance with the obligations imposed by the Bank Secrecy Act (BSA), when they identify possible misuse of Nicaraguan public funds or possible proceeds of political corruption in connection with high-level foreign political figures linked to the Ortega regime. In its “Advisory on Human Rights Abuses Enabled by Corrupt Senior Foreign Political Figures and Their Financial Facilitators,” dated June 2018, FinCEN identified typologies and red flags illustrating how corrupt senior foreign political figures and their facilitators access the U.S. financial system to conceal and launder high-level political corruption proceeds, which may also correspond to this case.2 2. See FIN-2018-A003, “Advisory on Human Rights Abuses Enabled by Corrupt Senior Foreign Political Figures and Their Financial Facilitators,” dated June 12, 2018.

This advisory focuses on potentially suspicious transactions involving high-ranking members of the Ortega regime, or those acting on their behalf or in their name. Other Nicaraguans—who are not linked to the Ortega regime or any misuse of public funds—may also be removing assets from the country for legitimate reasons, including concerns about general political instability. This advisory should not be a reason to restrict such legitimate transactions, nor does it intend to disrupt the normal course of relations between U.S. financial institutions and Nicaragua, maintained in accordance with the institutions' compliance obligations and in the absence of other risk indicators.

Financial Sanctions Targeting Corruption and Human Rights Abuses in Nicaragua

The U.S. government has strongly condemned the recurrent violence in Nicaragua perpetrated by the Ortega regime, the corruption of said regime, and the human rights abuses it has committed in response to civil protests.3 3. See “Statement from the Press Secretary on Nicaragua,” dated July 30, 2018.

This condemnation coincides with a broader campaign to combat corruption and serious human rights abuses around the world using, among other mechanisms, the Global Magnitsky Sanctions Program, which is administered by the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury under the authority of Executive Order (E.O.) 13818, which implements the Global Magnitsky Human Rights Accountability Act.

To date, the United States has designated four Nicaraguan officials under the Global Magnitsky Sanctions Program, which allows the Treasury to target corrupt officials, human rights abusers, and corrupt subjects and their facilitators. In an annex to E.O. 13818, the President imposed sanctions on more than a dozen corrupt subjects and persons committing serious human rights abuses, including the Nicaraguan official Roberto José Rivas Reyes (Rivas), then president of the Supreme Electoral Council of Nicaragua.4 4. See Executive Order 13818, dated December 20, 2017. Rivas resigned from the Supreme Electoral Council in May 2018. For more information on sanctions related to Nicaragua, see https://home.treasury.gov/news/press-releases/sm0243.

As the Treasury noted when E.O. 13818 was issued, Rivas has been accused in the press of amassing a considerable personal fortune (including several properties, private jets, luxury vehicles, and a yacht), while earning a declared government salary of $60,000 per year. The Comptroller General of Nicaragua has described Rivas as someone who feels he is “above the law,” and investigations into his corruption have been obstructed by Nicaraguan government officials.5 5. See https://home.treasury.gov/news/press-releases/sm0243.

More recently, in July 2018, OFAC designated Francisco Javier Díaz Madriz, Commissioner General of the National Police, and Fidel Antonio Moreno Briones, General Secretary of the Managua Municipality, as responsible for or directing entities involved in serious human rights abuses in Nicaragua. OFAC also designated José Francisco López Centeno, Vice President of ALBA de Nicaragua, S.A. (ALBANISA), the company that imports and sells Venezuelan petroleum products, and then President of Petronic, the state-owned petroleum company of Nicaragua, for participating in corrupt activities.6 6. See https://home.treasury.gov/news/press-releases/sm422. López resigned from Petronic days after his designation in July 2018.

In announcing these designations, OFAC highlighted various corrupt activities in which these individuals are involved. For example, Moreno has been accused of stealing large sums of money from municipal projects in Managua, as well as using municipal funds to pay for activities of the Sandinista National Liberation Front (FSLN) party. López maintained access to enormous amounts derived from government funds that he could exploit, including for the personal use of Nicaraguan leaders. López also siphoned funds from infrastructure projects by negotiating personal fee payments, placed a large number of people at all levels of government who helped him steal millions of dollars annually, and took advantage of his position to benefit himself and his family by using companies he owned to win government contracts. OFAC also noted that high-ranking Nicaraguan government and FSLN officials have used ALBANISA funds to acquire radio and television stations, hotels, cattle ranches, power generation plants, and pharmaceutical laboratories.7 7. See https://home.treasury.gov/news/press-releases/sm422.

Reminder of Bank Secrecy Act Obligations Imposed on U.S. Financial Institutions

FinCEN reminds U.S. financial institutions that they must comply with the due diligence obligations imposed by the BSA, as well as its implementing regulations.8 8. See 31 U.S.C. § 5318(h) and 31 CFR § 1010.210 for Anti-Money Laundering (AML) program requirements, and for specific financial institutions, in 31 CFR §§ 1020.210, 1021.210, 1022.210, 1023.210, 1024.210, 1025.210, 1026.210, 1027.210, 1028.210, 1029.210, and 1030.210.

In addition to their general due diligence requirements, covered financial institutions must establish a due diligence program for private banking accounts held for non-U.S. persons, which shall be designed to detect and report any money laundering or other suspicious activity, whether alleged or confirmed, conducted through them.9 9. See Section 312 of the USA PATRIOT Act, codified at 31 U.S.C. § 5318(i) and 31 CFR § 1010.620(a). The definition of “covered financial institution” is found in 31 CFR § 1010.605(e). The definition of “private banking account” is found in 31 CFR § 1010.605(m). The definition of the term “non-U.S. person” is found in 31 CFR § 1010.605(h).

This program must also be designed to determine whether such an account is controlled by or on behalf of a foreign political figure, and if so, these institutions must impose enhanced scrutiny, which shall be reasonably designed to detect and report “transactions that may involve foreign corruption proceeds.”10 10. See 31 CFR § 1010.620(b)-(c).

As part of implementing these risk-dependent requirements, financial institutions will weigh whether they have any financial contact with persons or entities (whether foreign or not) that may be acting, directly or indirectly, on behalf or in the name of a foreign political figure of the Government of Nicaragua.

FinCEN also reminds covered financial institutions that they have the obligation to establish due diligence programs for correspondent accounts maintained for foreign financial institutions, which shall include appropriate, risk-specific, and when necessary, enhanced policies, procedures, and controls, and which shall be reasonably designed to detect and report money laundering activities, whether alleged or confirmed, involving such accounts.11 11. See Section 312 of the USA PATRIOT Act (31 U.S.C. § 5318(i)); 31 CFR § 1010.610(a).

Reporting Suspicious Activities

A financial institution must file a Suspicious Activity Report (SAR) if it knows, suspects, or has reason to suspect that a transaction conducted or attempted by, in, or through it involves funds derived from illegal activities or attempts to conceal them; is designed to evade regulations promulgated under the BSA; lacks an apparent lawful business or purpose; or involves the use of the financial institution to facilitate criminal activities, including foreign corruption.12 12. See 31 CFR §§ 1020.320, 1021.320, 1022.320, 1023.320, 1024.320, 1025.320, 1026.320, 1029.320, and 1030.320.

In April 2008, FinCEN released guidance, as well as similar information in an issue of The SAR Activity Review published in May 2011, to help financial institutions report suspicious activities related to proceeds of foreign corruption.13 13. See Guidance FIN-2008-G005, “Guidance to Financial Institutions on Filing Suspicious Activity Reports Regarding the Proceeds of Foreign Corruption,” dated April 17, 2008; and sections 4 and 5 of “In Focus: Foreign Corruption,” in issue 19 of The SAR Activity Review, May 2011.

SAR Filing Instructions

When filing a Suspicious Activity Report or SAR, financial institutions must provide all relevant available data, as well as a description, on the SAR form. FinCEN also requests that financial institutions select field 35(l) of the SAR (“Suspected Public/Private Corruption (Foreign)”) and mention this advisory by including the keyword:

“Nicaragua FIN-2018-A005”

in the SAR description and in field 35(z) of the same (“Other Suspicious Activity-Other”) when using the SAR form on or before December 31, 2018. Beginning January 1, 2019, when using the new mandatory SAR form, financial institutions must select field 38(m) of the SAR (“Suspected Public/Private Corruption (Foreign)”) and mention this advisory using the aforementioned keyword in field 2 of the SAR (“Filing Institution Note to FinCEN”) to indicate a nexus between the suspicious activity being reported and the persons and activities highlighted by this advisory. The filing of SARs, along with the effective implementation of due diligence requirements and OFAC obligations by financial institutions, has been crucial in identifying money laundering and other financial crimes related to political corruption both domestic and foreign. SAR filing is always useful and decisive for FinCEN, as well as for the analytical and investigative work of U.S. authorities, OFAC designation efforts, and the security and stability of the U.S. financial system as a whole.14 14. See “In Focus: Foreign Corruption,” starting from section 3, in issue 19 of The SAR Activity Review, May 2011; and “The Value of FinCEN Data” and its subsection on case examples.

For More Information

Questions or comments regarding the content of this advisory should be directed to the FinCEN Regulatory Support Section by writing to frc@fincen.gov.

Financial institutions wishing to report suspicious transactions that may possibly be related to terrorist activities should call the Financial Institutions Free Hotline at (866) 556-3974 (24 hours a day, 7 days a week). The purpose of the hotline is to deliver this information to authorities expeditiously. Financial institutions must immediately report any imminent threats to local law enforcement and judicial authorities.

FinCEN’s mission is to protect the financial system from illicit use, and to combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence, and the strategic use of financial authorities.