20210224 What’s in a name? : Page 3 of 6

20210224 What’s in a name?

Nigel Morris-Cotterill

Hello and welcome to The Financial Crime Risk and Compliance blogcast with me, Nigel Morris-Cotterill.

This episode is published the 24 February 2021

It is available in text on my blog at www.countermoneylaundering.com.

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In this episode:

1. The impending global crisis for small businesses trading with EU customers and suppliers and a shedload of work for their bankers and others.

2. Transferwise becomes Wise. Is it a wise choice?

3. Revocation v repeal: a US crypto company has paid a penalty under a law that doesn’t exist because the US government said it had to.

4. Goodbye blogcast, hello BLOG/cast and the end of the line for our original graphic.

Revocation v repeal: a US crypto company has paid a penalty under a law that doesn’t exist because the US government said it had to.

This is an interesting twist on cyber-bullying. In the second case in recent weeks, the USA’s Office of Foreign Assets Control, or OFAC, has ″settled″ a case with a cryptocurrency exchange. The circumstances of both cases are similar: services were provided to customers in various locations which the USA has placed under sanctions. The companies did not, take sufficient care to identify the location of its customers to ensure that they were not dealing with persons that the USA doesn’t want them to.

Or, to be more precise, did not want them to.

OFAC has published the settlement agreements. In the agreement with the second company it is clearly stated that the particular regulations which the company is accused of breaching have been ″revoked.″

OFAC expressly states, in the agreement, that this does not matter because it takes the view that the conduct happened prior to revocation.

Here’s where it becomes complicated.

Laws, of which regulations are an example, are amended, repealed or revoked.

If a law is amended, the changes are made with effect from the date set out in the amending legislation: there is a convention that amendments are not retroactive although this convention is sometimes broken;

If a law is repealed, it ceases to have effect from the date that the legislation containing the amendment comes into effect;

If a law is revoked it’s wiped from the statute books except as a historical footnote. Revocation is the process by which a law, just as a contract, is treated as if it never existed, it is void ab initio, it’s not a dead parrot because, as a matter of law, it was never a parrot at all.

If the law was revoked, then it was never there and so the company could not have broken it. And OFAC says it was revoked.

Why, then, did the company settle and not insist on taking the matter before a court? If it did, a Judge could say ″that isn’t right.″ I haven't asked it but here's my theory. The answer may lie in the amount for which it settled: a penalty of approx USD500,000 might have been considered a price worth paying to simply get on with its business. Such a trial would be very costly and very disruptive. In OFAC’s bizarre way of speaking, the penalty is paid in respect of ″alleged″ breaches. In short, from the outside the whole thing looks as if OFAC simply bullied the company into coughing up half a million dollars.

In fact, the USA often speaks of ″revoking″ sanctions. PoTUS Trump ″revoked″ the special status of Hong Kong. In 2017, sanctions against Sudan were ″revoked.″

If the sanctions had been repealed, then OFAC’s view would be correct – breaches during the currency of the regulations are breaches.

So the issue really comes down to this: when the US State Department and the Treasury speak of sanctions being ″revoked,″ they have got the wrong word. The sanctions are, in fact, repealed.

And in that case a company does not pay a penalty under a law that does not exist; it pays under one that did have but no longer has force.