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Introduction

Good morning. Thank you to the Geneva Association for having me here today. I appreciate that many of you have traveled to Washington to participate in these important conversations about the insurance sector.

As the Acting Assistant Secretary for Financial Institutions, I oversee a broad policy portfolio at the U.S. Treasury Department, encompassing banks, credit unions, and the insurance sector, as well as cybersecurity and critical infrastructure, community development, and consumer protection. As we face increasing challenges domestically and internationally from the climate crisis and cyber events, our insurance work has often been among the top priorities across my portfolio in recent months.

Today I’m happy to discuss our work.

Treasury’s Role Through FIO in Monitoring the Insurance Industry and International Engagement

First, let me provide some brief background on the Federal Insurance Office at the U.S. Department of the Treasury. FIO was created in the wake of the 2008 financial crisis by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which gave FIO the authority to monitor all aspects of the insurance industry. FIO is also authorized to collect and disseminate data and information on and from the insurance industry, serves as a member of the Financial Stability Oversight Council, assists the Secretary with the administration of the Terrorism Risk Insurance Program, and monitors the extent to which traditionally underserved communities and consumers have access to affordable non-health insurance products.

Internationally, FIO represents the United States on prudential aspects of international insurance matters, including serving as a member of the Executive Committee at the International Association of Insurance Supervisors (IAIS), and is authorized, jointly with the Office of the United States Trade Representative, to negotiate “covered agreements” concerning insurance or reinsurance prudential measures with foreign governments, authorities, or regulatory entities.

The Federal Insurance Office’s Work on Climate-Related Risks and Insurance

Let me start by talking about the ongoing work of Treasury and FIO to address climate risk in the insurance sector, which is affecting Americans across the country as many consumers face increased challenges finding available and affordable property insurance. 

Since the beginning of this Administration, President Biden and Vice President Harris have been concerned with the significant impacts that climate change can have on American families, consumers, the housing market, and the broader economy. To address these impacts, the President issued an Executive Order in May 2021, which leverages a whole-of-government approach to climate-related financial risk. Treasury has played a critical role in the Administration’s effort.

In the Executive Order, President Biden tasked FIO to: (1) “assess climate-related issues or gaps in the supervision and regulation of insurers” and (2) “further assess, in consultation with States, the potential for major disruptions of private insurance coverage in regions of the country particularly vulnerable to climate change impacts.”

In 2023, as part of these efforts, FIO issued a report on Insurance Supervision and Regulation of Climate-Related Risks highlighting the initial efforts of state regulators and the National Association of Insurance Commissioners (NAIC) on this topic. The report provides 20 recommendations for ways that state efforts could be expanded, focused, and, where appropriate, made more uniform among the states. This report provides a high-level framework outlining how states can make progress in the important area of addressing climate-related risks faced by insurers and consumers.

Treasury and FIO also remain focused on our efforts to analyze ZIP Code level homeowners’ insurance data to help improve our understanding of the impacts of climate-related financial risks on the insurance sector. The market challenges presented by climate change are significant, and in many locations, it is increasingly difficult for homeowners and consumers to find and afford insurance. The average homeowner’s insurance premiums have increased by almost 20 percent between 2021 and 2023, with projections of more double digit increases in some states this year. In addition, some insurers are no longer writing new business in or withdrawing completely from a number of areas that face a range of climate risks. The number of policies issued by residual market insurers, which are insurers of last resort in 32 states and the District of Columbia, has almost doubled, from 1.38 million in 2019 to about 2.71 million in 2023. 

To better understand these and other issues facing U.S. homeowners, on March 8 of this year, FIO announced the launch of a first-of-its-kind collaboration with the NAIC and state insurance regulators to collect ZIP Code level homeowners’ insurance data from the largest homeowners’ insurers across the country. Treasury and FIO coordinated extensively with state insurance regulators and the NAIC on a single data collection that meets our complementary but distinct needs.  This partnership on data collection is an important initiative for the American public, insurers, and state regulators, as well as for FIO and the NAIC. 

FIO will use this data to conduct a nationwide assessment of climate-related financial risks to consumers across the United States for owner-occupied homeowners multi-peril insurance policies between 2018 and 2022. Specifically, FIO will use the data to calculate common insurance underwriting metrics on information such as average premiums, loss ratios, claims frequency, and non-renewal rates. These key metrics will be used to analyze trends over time across ZIP Codes facing varying levels of risk from climate-related events. As we continue to receive data from the NAIC, FIO expects to conduct and publish its analyses in a report issued by the end of the year.

FIO’s climate work complements the efforts that states are undertaking to understand and address market challenges by adding a national perspective on the impact that climate change is having on homeowners. Our respective work at Treasury and at the state level is critically important to evaluating and understanding how increased stress in U.S. property insurance markets is affecting homeowners. We also see significant benefits to continuing data collection efforts and the FIO/NAIC partnership in future years — as we will also need updated and additional insurance data to help inform our work.

Detailed insight into insurance market challenges is particularly important at a time when the Biden-Harris Administration is implementing historic legislation to invest billions in strengthening the resilience of climate-vulnerable communities. This includes the Bipartisan Infrastructure Law and Inflation Reduction Act which dedicated more than $50 billion to advance climate resilience strategies in every community in America. The National Initiative to Advance Building Codes further reinforces the Administration’s efforts to meaningfully increase resilience to climate change. 

As we move forward, we are committed to engagement and collaboration with stakeholders and the insurance industry, including those of you in this room. 

Finally, I wanted to touch on another important area of climate work at Treasury relating to the interconnectedness of the housing and insurance markets.

The availability of insurance can have potentially significant consequences for homeowners and their property values, which if severe enough could spill over to other parts of our interconnected financial system. Financial institutions and investors hold assets such as mortgages and securities that are directly or indirectly affected by insurance coverage. Insurance policies may exclude coverage for specific perils; for example, most multi-peril home insurance policies do not cover flood damages. And some homeowners may choose to forego insurance coverage, including for reasons of affordability. Any resulting mortgage defaults by homeowners will push losses into other parts of the financial system.

The impact of escalating costs for insurance can be most acute for low-income households. One study finds that twelve percent of homeowners in the United States did not purchase homeowners’ insurance; and about half of homeowners that did not purchase insurance had a household income of less than $40,000 per year. In addition, the majority of low-income households are not homeowners themselves but may absorb the higher cost of property insurance through their rent. And, and after disasters, renters generally have less access to financial assistance as compared to homeowners, making recovery more difficult for these households.

The impact of insurance costs on housing affordability and availability is an important consideration that we will need to continue to study, particularly for vulnerable populations. 

Our collective efforts in this area will only become more important in future years. We want to prioritize ensuring that insurance markets continue serving their role in the economy and that policymakers can help consumers and families take the necessary steps to help mitigate the impact of climate risks on their household finances.

FIO’s Work on Insurance and Catastrophic Cyber Risk, Including as Part of the Administration’s National Cybersecurity Strategy and the New FIO-NSF IUCRC

Catastrophic Cyber Risk/ Public-Private Risk Sharing

Next, I want to discuss Treasury’s work to examine a potential federal insurance response to catastrophic cyber risk.

Treasury and FIO have been working closely with our partners across the Administration, including the Cybersecurity and Infrastructure Security Agency at the Department of Homeland Security and the Office of the National Cyber Director at the White House, to examine potential forms of a federal insurance response to catastrophic cyber risk, including how insurance, if it is available, can mitigate the effects of a catastrophic cyber incident and protect our nation’s economic resilience. Preparing for a catastrophic cyber incident is a proactive approach in line with Strategic Objective 3.6 in President Biden’s 2023 National Cybersecurity Strategy, which states:

“In the event of a catastrophic cyber incident, the Federal Government could be called upon to stabilize the economy and aid recovery. Structuring that response before a catastrophic event occurs – rather than rushing to develop an aid package after the fact – could provide certainty to markets and make the nation more resilient.”

The U.S. cyber insurance market has grown considerably in recent years and remains the largest in the world. These products primarily address attritional cyber losses, as opposed to catastrophic cyber incidents – the kind that could do systemic damage to the national economy. Insurance for attritional cyber incidents, such as most ransomware attacks, has expanded in recent years in response to the growing risk; however, the market has pulled back from covering catastrophic cyber incidents.

Accordingly, FIO’s analysis is focusing on how a federal insurance response to catastrophic cyber risk can be cabined alongside the existing and expanding commercial cyber insurance market. As Treasury progresses in our work, we are assessing various approaches for sharing catastrophic cyber risk between the public and private sectors, as well as considering how they could foster greater resilience in our financial system, mitigate moral hazard, and protect taxpayer interests. 

As part of our continuing efforts, FIO hosted a second stakeholder conference at Treasury in May, which launched the current phase of Treasury’s work with discussions about potential forms a federal insurance response might take. FIO is working closely with Treasury’s inter-agency partners on potential policy responses and will have further updates later this year. 

The recent CrowdStrike incident highlights how impactful a cyber incident, even an accidental incident, can be across the economy and served to emphasize the importance of Treasury’s cyber work. This was a wide scale global event that affected several critical infrastructure sectors including the financial, transportation, and healthcare sectors, among others. While this incident was widespread, it appears to be a loss that the insurance industry was prepared to respond to, rather than a catastrophic event, and it looks likely that it will not have a material effect on global insurer and reinsurer financial results.   

Advance preparation for a response to catastrophic cyber incident, illustrated by FIO’s ongoing work and other government initiatives, can help improve the U.S. economy’s resiliency if and when a systemic cyber event occurs. 

FIO-NSF IUCRC

I would also like to take a brief moment to discuss a new public-private partnership. This year, FIO initiated a collaboration with the National Science Foundation (NSF), insurance sector stakeholders, and the academic community to consider how to better predict and insure terrorism and catastrophic cyber risks through a new Industry-University Cooperative Research Center.  The U.S. government has a long history of employing public-private collaborations to study critical challenges, and we welcome the academic and private sector’s partnership with Treasury and the NSF in addressing the challenge of terrorism and catastrophic cyber risks. 

This is the first time that Treasury has formally partnered with National Science Foundation, and we’re excited about the potential benefits of the collaboration. Industry-University Cooperative Research Centers (IUCRCs) facilitate work between university academic teams and an industry consortium to carry out cutting-edge research focused on the collective needs of a sector of the U.S. economy.

This new center will stimulate research and develop potential solutions that provide insurers, government, and other stakeholders with additional data and improved modeling and underwriting tools, methodologies, and practices for insuring terrorism and catastrophic cyber risks. Through these efforts, the IUCRC could help strengthen the resilience of the U.S. economy by potentially expanding insurance coverage for these risks through improved insurance modeling and underwriting. The IUCRC’s research may also help FIO’s ongoing work assessing catastrophic cyber risk in the insurance sector and administering the Terrorism Risk Insurance Program.

FIO’s International Work

Next, I’d like to provide an overview of some of our international work.

IFTRIP

I’ll start by highlighting our work collaborating with international partners on terrorism risk. I would highlight Treasury’s leadership role as chair of the International Forum of Terrorism Risk (Re)Insurance Pools (IFTRIP), which is a forum of 15 nations, including the United States, supporting initiatives for closer international collaboration among sovereign-backed terrorism reinsurance pools. FIO hosted the IFRIP Annual Conference at Treasury in April.

Under U.S. leadership, we aim to increase IFTRIP’s collaborative partnerships with other organizations, building upon the IFTRIP’s prior work with the Geneva Association examining the insurability of hostile cyber activity. I’m pleased IFTRIP is now working with the Geneva Association, and many of you here today, on a further collaborative project that aims to assess shifts in the chemical, biological, radiological, and nuclear risk landscape, and the insurance response for those perils.

We are excited about the direction of IFTRIP’s future work and look forward to building upon the prior IFTRIP accomplishments and expanding the goals of this organization.  

International Association of Insurance Supervisors

FIO also continues to fulfill its statutory role representing the United States in the IAIS and in other forums on prudential international insurance measures.  In this capacity, one of our top international priorities is engaging at the IAIS, along with our NAIC, state insurance regulators, and Federal Reserve Board colleagues, in key discussions around the Insurance Capital Standard (ICS).  As many of you know, the ICS is scheduled to be adopted by the IAIS at year-end 2024.  FIO is also focused on the ongoing work surrounding the comparability assessment of the Aggregation Method.  The next few months will be a significant period of meetings, as the IAIS works toward the completion of these important initiatives.  We look forward to our continued collaboration with IAIS members and our U.S. colleagues.

Treasury’s Work on Artificial Intelligence 

Turning next to artificial intelligence (AI) and the financial services sector, the Biden-Harris Administration has been focused on harnessing AI’s potential to fuel innovation while mitigating risks, as reflected in President Biden’s landmark Executive Order on AI last year. Treasury, and my office, are playing a key role in spurring responsible innovation in relation to AI and financial institutions.

Under the President’s Executive Order on AI, in March, Treasury released a detailed report providing an extensive overview of current use cases and best practices related to AI for cybersecurity and fraud prevention in the financial sector. In June, Treasury formally launched a Request for Information to seek comments on the current uses, opportunities, and risks of AI in the financial services sector. We received over 100 comments and are in the process of reviewing these submissions.

I would also highlight that next week FIO will convene a roundtable on AI in the insurance sector to discuss the benefits and challenges associated with the use of AI by insurers, potential consumer protections to prevent discrimination, and the current state regulatory framework and best practices for the sector. We expect that this event and our other stakeholder engagement will assist FIO in better understanding this area, which is of such growing importance.

FIO’s Work on Title Insurance

In addition to the upcoming AI roundtable, FIO recently hosted a roundtable to discuss the title insurance industry and analyze potential reforms. FIO was tasked with convening the roundtable in connection with President Biden’s call for federal agencies to take all available actions to lower home closing costs and help more Americans access homeownership. We look forward to continued engagement on these issues and support increased qualitative and quantitative analyses in this area to better assess how the title insurance industry is benefiting consumers and homeowners. 

OCCIP’s Work on Cybersecurity, Information Sharing, and International Cooperation

I would also like to provide a brief overview of work that Treasury’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP) is leading. Earlier this year, Treasury established Project Fortress, an initiative led by OCCIP to improve the security and resilience of the financial services sector through forward-leaning public-private information sharing mechanisms. Project Fortress includes a mix of proactive defensive and offensive measures to help secure the financial sector. The initiative represents a new model of proactive sector risk management, leveraging the vast amount of data and capabilities that exist across the federal government and the private sector. 

Treasury is also making tremendous progress on the issue of cloud security. Together with the Financial Services Sector Coordinating Council, Treasury recently published a suite of resources for financial institutions on secure cloud adoption. To name a few, these include a common cloud lexicon for financial institutions and regulators, information sharing and coordination of examinations, and best practices for managing third-party risk associated with cloud outsourcing. This work is the culmination of an unprecedented public-private partnership known as the Cloud Executive Steering Group, consisting of sector CEOs and regulatory agency heads. 

Treasury is continuing its push for technology modernization through OCCIP’s international efforts, working with partners abroad to detect threats approaching their networks. Earlier this year, OCCIP organized and participated in the G7 Cyber Expert Group’s Cross-Border Coordination Exercise.  Treasury also signed a memorandum of understanding and cooperation (MoU) in cybersecurity with the National Bank of Ukraine, facilitating an ongoing exchange of information between the National Bank of Ukraine and Treasury. The MoU is part of a whole-of-government effort to support the people of Ukraine and helps Treasury stay ahead of risks to the U.S. financial services sector.

Financial Inclusion

Before closing, I want to mention Treasury’s work to develop a National Financial Inclusion Strategy. Treasury has met with organizations across the financial sector, as well as with fellow policy makers and community and consumer organizations, to discuss financial barriers faced by underserved communities.

The inaugural Strategy will be released later this year and is intended to further cross-sector efforts to reduce disparities and ensure that consumers, particularly those from underserved populations, have equitable access to financial information, products, and services. As all of you know, access to affordable insurance products can be an important way for consumers to build financial resilience and security. 

Closing

Let me close by thanking you again for having me here to speak about the important work we are doing at Treasury related to climate, cyber risk, and in many other areas. I look forward to engaging with many of you as we tackle these and other challenges ahead.

I would be happy to take questions.

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WASHINGTON — Today, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned five individuals and one entity associated with the Intellexa Consortium for their role in developing, operating, and distributing commercial spyware technology that presents a significant threat to the national security of the United States. These designations complement concerted U.S. government actions against commercial spyware vendors, including previous sanctions against individuals and entities associated with the Intellexa Consortium; the Department of Commerce’s addition of commercial spyware vendors to the Entity List; and the Department of State’s visa ban policy targeting those who misuse or profit from the misuse of commercial spyware, subsequently exercised on thirteen individuals.  

“The United States will not tolerate the reckless propagation of disruptive technologies that threatens our national security and undermines the privacy and civil liberties of our citizens,” said Acting Under Secretary of the Treasury for Terrorism and Financial Intelligence Bradley T. Smith. “We will continue to hold accountable those that seek to enable the proliferation of exploitative technologies, while also encouraging the responsible development of technologies that align with international standards.” 

Today’s action reaffirms the United States’ commitment to countering the exploitation of Americans’ sensitive data and digital authoritarianism, and aligns with a series of U.S. Government actions to counter the proliferation and misuse of commercial spyware, including the issuance of Executive Order (E.O.) 14093 to Prohibit U.S. Government Use of Commercial Spyware that Poses Risks to National Security; the Joint Statement on Efforts to Counter the Proliferation and Misuse of Commercial Spyware; and the Guiding Principles on Government Use of Surveillance Technologies. These measures reflect the U.S. Government’s commitment to use all available tools and authorities, including sanctions as well as export controls and visa restrictions, to counter the misuse of such sophisticated surveillance technology. 

targeting the global commercial spyware network

The Intellexa Consortium is a complex international web of decentralized companies that built and commercialized a comprehensive suite of highly invasive spyware products, primarily marketed under the brand-name “Predator.” The consortium was founded by Tal Jonathan Dilian (Dilian), an individual designated pursuant to E.O. 13694, as amended by E.O. 13757 (“E.O. 13694, as amended”). 

Predator spyware can be used to gain access to data stored and transmitted from the target’s device, such as a cellphone, through one-click and zero-click attacks that require no user interaction for the spyware to infect the device.Successful Predator spyware attacks can provide the spyware’s operators with access to sensitive information on the victim’s device, including photos, geolocation data, personal messages, and microphone records. As a part of the growing commercial spyware industry, the Intellexa Consortium maintains operations around the world, and its clients include state-sponsored actors and governments. Past targets of the Intellexa Consortium’s spyware products include government officials, journalists, policy experts, and opposition politicians.

Felix Bitzios (Bitzios) is the beneficial owner of an Intellexa Consortium company that was used to supply Predator spyware to a foreign government client. Bitzios also acted as the manager of Intellexa S.A., a company in the Intellexa Consortium that was designated pursuant to E.O. 13694, as amended.

Andrea Nicola Constantino Hermes Gambazzi is the beneficial owner of Thalestris Limited and Intellexa Limited, members of the Intellexa Consortium that were designated pursuant to E.O. 13694, as amended. Thalestris Limited holds distribution rights to the Predator spyware, and is the parent company to Intellexa S.A. Thalestris Limited has been involved in processing transactions on behalf of other entities within the Intellexa Consortium.   

Merom Harpaz is a top executive of the Intellexa Consortium, and acted as a manager of Intellexa S.A.

Panagiota Karaoli is the director of multiple Intellexa Consortium entities that are controlled by or are a subsidiary of Thalestris Limited. 

Artemis Artemiou (Artemiou) is the general manager and member of the board of Cytrox Holdings Zartkoruen Mukodo Reszvenytarsasag (Cytrox Holdings), a member of the Intellexa Consortium that was designated pursuant to E.O. 13694, as amended. Artemiou is also an employee of Intellexa S.A.

Aliada GroupInc. (Aliada Group), a British Virgin Islands-based company and member of the Intellexa Consortium, has enabled tens of millions of dollars of transactions involving the network. The Aliada Group is directed by Dilian. The Aliada Group was associated with Intellexa S.A. and Intellexa Limited, and held shares in Cytrox Holdings.    

Felix Bitzios, Andrea Nicola Constantino Hermes Gambazzi, Merom Harpaz, Panagiota Karaoli, Artemis Artemiou¸ and the Aliada Group Inc. are being designated pursuant to E.O. 13694, as amended, for being responsible for or complicit in, or having engaged in, directly or indirectly, cyber-enabled activities originating from, or directed by persons located, in whole or in substantial part, outside the United States that are reasonably likely to result in, or have materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States and that have the purpose or effect of causing a significant misappropriation of funds or economic resources, trade secrets, personal identifiers, or financial information for commercial or competitive advantage or private financial gain.

SANCTIONS IMPLICATIONS

As a result of today’s action, all property and interests in property of the designated persons described above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked. Unless authorized by a general or specific license issued by OFAC, or exempt, OFAC’s regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons. Non-U.S. persons are also prohibited from causing or conspiring to cause U.S. persons to wittingly or unwittingly violate U.S. sanctions, as well as engaging in conduct that evades U.S. sanctions. OFAC’s Economic Sanctions Enforcement Guidelines provide more information regarding OFAC’s enforcement of U.S. sanctions, including the factors that OFAC generally considers when determining an appropriate response to an apparent violation.

In addition, financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals may expose themselves to sanctions or be subject to an enforcement action. Prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any designated person, or the receipt of any contribution or provision of funds, goods, or services from any such person. 

The power and integrity of OFAC sanctions derive not only from OFAC’s ability to designate and add persons to the SDN List, but also from its willingness to remove persons from the SDN List consistent with the law. The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior. For information concerning the process for seeking removal from an OFAC list, including the SDN List, please refer to OFAC’s Frequently Asked Question 897 here. For detailed information on the process to submit a request for removal from an OFAC sanctions list, please click here.

Click here for more information on the individuals and entities designated today.

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WASHINGTON — Today, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned individuals who have undermined fundamental freedoms, including freedom of expression, in Georgia.  Specifically, the Department of the Treasury sanctioned two Georgian government officials associated with brutal crackdowns on peaceful protestors and political opponents, and two private Georgian citizens that are responsible for or complicit in, or have directly or indirectly engaged in violently suppressing the exercise of the freedom of peaceful assembly of Georgians engaged in the democratic process and peaceful expression. All four individuals are being designated pursuant to Executive Order (E.O.) 13818, which builds upon and implements the Global Magnitsky Human Rights Accountability Act and targets perpetrators of serious human rights abuse around the world. 

“Today’s action underscores our concern about the consequences of anti-democratic actions in Georgia and efforts by key individuals to use violence and intimidation to achieve their aims,” said Acting Under Secretary of the Treasury for Terrorism and Financial Intelligence Bradley T. Smith. “The United States remains committed to holding accountable those who seek to undermine the rights of the Georgian people.”

georgian government officials responsible for the violent SUPPRESSION of free speech in 2024

On May 28, 2024, despite weeks of mass protests against the proposed legislation, the ruling Georgia Dream party passed a law titled “On Transparency of Foreign Influence,” known colloquially as the “foreign influence law,” that Secretary of State Antony Blinken has stated would stifle fundamental freedoms, including media freedom. It also runs counter to values which bind Georgia to Europe and the European Union. This law requires non-governmental organizations and outlets, including media organizations, that receive more than 20 percent of their funding from foreign sources to register as organizations “pursuing the interest of a foreign power.” 

During the protests that occurred prior to passage of the law, security forces from the Ministry of Internal Affairs Special Task Department (Special Task Department) violently targeted Georgian citizens, political opposition leaders, journalists, and youth activists who were peacefully expressing their views. This violence was overseen by the Chief of the Special Task Department, Zviad Kharazishvili (Kharazishvili), and his Deputy, Mileri Lagazauri (Lagazauri).

The violence perpetuated by the Special Task Department included the brutal beatings of many attendees of the non-violent protests against the new foreign influence law, including Georgian citizens and opposition politicians. Kharazishvili is well known for his punitive actions against political opponents and has been personally involved in the physical and verbal abuse of protestors.     

Kharazishvili and Lagazauri are being designated pursuant to E.O. 13818 for being foreign persons who are, or have been, leaders or officials of an entity, including any government entity, that has engaged in, or whose members have engaged in, serious human rights abuse related to the leader’s or official’s tenure.

organizers of violent Attacks on Freedom of PEACEFUL Assembly

Konstantine Morgoshia (Morgoshia) is a founder of Alt-Info, a media company which he used to amplify disinformation and spread hate speech and threats against marginalized communities. In July 2021 and 2023 he advocated for violent attacks against marginalized persons peacefully exercising their fundamental freedoms of expression and assembly and led hundreds of followers to break into non-governmental organization offices and attack journalists and police officers at the scene. 

Zurab Makharadze (Makharadze) is a media personality associated with Alt-Info and is one of the most vocal supporters of violence against peaceful demonstrators and marginalized Georgians. He directly encouraged violence against minority groups and journalists online prior to the violent attacks on marginalized communities and helped to direct, organize, and fundraise for the anti-human rights violence in 2021 and 2023. During the attacks, he led a group to clear out protestors from in front of the Georgian parliament and then instructed followers to go with Morgoshia to attack the non-governmental organization offices.

Morgoshia and Makharadze are being designated pursuant to E.O. 13818 for being foreign persons who are responsible for or complicit in, or have directly or indirectly engaged in, serious human rights abuse. 

SANCTIONS IMPLICATIONS

As a result of today’s action, all property and interests in property of the designated persons described above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked. Unless authorized by a general or specific license issued by OFAC, or exempt, OFAC’s regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons. U.S. persons may face civil or criminal penalties for violations of E.O. 13818. Non-U.S. persons are also prohibited from causing or conspiring to cause U.S. persons to wittingly or unwittingly violate U.S. sanctions, as well as engaging in conduct that evades U.S. sanctions. OFAC’s Economic Sanctions Enforcement Guidelines provide more information regarding OFAC’s enforcement of U.S. sanctions, including the factors that OFAC generally considers when determining an appropriate response to an apparent violation.

In addition, financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals may expose themselves to sanctions or be subject to an enforcement action. The prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any designated person, or the receipt of any contribution or provision of funds, goods, or services from any such person. 

The power and integrity of OFAC sanctions derive not only from OFAC’s ability to designate and add persons to the Specially Designated Nationals and Blocked Persons (SDN) List, but also from its willingness to remove persons from the SDN List consistent with the law. The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior. 

For information concerning the process for seeking removal from an OFAC list, including the SDN List, please refer to OFAC’s Frequently Asked Question 897 here. For detailed information on the process to submit a request for removal from an OFAC sanctions list, please click here.

GLOBAL MAGNITSKY

Building upon the Global Magnitsky Human Rights Accountability Act, E.O. 13818 was issued on December 20, 2017, in recognition that the prevalence of human rights abuse and corruption that have their source, in whole or in substantial part, outside the United States, had reached such scope and gravity as to threaten the stability of international political and economic systems. Human rights abuse and corruption undermine the values that form an essential foundation of stable, secure, and functioning societies; have devastating impacts on individuals; weaken democratic institutions; degrade the rule of law; perpetuate violent conflicts; facilitate the activities of dangerous persons; and undermine economic markets. The United States seeks to impose tangible and significant consequences on those who commit serious human rights abuse or engage in corruption, as well as to protect the financial system of the United States from abuse by these same persons.

Click here for more information on the individuals and entities designated today.

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Proposed regulations would support Tribal Nations in providing general welfare for Tribal communities  

WASHINGTON – Today, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) issued a Notice of Proposed Rulemaking (NPRM) to implement section 139E of the Internal Revenue Code, created by the Tribal General Welfare Exclusion Act of 2014 (Act).  

The Act enables Tribal governments to provide non-taxable assistance and benefits to Tribal members that are excludable from their gross income for federal income tax purposes. The announcement today supports Tribal Nations in advancing the wellbeing of their communities by the provision of general welfare support that ranges from housing aid to restoration of Native language. These proposed rules would provide that gross income does not include the value of any Indian general welfare benefit paid to or on behalf of a Tribal citizen of a Tribal Nation.

The proposed rules demonstrate an unprecedented recognition of Tribal self-determination and self-governance in tax regulations by providing deference to Tribes in how they establish their programs, the scope of benefits they provide, and determinations involving Tribal culture or ceremonial activities. These principles are the foundation of the Biden-Harris Administration’s recognition of the unique federal trust and treaty responsibility towards Tribal Nations as referenced in Presidential Executive Order 14112.

These proposed rules were the result of a historic level of three pre-regulation consultations with Tribal Nations and multi-year consultation with the Treasury Tribal Advisory Committee in partnership with Treasury’s Office of Tribal and Native Affairs, Office of Tax Policy, and the Internal Revenue Service. 

“The Biden-Harris Administration has provided historic support to Tribal Nations and today’s announcement will provide clarity and certainty that is critical to economic opportunity,” said U.S. Deputy Secretary of the Treasury Wally Adeyemo. “These proposed rules recognize that Tribal Nations know best how to serve their citizens and demonstrate the Biden-Harris Administration’s commitment to ensuring the voices of Tribal leaders are at the table.”   

“The provision of general welfare is core to indigenous customs and practices and today’s rule incorporates respect for these values in our tax regulations” said U.S. Treasurer, Chief Lynn Malerba. “Treasury’s investment in its consultative process, and the expertise of the TTAC, were critical to improving the Department’s understanding of Tribal needs to support Tribal Nations. I want to thank Treasury’s Office of Tribal and Native Affairs, Office of Tax Policy, and the IRS for working collaboratively with all the offices within Treasury who worked diligently to draft and release this proposed rule.”

A decade ago, Congress passed the Tribal General Welfare Exclusion Act of 2014 to provide an expanded general welfare exclusion specifically for Tribal programs that improved upon the historical administrative general welfare exclusion. The Act also created the Treasury Tribal Advisory Committee to advise the Secretary on Tribal tax matters, and provided for audit suspensions on the Act’s enforcement until IRS field agents and Tribal Financial officers were trained on regulations.

Today’s proposed regulations build upon Treasury’s historic investment in developing policies that include feedback of Tribal governments. In response to input from Tribes, this Administration created Treasury’s first Office of Tribal and Native Affairs under the first Native American Treasurer, former TTAC member Chief Malerba. This Office has worked across the Department to support the administration of $30 billion in recovery set asides to Tribal Nations and support for Tribal access to the billions in clean energy tax credits through the Inflation Reduction Act, including through elective pay which enables Tribes to access certain clean energy tax credits for the first time. 

Treasury is commencing Tribal consultation on these proposed regulations and looks forward to Tribal feedback. To learn more about this rule, see the Dear Tribal Leader Letter, Consultation and Federal Feedback Summary, and Tribal Fact Sheet. 

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Minimum tax estimated to generate more than $250 billion from the most profitable companies over next 10 years and $20 billion in 2025; 60% of corporations that pay the tax would otherwise have an effective federal tax rate of 1% or less.   

WASHINGTON – Today the U.S. Department of the Treasury (Treasury) and Internal Revenue Service (IRS) issued a Notice of Proposed Rulemaking (NPRM) to increase tax fairness and address significant corporate tax avoidance by some of the largest and most profitable U.S. corporations by implementing the Inflation Reduction Act’s Corporate Alternative Minimum Tax (CAMT). CAMT is a key plank of President Biden and Vice President Harris’s agenda to make the biggest corporations and wealthiest pay their fair share, while cutting taxes for working Americans and middle-class families and supporting small businesses and entrepreneurs.

Treasury estimates that around 100 of the largest and most profitable companies will pay the CAMT annually. These corporations would have otherwise paid an average effective federal tax rate of 2.6%. An estimated 60% of CAMT payers would otherwise have paid an effective tax rate of less than 1%, including 25% of payers that would have paid an effective tax rate of zero.

That’s because some of the largest and most profitable corporations in the country use tax preferences and aggressive planning strategies to pay little to no taxes. These corporations report record profits to shareholders while often paying lower tax rates than nurses, firefighters, police officers, and teachers. Their ability to use complex strategies to avoid tax also gives them an unfair competitive advantage over small businesses, which don’t have access to the same tax planning techniques and high-paid lawyers and accountants. The CAMT helps level the playing field for small businesses by imposing a minimum tax on the profits that the largest corporations report to their shareholders.

Treasury’s NPRM would implement the statutory requirement that the biggest corporations pay a minimum 15% tax on profits reported to shareholders, with certain adjustments, to increase tax fairness and generate an estimated $250 billion over the next 10 years (2025-2034), including $20 billion in 2025.

The CAMT only applies to large corporations that average more than $1 billion in profit per year, not $1 billion in sales. In addition, if these corporations pay regular taxes that equal or exceed 15% of their adjusted profits, they would pay no additional tax. CAMT is designed as a backstop to ensure there are not years where the most profitable corporations in the world are paying minimal taxes.

“The proposed rules released by Treasury today are an important step toward realizing Congress’ efforts to address the most egregious U.S. corporate tax avoidance and ensure the largest and most profitable corporations in the country cannot pay little to no taxes,” said U.S. Secretary of the Treasury Janet L. Yellen. “The Corporate Alternative Minimum Tax will also help level the playing field for small businesses while generating hundreds of billions of dollars in revenue.”  

Crafting the rules to implement this tax has been one of the most significant projects the Treasury Department has undertaken in decades. Congress delegated a significant amount of authority to Treasury to implement the CAMT, and Treasury and the IRS are implementing the law via these proposed regulations consistent with Congress’s statutory direction and intent.

In particular, as part of the legislative process, Congress chose to retain only a small number of regular tax preferences for the purpose of the minimum tax. The proposed rules follow suit and generally do not create adjustments to the tax base other than those directed by Congress. Consistent with the four notices Treasury previously issued to give taxpayers early clarity, the NPRM addresses limited and targeted cases where adjustments are clearly needed to accomplish congressional intent. For example, it addresses situations involving bankrupt and other troubled companies so that these companies can emerge from bankruptcy and continue to operate and employ their workers.

Today’s guidance is a proposed rule. All stakeholders will have the opportunity to comment on the proposed regulations by December 12, 2024 and may request to speak at the public hearing on the proposed regulations scheduled for January 16, 2025. Treasury and the IRS will carefully consider all comments that we receive on the proposed regulations and make changes based on those comments as appropriate.    

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WASHINGTON — Today, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated 16 Maduro-aligned officials who obstructed a competitive and inclusive presidential election process in Venezuela and violated the civil and human rights of the people. The individuals sanctioned today pursuant to Executive Order (E.O.) 13692, as amended, include leaders of the Maduro-aligned National Electoral Council (CNE) and the Supreme Tribunal of Justice (TSJ) who impeded a transparent electoral process and the release of accurate election results, as well as the military, intelligence, and government officials responsible for intensifying repression through intimidation, indiscriminate detentions, and censorship. The officials were appointed by Nicolas Maduro, whom OFAC sanctioned in 2017.

“Today, the United States is taking decisive action against Maduro and his representatives for their repression of the Venezuelan people and denial of their citizens’ rights to a free and fair election,” said Deputy Secretary of the Treasury Wally Adeyemo. “The Treasury Department is targeting key officials involved in Maduro’s fraudulent and illegitimate claims of victory and his brutal crackdown on free expression following the election, as the overwhelming majority of Venezuelans call for change. The Biden-Harris Administration will continue to use our tools to hold Maduro and his cronies accountable and support the democratic aspirations of the Venezuelan people.”                                                                                                                

Since the July 28 election, Maduro and his representatives have indiscriminately arrested Venezuelans for exercising their political and civil rights and deployed a range of intimidation tactics to silence the opposition. These acts, including the issuance of an arrest warrant for the successful presidential candidate, Edmundo Gonzalez Urrutia (Gonzalez), which forced him to depart Venezuela to seek asylum in Spain. 

Concurrently, the Department of State imposed new visa restrictions under Presidential Proclamation 9931 on Maduro-aligned officials who have undermined the electoral process in Venezuela and are responsible for acts of repression. With these newly imposed visa restrictions, nearly 2,000 individuals have been subject to visa restrictions for their role in undermining democracy, significant corruption, and human rights violations. 

DESIGNATED Venezuelan officials

The following individuals who obstructed democratic political participation and undermined the election process were designated today pursuant to E.O. 13692, “Blocking Property and Suspending Entry of Certain Persons Contributing to the Situation in Venezuela,” as amended, for being current or former officials of the GOV.

Inocencio Antonio Figueroa Arizaleta (Figueroa)is a judge serving in the Maduro-aligned TSJ since 2014, currently in the TSJ’s Constitutional Chamber. Previously, he served as magistrate of the TSJ’s Political-Administrative Chamber, according to multiple press reports.

Additionally, according to media coverage, in his capacity as a TSJ judge, Figueroa supported the Electoral Chamber’s decision to review and certify the CNE’s claim that Maduro won the election. Figueroa participated in the TSJ’s expert technical review at the CNE, and he was involved in summoning presidential candidates and political party leaders to the TSJ as part of the Maduro-backed electoral review process. In 2019, Canada sanctioned Figueroa for undermining democracy.

Malaquias Gil Rodriguez (Gil) is a judge serving as the president of TSJ’s Political-Administrative chamber since 2022. Previously, he served as the vice president of the TSJ’s Electoral Chamber; he has held a position in the judiciary since 2010. 

Additionally, according to credible media sources, Gil has obstructed democracy by disqualifying Machado’s presidential candidacy. In 2018, Canada sanctioned Gil for corruption and violation of human rights.

Juan Carlos Hidalgo Pandares (Hidalgo)is a judge serving as a vice president on the TSJ’s Political-Administrative chamber since 2022. Previously, Hidalgo served as a general of the National Bolivarian Guard and prosecutor general of the military.  

Additionally, according to media sources, Hidalgo has obstructed democracy by disqualifying Machado’s presidential candidacy.

Caryslia Beatriz Rodriguez Rodriguez (Rodriguez) heads the Maduro-aligned TSJ. Rodriguez has been the president of the TSJ since January 2024 and heads the TSJ’s Electoral Chamber. 

Additionally, according to media sources, Rodriguez and the Electoral Chamber certified Maduro’s baseless claim that he had won the election despite well-founded accusations of widespread voter fraud in July’s election.

Fanny Beatriz Marquez Cordero (Marquez) is the vice president of the TSJ and member of the Electoral Chamber.

Marquez was among the officials from the Electoral Chamber who supervised the process of technical appraisal of the evidentiary material submitted by the CNE, political organizations, and former candidates participating in the presidential elections of July 28, 2024. Several news outlets stated Marquez was among the officials from the Electoral Chamber who certified Maduro’s baseless claim to victory.

Edward Miguel Briceno Cisneros (Briceno) is the special judge of the Maduro-aligned First Court of the First Instance with jurisdiction over terrorism.

Additionally, according to media sources, Briceno issued an arrest warrant for Gonzalez less than an hour after the Public Prosecutor’s office requested it for the charges of crimes of usurpation of functions, incitement to disobedience of laws, conspiracy, sabotage to damage systems, and association with opposition members whom Maduro considers criminals.

Luis Ernesto Duenez Reyes (Duenez) is a prosecutor in the Maduro-aligned Public Prosecutor’s office. In his position, Duenez issued the official request for the arrest warrant targeting opposition presidential candidate Edmundo Gonzalez, which was then issued by Briceno.  Gonzalez fled Venezuela into exile to Spain on September 8.

Rosalba Gil Pacheco (Gil Pacheco) is a CNE rector serving since 2023 as president of the Maduro-aligned CNE’s Civil and Electoral Registry Commission. She also served as the secretary of the Maduro-aligned National Assembly since January 2021.

Gil Pacheco, has obstructed democracy by instituting a restrictive new rule for poll watcher eligibility, instituting electoral registration irregularities, and intentionally delaying voting center processes. Also, Gil Pacheco declared Maduro the winner of the presidential election without publishing precinct-level results and without conducting the required audits of the country’s electronic voting system, among other electoral irregularities, according to widely disseminated press reports.  

Antonio Jose Meneses Rodriguez (Meneses)is the CNE Secretary General serving since August 2023. 

Meneses, according to news reports, instituted a restrictive new rule for poll watcher eligibility, introducing electoral registration irregularities, and intentionally delaying voting center processes. Before serving on the CNE, he also signed the document from the Comptroller’s Office upholding Machado’s disqualification. 

Dinorah Yoselin Bustamante Puerta (Bustamante)is a prosecutor serving at the Venezuelan First Special Court of First Instance, an office within the Maduro-aligned Directorate-General of Military Counter-Intelligence (DGCIM). 

Additionally, according to media sources, Bustamante obstructed democracy and the rule of law by initiating politically motivated prosecutions, which resulted in the arbitrary detention of members of the U.S.-recognized 2015 National Assembly and other officials opposed to Maduro. The European Union, United Kingdom, and Switzerland sanctioned Bustamante in 2020 according to sanctions databases.

Pedro Jose Infante Aparicio (Aparicio)serves as the first vice president of the Maduro-aligned National Assembly. He also served as president of the Special Commission for the Investigation and Prosecution of Opposition Parties and Representatives of the 2016-2021 Legislature for the Dispossession and Theft of CITGO as part of the “Bolivarian Fury” campaign launched in January 2024 against the democratic opposition. In that position, the commission subpoenaed several opposition members in seemingly politically motivated prosecutions. 

Domingo Antonio Hernandez Larez (Hernandez) is the Strategic Operational Commander of the Maduro-aligned Bolivarian National Armed Forces (FANB), serving since July 2021. Hernandez previously served as the Commander of Strategic Region for the Integral Defense Capital (REDI Capital). 

Hernandez was denounced by a human rights defender in 2019 as a repressor on behalf of Maduro due to the increase in repression and systematic harassment by intelligence and security agencies recorded in the areas under his control. Additionally, according to various press pieces, FANB has carried out acts of repression against Venezuelans, including arbitrary arrests and threatening those who participate in peaceful protests. 

Elio Ramon Estrada Paredes (Estrada) is the Commander of the Maduro-aligned Bolivarian National Guard (GNB), serving since July 2023. In that position, Estrada leads the Anti-Terrorism Directorate of the GNB that carries out intelligence work to detect and capture those involved in alleged destabilizing plans and other crimes. 

Under Estrada’s command and ahead of the election, the GNB harassed and detained Venezuelans on suspicions of materially supporting Machado on the campaign trail, according to numerous news sources. Estrada led the GNB in arresting thousands of peaceful pro-democracy protestors after the July 28 election.

Johan Alexander Hernandez Larez (Larez) is Commander of REDI Capital of the GNB. Larez was previously the Division General for the Integral Defense Zone in Miranda State, or Zona Operativa de Defensa Integral del Estado Miranda, commonly referenced to as ZODI Miranda State.

Asdrubal Jose Brito Hernandez (Brito) is the Director of Criminal Investigations of the DGCIM. Brito was formerly the counterintelligence director of the presidential detail.

Brito is identified as a torturer in United Nations reporting, and according to multiple press pieces, DGCIM has led a coordinated “Operation Knock Knock” campaign to harass, detain, and arbitrarily arrest opposition and civil society members following the election.

Miguel Antonio Munoz Palacios (Munoz) is the Deputy Director of the Maduro-aligned intelligence service Servicio Bolivariano de Inteligencia (SEBIN) since 2021. 

SEBIN has carried out Maduro’s politically motivated arrests and detentions of opposition leaders, volunteers, poll workers, and election witnesses. Munoz is one of the top leaders of Venezuela’s Pitbull Group, a group consisting of SEBIN personnel from the General Directorate for Military Counterintelligence. The Pitbull Group was tasked to do the “dirty work,” and there were no legal parameters with what they were tasked to do. The Pitbull Group was also believed to be responsible for kidnapping and murders. The group likely kidnapped individuals to pressure them to give the Pitbull Group money. The Pitbull Group used that money for other operational purposes.

PREVIOUS TREASURY ACTIONS TARGETING VENEZUELAN OFFICIALS

Today’s action builds on multiple actions that OFAC has taken to target current or former Venezuelan officials, pursuant to E.O. 13692 as amended, for taking anti-democratic actions and violating human rights.  To date, OFAC has sanctioned over 140 Venezuelan individuals and 100 Venezuelan entities, including:

Key Venezuelan Officials

• Nicolas Maduro Moros – sanctioned since 2017
• Tarek William Saab – sanctioned since 2017
• Jorge Elieser Marquez Monsalve – sanctioned since 2017
• Celia Adela Flores de Maduro – sanctioned since 2018
• Delcy Eloina Rodriguez Gomez – sanctioned since 2018
• Diosdado Cabello Rondon – sanctioned since 2018
• Jose David Cabello Rondon – sanctioned since 2018
• Marleny Josefina Contreras Hernandez – sanctioned since 2018
• Vladimir Padrino Lopez – sanctioned since 2018
• Jorge Jesus Rodriguez Gomez – sanctioned since 2018
• Remigio Ceballos Ichaso – sanctioned since 2019
• Nicolas Ernesto Maduro Guerra – sanctioned since 2019

Key Military and Intelligence Officials

• Gustavo Enrique Gonzalez Lopez – sanctioned since 2015
• Ivan Rafael Hernandez Dala – sanctioned since 2019
• Hildemaro Jose Rodriguez Mucura – sanctioned since 2019
• Rafael Enrique Bastardo Mendoza – sanctioned since 2019

National Electoral Council Officials

• Elvis Eduardo Hidrobo Amoroso – sanctioned since 2017
• Carlos Enrique Quintero Cuevas – sanctioned since 2017
• Conrado Antonio Perez Linares – sanctioned since 2020
• Fabio Enrique Zavarse Pabon – sanctioned since 2018

Supreme Tribunal of Justice Officials and Former Officials

• Gladys Maria Gutierrez Alvarado – sanctioned since 2018
• Maikel Jose Moreno Perez – sanctioned since 2018
• Calixto Antonio Ortega Rios – sanctioned since 2018
• Luis Fernando Damiani Bustillos – sanctioned since 2018
• Arcadio de Jesus Delgado Rosales – sanctioned since 2018
• Carmen Auxiliadora Zuleta de Merchan – sanctioned since 2018
• Lourdes Benicia Suarez Anderson – sanctioned since 2018
• Juan Jose Mendoza Jover – sanctioned since 2018

SANCTIONS IMPLICATIONS

As a result of today’s action, all property and interests in property of the designated persons described above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked. Unless authorized by a general or specific license issued by OFAC, or exempt, OFAC’s regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons. U.S. persons may face civil or criminal penalties for violations of E.O. 13692. Non-U.S. persons are also prohibited from causing or conspiring to cause U.S. persons to wittingly or unwittingly violate U.S. sanctions, as well as engaging in conduct that evades U.S. sanctions. OFAC’s Economic Sanctions Enforcement Guidelines provide more information regarding OFAC’s enforcement of U.S. sanctions, including the factors that OFAC generally considers when determining an appropriate response to an apparent violation.

In addition, financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals may expose themselves to sanctions or be subject to an enforcement action. The prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any designated person, or the receipt of any contribution or provision of funds, goods, or services from any such person. 

The power and integrity of OFAC sanctions derive not only from OFAC’s ability to designate and add persons to the SDN List, but also from its willingness to remove persons from the SDN List consistent with the law. The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior. For information concerning the process for seeking removal from an OFAC list, including the SDN List, please refer to OFAC’s Frequently Asked Question 897 here. For detailed information on the process to submit a request for removal from an OFAC sanctions list, please click here.

Click here for more information on the individuals identified today.

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WASHINGTON — Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is sanctioning Cambodian businessman Ly Yong Phat (Ly), his conglomerate L.Y.P. Group Co., LTD (L.Y.P. Group), and O‑Smach Resort for their role in serious human rights abuse related to the treatment of trafficked workers subjected to forced labor in online scam centers. OFAC is also designating Cambodia-based Garden City Hotel, Koh Kong Resort, and Phnom Penh Hotel for being owned or controlled by Ly. 

“Today’s action underscores our commitment to hold accountable those involved in human trafficking and other abuses, while also disrupting their ability to operate investment fraud schemes that target countless unsuspecting individuals, including Americans,” said Acting Under Secretary of the Treasury for Terrorism and Financial Intelligence Bradley T. Smith. “Treasury will continue to shine a light on the criminal networks operating these illicit schemes and those who seek to perpetrate these abuses.”

According to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and its September 2023 alert to U.S. financial institutions and the broader public, confidence scammers leverage fictitious identities and elaborate narratives to develop trusted relationships and deceive the victim. In many cases, this involves convincing victims to invest in virtual currency, or in some cases, over-the-counter foreign exchange schemes, all with the intent of defrauding them of their funds. These scams are largely perpetrated by criminal organizations based in Southeast Asia. The FBI Internet Crime Complaint Center (IC3) has warned of a spike in cryptocurrency investment schemes. IC3 reported that in 2023, losses from investment scams became the most of any crime type they tracked. Investment fraud losses rose from $3.31 billion in 2022 to $4.57 billion in 2023, a 38 percent increase. Within these numbers, investment fraud with a reference to cryptocurrency rose from $2.57 billion in 2022 to $3.96 billion in 2023, an increase of 53 percent. 

Often, the frontline scammers in virtual currency confidence schemes are themselves often victims of trafficking, including forced labor, and are subjected to physical and mental abuse. On June 24, 2024, the Department of State’s Office to Monitor and Combat Trafficking in Persons published its annual Trafficking in Persons Report (TIP Report), which highlights abuses in Cambodia, including in the towns of O’Smach and Ko Kong, in particular. The TIP Report noted ongoing corruption and official complicity in trafficking crimes remained widespread and endemic, resulting in selective and often politically motivated enforcement of laws, inhibiting effective law enforcement action against trafficking crimes, including forced labor in online scam operations. Traffickers force victims to work up to 15 hours a day and, in some cases, “resell” victims to other scam operations or subject them to sex trafficking. 

serious human rights abuse at o-smach resort

O-Smach Resort is owned by L.Y.P. Group, which is owned by Cambodian senator and tycoon Ly Yong Phat (Ly). For more than two years, from 2022 to 2024, O-Smach Resort has been investigated by police and publicly reported on for extensive and systemic serious human rights abuse. Victims reported being lured to O-Smach Resort with false employment opportunities, having their phones and passports confiscated upon arrival, and being forced to work scam operations. People who called for help reported being beaten, abused with electric shocks, made to pay a hefty ransom, or threatened with being sold to other online scam gangs. There have been two reports of victims jumping to their death from buildings within O‑Smach Resort. 

Local authorities have conducted repeated rescue missions at O-Smach Resort, including in October 2022 and March 2024, freeing victims of various nationalities, including Chinese, Indian, Indonesian, Malaysian, Singaporean, Thai, and Vietnamese. 

OFAC is designating Ly, L.Y.P. Group, and O-Smach Resort pursuant to Executive Order (E.O.) 13818 for being foreign persons who are responsible for or complicit in, or have directly or indirectly engaged in, serious human rights abuse. 

OFAC is also designating Garden City Hotel, Koh Kong Resort, and Phnom Penh Hotel for being owned or controlled by, or having acted or purported to act for or on behalf of, directly or indirectly, Ly, an individual concurrently designated pursuant to E.O. 13818. 

SANCTIONS IMPLICATIONS

As a result of today’s action, all property and interests in property of the designated persons described above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked. Unless authorized by a general or specific license issued by OFAC, or exempt, OFAC’s regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons. U.S. persons may face civil or criminal penalties for violations of E.O. 13818. Non-U.S. persons are also prohibited from causing or conspiring to cause U.S. persons to wittingly or unwittingly violate U.S. sanctions, as well as engaging in conduct that evades U.S. sanctions. OFAC’s Economic Sanctions Enforcement Guidelines provide more information regarding OFAC’s enforcement of U.S. sanctions, including the factors that OFAC generally considers when determining an appropriate response to an apparent violation.

Financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals may expose themselves to sanctions or be subject to an enforcement action. The prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any designated person, or the receipt of any contribution or provision of funds, goods, or services from any such person. 

The power and integrity of OFAC sanctions derive not only from OFAC’s ability to designate and add persons to the SDN List, but also from its willingness to remove persons from the SDN List consistent with the law. The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior. 

For information concerning the process for seeking removal from an OFAC list, including the SDN List, please refer to OFAC’s Frequently Asked Question 897 here. For detailed information on the process to submit a request for removal from an OFAC sanctions list, please click here.

GLOBAL MAGNITSKY

Building upon the Global Magnitsky Human Rights Accountability Act, E.O. 13818 was issued on December 20, 2017, in recognition that the prevalence of human rights abuse and corruption that have their source, in whole or in substantial part, outside the United States, had reached such scope and gravity as to threaten the stability of international political and economic systems. Human rights abuse and corruption undermine the values that form an essential foundation of stable, secure, and functioning societies; have devastating impacts on individuals; weaken democratic institutions; degrade the rule of law; perpetuate violent conflicts; facilitate the activities of dangerous persons; and undermine economic markets. The United States seeks to impose tangible and significant consequences on those who commit serious human rights abuse or engage in corruption, as well as to protect the financial system of the United States from abuse by these same persons.

Click here for more information on the individuals and entities designated today.

If you believe you have been the victim of an Internet crime or if you want to file on behalf of another person you believe has been such a victim, you may file a complaint with the Internet Crime Complaint Center (IC3).

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