The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has issued an advisory to alert companies about potential sanctions risks when making payments in response to ransomware attacks. The advisory is in response to the demand for ransomware payments during the COVID-19 pandemic as cyber criminals have severely debilitated systems that merchants rely on to continue to conduct business.
A Threat to National Security
Ransomware is a form of malicious software designed to block access to a computer system or data, often by encrypting data or programs on information technology systems to extort ransom payments from victims in exchange for decrypting the information and restoring victims’ access to key systems or data. Not surprisingly, ransomware has been the craft of choice among bad actors during quarantine to exploit organizations of every size, and, accordingly, many companies, facilitators, and insurers have simply decided it is easier to pay to restore operations than to stall and potentially lose use of mission critical systems indefinitely.
According to the Treasury Ransomware Advisory, it is the view of the Treasury Department that facilitating ransomware payments demanded as a result of malicious cyber activities may enable criminals and adversaries with a sanctions nexus to profit and advance their illicit aims. For example, ransomware payments made to sanctioned persons or to comprehensively sanctioned jurisdictions could be used to fund activities adverse to the national security and foreign policy objectives of the United States. Ransomware payments may also embolden cyber actors to engage in future attacks. In addition, paying a ransom to cyber actors does not guarantee that the victim will regain access to its stolen data.
A Risky Proposition
The Treasury Ransomware Advisory reminds companies that U.S. persons are generally prohibited from engaging in transactions, directly or indirectly, with individuals or entities on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List), other blocked persons, and those covered by comprehensive country or region embargoes (e.g., Cuba, the Crimea region of Ukraine, Iran, North Korea, and Syria).
Additionally, any transaction that causes a violation under the International Emergency Economic Powers Act (“IEEPA”), including transactions by a non-U.S. person which causes a U.S. person to violate any IEEPA-based sanctions, is also prohibited. U.S. persons, wherever located, are also generally prohibited from facilitating actions of non-U.S. persons, which could not be directly performed by U.S. persons due to U.S. sanctions regulations.
Compliance and Reporting
As a general matter, OFAC encourages financial institutions and other companies to implement risk-based compliance programs to mitigate exposure to sanctions-related violations. This also applies to companies that engage with victims of ransomware attacks, such as those involved in providing cyber insurance, digital forensics and incident response, and financial services that may involve processing ransom payments (including depository institutions and money services). In particular, the sanctions compliance programs of these companies should account for the risk that a ransomware payment may involve an SDN or blocked person, or a comprehensively embargoed jurisdiction. Companies involved in facilitating ransomware payments on behalf of victims should also consider whether they have regulatory obligations under Financial Crimes Enforcement Network (FinCEN) regulations.
Under OFAC’s Enforcement Guidelines, OFAC will also consider a company’s self-initiated, timely, and complete report of a ransomware attack to law enforcement to be a significant mitigating factor in determining an appropriate enforcement outcome, if the situation is later determined to have a sanctions nexus. OFAC will also consider a company’s full and timely cooperation with law enforcement both during and after a ransomware attack to be a significant mitigating factor when evaluating a possible enforcement outcome.
The use of payment facilitators for ransomware payments, and the decision by cyber insurance carriers to process payments to threat actors, should now be carefully assessed in the months ahead. We will continue to monitor this legal development, and update our clients as appropriate. In the meantime, if you have any questions about this or any other privacy law, please do not hesitate to reach out to Brian Hengesbaugh and Harry Valetk.