On July 24, the OFAC released a settlement agreement with a large bank to resolve apparent violations of narcotics sanctions regulations. The settlement agreement states that during separate periods from September 2005 through March 2009, the bank allowed transactions to be processed for certain individuals designated under the narcotics sanctions regulations, and failed to timely file blocked property reports regarding accounts owned by other designated individuals. The bank did not admit to any allegation made or implied by the apparent violations, but agreed to pay approximately $16.5 million to resolve the matter. The agreement explains that most of the apparent violations were disclosed by the bank to OFAC as a result of remedial action designed to correct a screening deficiency giving rise to the apparent violations, but that such disclosures do not qualify as voluntarily self-disclosed to OFAC within the meaning of OFAC’s Economic Sanctions Enforcement Guidelines because they were substantially similar to apparent violations of which OFAC already was aware.
On September 9, OFAC released an enforcement action against a CFTC-registered Introducing Broker and Commodity Trading Advisor that operates an electronic trading platform that allows customers to automatically place currency foreign exchange (FX) trades with broker-dealers. The company agreed to pay $200,000 to settle potential civil liability for apparent violations of Iran, Syria, and Sudan sanctions rules. According to OFAC, over “a number of years” the company maintained accounts for over 400 persons in Iran, Sudan, and Syria, and exported services to these customers by placing FX trades via its platform. The company also (i) originated eight funds transfers totaling $10,264.36 destined for two individuals located in Iran; and (ii) failed to screen or otherwise monitor its customer base for OFAC compliance purposes at the time of the apparent violations. OFAC determined that the company did not voluntarily self-disclose the apparent violations, and that the apparent violations constitute a non-egregious case. The base penalty for the apparent violations was $844,090,000. The lower settlement amount reflects OFAC’s consideration of the matter’s facts and circumstances, including the following mitigating factors: (i) the company is small with limited business operations; (ii) the company has taken remedial action in response to the apparent violations; (iii) the company has not received a penalty notice or Finding of Violation in the five years preceding the earliest date of the transactions giving rise to the apparent violations; and (iv) the company substantially cooperated with OFAC’s investigation.
On June 5, the Treasury Department’s Office of Foreign Assets Controls (OFAC) announced a Dutch aerospace firm has agreed to pay $21 million to resolve allegations that the company violated U.S. sanctions on Iran and Sudan. OFAC alleged that from 2005 to 2010, the company indirectly exported or re-exported aircraft spare parts to Iranian or Sudanese customers, which the company either specifically procured from or had repaired in the United States, and required the issuance of a license by a federal agency at the time of shipment. The company self-reported 1,112 apparent violations of the Iranian Transactions and Sanctions Regulations, and 41 apparent violations of the Sudanese Sanctions Regulations. The settlement includes the payment of a $10.5 million civil penalty to OFAC and the Department of Commerce’s Bureau of Industry and Security, a forfeiture of an additional $10.5 million pursuant to a deferred prosecution agreement reached with the DOJ, and the acceptance of responsibility for its alleged criminal conduct. OFAC stated that the base penalty for the alleged violations was over $145 million, however it agreed to a lower settlement after considering that the company self-disclosed the violations and the company: (i) had no OFAC sanctions history in the five years preceding the date of the earliest of the alleged violations; (ii) adopted new and more effective internal controls and procedures, and (iii) provided substantial cooperation during the investigation.
On May 20, FinCEN issued Advisory FIN-2014-A004, warning financial institutions about the risk of illicit financial activity conducted by individuals with passports from St. Kitts and Nevis (SKN), which allows individuals to obtain passports through a citizenship-through-investment program. The program offers citizenship to any non-citizen who either invests in designated real estate with a value of at least $400,000, or contributes $250,000 to the SKN Sugar Industry Diversification Foundation. FinCEN believes that illicit actors are using the program to obtain SKN citizenship in order to mask their identity and geographic background for the purpose of evading U.S. or international sanctions or engaging in other financial crime. FinCEN advises financial institutions to conduct risk-based customer due diligence to mitigate the risk that a customer is disguising his or her identity for such an illicit purchase. FinCEN further reminds institutions of SAR filing obligations related to known or suspected illegal activity and potential OFAC obligations.
On May 8, OFAC released enforcement information regarding “apparent violations” of the Cuban Assets Control Regulations by Canadian subsidiaries of a U.S. insurance company. The U.S. company self-reported 3,560 apparent violations that occurred between January 2006, and March 2009, and agreed to remit $279,038 to settle potential civil liability. OFAC stated that over a more than three-year period two Canadian subsidiaries issued or renewed property and casualty insurance policies that insured Cuban risks of a Canadian company, and that one of the subsidiaries maintained a D&O liability insurance policy that insured certain directors and officers of three Cuban joint venture partners of a Canadian corporation. Separately, another subsidiary sold, renewed, or maintained in force individual or annual multi-trip travel insurance policies in which the insured identified Cuba as the travel destination. The civil penalty reflects OFAC’s balancing of aggravating and mitigating factors, including the actual knowledge of the company and certain members of management of the violative conduct; and the company’s self-disclosure, cooperation, and advance remediation.
On May 8, OFAC issued regulations to implement recent Executive Orders establishing sanctions against Russian individuals and entities related to the situation in Ukraine. The Ukraine-Related Sanctions Regulations, 31 C.F.R. Part 589, implement Executive Order 13660 of March 6, 2014, Executive Order 13661 of March 17, 2014, and Executive Order 13662 of March 20, 2014. Consistent with its prior practice, OFAC published the regulations in abbreviated form and plans to provide a more comprehensive set of regulations, which may include additional interpretive and definitional guidance and additional general licenses and statements of licensing policy.
On April 28, the Treasury Department announced additional sanctions in response to developments in Ukraine by designating seven Russian government officials and 17 entities, including numerous financial institutions, pursuant to Executive Order 13661. That order authorizes sanctions on, among others, officials of the Russian Government and any individual or entity that is owned or controlled by, that has acted for or on behalf of, or that has provided material or other support to, a senior Russian government official. The designated individuals will be subject to an asset freeze and a U.S. visa ban, and the companies will be subject to an asset freeze. In addition, the Department of Commerce imposed additional restrictions on 13 of the companies by imposing a license requirement with a presumption of denial for the export, re-export or other foreign transfer of U.S.-origin items to the companies. Further, the Departments of Commerce and State tightened review of export license applications for any high-technology items that could contribute to Russia’s military capabilities, and plan to revoke any existing export licenses that meet the tightened conditions.
On April 18, OFAC announced that a privately held travel services provider based in the Netherlands but majority-owned by U.S. persons agreed to pay nearly $6 million to resolve allegations that over a roughly six-year period the company’s business units mostly outside the U.S. provided services related to travel to or from Cuba, which assisted 44,430 persons. OFAC states that such business activities constitute alleged violations of the Cuban Assets Control Regulations. The company voluntarily self-disclosed the alleged violations to OFAC, the vast majority of which occurred prior to such disclosure. OFAC claims that the company (i) failed to exercise a minimal degree of caution or care regarding its obligations to comply with OFAC sanctions against Cuba by processing unauthorized travel related transactions for more than four years before recognizing that it was subject to U.S. jurisdiction; (ii) processed a high volume of transactions and assisted a large number of travelers, which caused significant harm to the objectives of the Cuban Assets Control Regulations; and (iii) failed to implement an adequate compliance program. OFAC’s Cuba Penalty Schedule sets a base penalty for the alleged violations at $11,093,500, which was reduced given that (i) the conduct at issue was the company’s “first violation”; (ii) the company provided substantial cooperation during OFAC’s investigation of the alleged violations, including by agreeing to toll the statute of limitations and by providing OFAC with detailed and well-organized documents and information; and (iii) the company already has taken significant remedial action in response to the alleged violations.
This week, President Obama issued two new Executive Orders, one on March 17 and another on March 20, authorizing the Treasury Department to impose sanctions on (i) current and former Russian and Ukrainian officials; (ii) a Russian bank; (iii) any individual or entity that operates in the Russian arms industry; and (iv) any individual or entity determined to be owned or controlled by, to act on behalf of, or provide material or other support to, any senior Russian government official or blocked person. Concurrent with each executive order, OFAC added (on March 17 and March 20) numerous current and former Ukrainian and Russian officials to its list of Specially Designated Nationals and Blocked Persons. These latest actions expand on the President’s initial March 6 Executive Order authorizing sanctions in response to Russia’s recent actions related to Ukraine, which the Obama Administration has characterized as threatening Ukraine’s democratic processes and institutions, sovereignty, territorial integrity, and assets. Generally, the orders exclude the designated persons and entities from the U.S. financial system and block the designated persons’ and entities’ access to property and interests in property that are within the U.S. As a result, U.S. banking institutions are required to block the financial assets of the designated individuals and entities and report such blocked property to OFAC within 10 business days. The orders and sanctions are the beginning stages of a potential extended sanctions framework involving Russian officials and businesses.
On January 23, the Treasury Department’s OFAC announced that a Luxembourg bank agreed to pay $152 million to resolve potential civil claims that the bank concealed the interest of the Central Bank of Iran (CBI) in certain securities held in one of the Luxembourg bank’s custody accounts. OFAC claims that from December 2007 through June 2008, the bank held an account at a U.S. financial institution through which the CBI maintained a beneficial ownership in 26 securities valued at nearly $3 billion. After assuring OFAC of its intention to terminate all business with its Iranian clients, the bank allegedly transferred the securities to another European bank’s custody account at the Luxembourg bank. Though the transfer changed the record ownership of the securities, the custody account allowed CBI to retain beneficial ownership. OFAC alleged that in acting as the channel through which the CBI held interests in the securities, the Luxembourg bank exported custody and related securities services in violation of the Iranian Transactions and Sanctions Regulations. OFAC highlighted the bank’s “strong remedial response” after learning of the alleged lapse mitigated the penalty amount. Although OFAC did not identify the specific enhanced controls implemented by the bank, it encouraged other firms operating as securities intermediaries to implement certain specific measures: (i) make customers aware of the firm’s U.S. sanctions compliance obligations and have customers agree in writing not to use their account(s) with the firm in a manner that could cause a violation of OFAC sanctions; (ii) conduct due diligence, including through the use of questionnaires and certifications, to identify customers who do business in or with countries or persons subject to U.S. sanctions; (iii) impose restrictions and heightened due diligence requirements on the use of certain products or services by customers who are judged to present a higher risk; (iv) attempt to understand the nature and purpose of non-proprietary accounts, including requiring information regarding third parties whose assets may be held in the accounts; and (v) monitor accounts to detect unusual or suspicious activity.
Federal, State Authorities Announce Coordinated Economic Sanctions Enforcement Actions Against Foreign Bank
On December 11, the Federal Reserve Board, the Treasury Department’s Office of Foreign Assets and Controls (OFAC), and the New York Department of Financial Services (DFS) announced that a foreign bank agreed to pay $100 million to resolve federal and state investigations into the bank’s practices concerning the transmission of funds to and from the U.S. through unaffiliated U.S. financial institutions, including by and through entities and individuals subject to the OFAC Regulations. The investigations followed a voluntary review by the bank of its U.S. dollar transactions, the results of which it submitted to federal, state, and foreign authorities. The federal and state authorities alleged that the bank engaged in payment practices that interfered with the implementation of U.S. economic sanctions, including by removing material references to U.S.-sanctioned locations or persons from payment messages sent to U.S. financial institutions. They assert the alleged failures resulted from inadequate risk management and legal review policies and procedures to ensure that activities conducted at offices outside the U.S. comply with applicable OFAC Regulations. As part of the resolution, the bank consented to a Federal Reserve cease and desist order and civil money penalty order, pursuant to which the bank must pay $50 million, continue to enhance its compliance controls, and retain an independent consultant to conduct an OFAC compliance review. A separate settlement with OFAC requires the bank to pay $33 million, which will be satisfied as part of the payment to the Federal Reserve. The DFS order assesses an additional $50 million penalty. The DFS highlighted that, as part of its cooperation with authorities, the bank took disciplinary action against individual wrongdoers, including through dismissals.
On November 26, the DOJ announced that Weatherford International—a multinational oil services company—and certain of its subsidiaries agreed to pay approximately $250 million in fines and penalties to resolve FCPA, sanctions, and export control violations. The DOJ alleged in a criminal information that the company knowingly failed to establish an effective system of internal accounting controls designed to detect and prevent corruption, including FCPA violations. The alleged compliance failures allowed employees of certain of the company’s subsidiaries in Africa and the Middle East to engage in prohibited conduct over the course of many years, including both bribery of foreign officials and fraudulent misuse of the United Nations’ Oil for Food Program. The company entered into a deferred prosecution agreement, pursuant to which it must pay an approximately $87 million penalty, retain an independent corporate compliance monitor for at least 18 months, and continue to implement an enhanced FCPA compliance program and internal controls. Read more…
On October 21, the Treasury Department’s Office of Foreign Assets Control (OFAC) imposed a $1.5 million civil penalty in an enforcement action against a UAE-based investment and advising company for violating the Iranian Transactions and Sanctions Regulations. OFAC determined that the firm recklessly or willfully concealed or omitted information pertaining to $103,283 in funds transfers processed through U.S.-based financial institutions for the benefit of persons in Iran. OFAC determined that the firm’s actions were egregious because (i) it did not voluntarily self-disclose the violations to OFAC, has no OFAC compliance program, and did not cooperate in the investigation, (ii) the firm’s management had actual knowledge or reason to know of the conduct, and (iii) the conduct resulted in potentially significant harm to the U.S. sanctions program against Iran.
On January 10, the Office of Foreign Assets Control (OFAC) issued an advisory to highlight practices being used to evade sanctions on Iran, including the use of third-country exchange houses or trading companies that are acting as money transmitters to process funds transfers through the United States in support of unauthorized business with Iran. According to the advisory, the transactions at issue omit references to Iranian addresses and omit the names of Iranian persons or entities in the originator or beneficiary fields. Funds are then transmitted from an exchange house or trading company located in a third country to or through the United States on behalf of an individual or company located in Iran or on behalf of a U.S.-designated person without referencing the involvement of Iran or the designated persons. OFAC urged U.S. financial institutions to (i) monitor payments involving the third-country exchange house or trading company that may be processing commercial transactions related to Iran, and requesting additional information from correspondents on the nature of such transactions and the parties involved, (ii) conduct account and/or transaction reviews for individual exchange houses or trading companies that have repeatedly violated or attempted to violate U.S. sanctions against Iran, and (iii) contact their correspondents that maintain accounts for, or facilitate transactions on behalf of, a third-country exchange house or trading company that engages in any of the practices identified in the advisory.
U.S. Law Enforcement Authorities and Regulators Resolve Significant Money Laundering and Sanctions Investigations
On December 11, a major international bank holding company announced agreements with U.S. law enforcement authorities and federal bank regulators to end investigations into alleged inadequate compliance with anti-money laundering and sanctions laws by the holding company and its U.S. subsidiaries (collectively the banks). Under these agreements, the banks will make payments totaling $1.92 billion, will continue to cooperate fully with regulatory and law enforcement authorities, and will take further action to strengthen its compliance policies and procedures. As part of the resolution, the bank entered into a deferred prosecution agreement (DPA) with the DOJ pursuant to which the banks will forfeit $1.256 billion, $375 million of which satisfies a settlement with the Office of Foreign Assets Control (OFAC). The four-count criminal information filed in conjunction with the DPA charges that the banks violated the Bank Secrecy Act by failing to maintain an effective anti-money laundering program and to conduct appropriate due diligence on its foreign correspondent account holders. The DOJ also alleged that the banks violated the International Emergency Economic Powers Act and the Trading with the Enemy Act by illegally conducting transactions on behalf of customers in certain countries that were subject to sanctions enforced by OFAC. The banks agreed to pay a single $500 million civil penalty to satisfy separate assessments by the OCC and FinCEN related to the same alleged conduct, as well as a $165 million penalty to the Federal Reserve Board. The banks already have undertaken numerous voluntary remedial actions, including to (i) substantially increase AML compliance spending and staffing, (ii) revamp their Know Your Customer program, (iii) exit 109 correspondent relationships for risk reasons, and (iv) claw back bonuses for a number of senior officers. Read more…