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Financial Services Law Insights and Observations

National bank fined $98 million by OFAC, Fed for sanctions violations

Financial Crimes Of Interest to Non-US Persons OFAC Department of Treasury Enforcement OFAC Sanctions OFAC Designations Settlement

Financial Crimes

On March 30, the U.S. Treasury Department’s Office of Foreign Assets (OFAC) announced a $30 million settlement with a national bank to resolve potential civil liabilities stemming from trade insourcing software that the bank and its predecessor bank provided to a foreign European bank between 2008 and 2015. According to OFAC’s web notice, at the direction of a mid-level manager, the predecessor bank customized the software for general use by the European bank, which the predecessor bank “knew or should have known would involve engaging in trade-finance transactions with sanctioned jurisdictions and persons.” The European bank used the software to manage 124 non-OFAC compliant transactions totaling approximately $532 million involving parties in jurisdictions subject at the time of the transactions to sanctions regulations.

OFAC noted that the national bank inherited the trade insourcing relationships when it acquired the predecessor bank, claiming that the national bank “did not identify or stop the European bank’s use of the software platform for trade-finance transactions involving sanctioned jurisdictions and persons for seven years despite potential concerns raised internally” following the acquisition. OFAC also noted, however, that the national bank’s alleged failure to stop the violations “was not a result of a systemic compliance breakdown within the broader [] organization,” which OFAC acknowledged has “a historically strong overall sanctions-compliance program.”

In arriving at the settlement amount, OFAC considered various mitigating factors, including that (i) the majority of the 124 apparent violations related to agriculture, medicine, and telecommunications and therefore may have been eligible for a general or specific license, thus mitigating the harm to sanctions policy objectives; (ii) the legacy business unit at the predecessor bank was relatively small and that there was no indication that senior management either directed or had actual knowledge that the predecessor bank provided the software to the European bank for such purpose; and (iii) upon identifying the alleged violations, the bank promptly terminated the European bank’s access, voluntarily disclosed the matter to OFAC, conducted an extensive internal investigation, produced the results to OFAC, cooperated with OFAC throughout the investigation, agreed to toll the statute of limitations, and took remedial measures.

Concurrently, the Federal Reserve Board issued an order fining the bank holding company in the amount of $67.8 million for allegedly engaging in unsafe or unsound practices related to its oversight of sanctions compliance risks at the national bank. The Fed noted that the national bank “no longer offers the trading platform to foreign banks” and has “strengthened firmwide compliance with OFAC regulations.”