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OFAC settles with international financial institution
On June 20, the U.S Treasury Department’s Office of Foreign Assets Control (OFAC) announced a settlement with a Latvia-based bank—a subsidiary of an international financial institution headquartered in Sweden—to resolve potential civil liability stemming from OFAC’s Crimea sanctions. According to OFAC’s web notice, in 2015 and 2016, a shipping industry client of the Latvia-based subsidiary bank made 386 transactions totaling over $3 million through its e-banking platform from a Crimea-based IP address to persons in Crimea, which were processed through U.S. correspondent banks. OFAC alleges that in 2016, the client attempted to make a payment to a U.S. correspondent bank from a Crimea-based IP address, but after the payments were rejected and the bank was reassured by the client that the transactions did not involve Crimea, the bank rerouted the payment through a different U.S. correspondent bank. OFAC alleges that the bank had client onboarding information that the client had a physical presence in Crimea, so the bank had reason to know that the transactions in fact involved Crimea. OFAC also accused the bank of not integrating the client’s IP data into its sanctions screening processes.
In arriving at the $3.4 million settlement amount, OFAC considered, among other things, that the bank willfully violated U.S. sanctions by not self-disclosing the violations, which is required as a third party. According to the OCC, the bank failed to exercise due caution or care in neglecting to account for the client’s presence in Crimea, and instead solely relied on the client’s reassurances when it possessed contradictory information. OFAC also claimed that the bank had many customers in Crimea, and therefore had reason to know the origin of the payments it was processing. OFAC also considered several mitigating factors, including that: (i) the bank has not received a penalty notice from OFAC in the preceding five years; (ii) the bank and the financial institution took remedial action; and (iii) the bank and the financial institution cooperated with OFAC’s requests for information.
OFAC said that this action “demonstrates the importance of implementing and maintaining effective, risk-based sanctions compliance controls, especially for sophisticated financial institutions operating in proximity to high-risk regions.” OFAC added that this case also demonstrates the importance of undertaking reasonable efforts to investigate red flags. Finally, OFAC noted that this matter underscores the importance of remaining vigilant against efforts by entities based in Crimea, Russia, and other high-risk countries seeking to evade sanctions and elude compliance controls.