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On June 18, New York announced an agreement with a bank consulting firm in connection with the firm’s work for a state-regulated bank alleged to have engaged in deceptive and fraudulent misconduct on behalf of client Iranian financial institutions in violation of anti-money laundering and sanctions rules. An investigation conducted by the New York Department of Financial Services (DFS) found that the consultant (i) failed to demonstrate autonomy and removed a recommendation aimed at rooting out money laundering from a written final report submitted to the DFS, and (ii) violated New York Banking Law § 36.10 by disclosing confidential information of other consulting firm clients to the bank. To resolve that investigation, the consulting firm agreed to (i) a voluntary one-year suspension from consulting work at any DFS-regulated institution, (ii) pay a $10 million penalty, and (iii) adopt a new code of conduct. The DFS intends for the code of conduct to serve as “a new model that will govern independent consulting firms that seek to be retained or approved by DFS.” The code of conduct states, among other things: (i) the financial institution and consultant must disclose all prior work by the consultant for the institution in the previous three years, (ii) the engagement letter must require that the ultimate conclusions and judgments will be that of the consultant based upon the exercise of its own judgment, (iii) the consultant and institution must submit a work plan for the engagement and timeline for completion of work, (iv) the DFS and the consultant must have ongoing communication, including outside the presence of the institution, and (v) the consultant must implement numerous record keeping, training, reporting, and other policies and procedures.
On June 3, the Obama Administration announced a new Executive Order authorizing sanctions that directly target trade in Iran’s currency, the rial. The order authorizes the Treasury Secretary to take action against foreign financial institutions that knowingly conduct or facilitate significant transactions for the purchase or sale of the rial, or that maintain significant accounts outside of Iran denominated in the rial. Specifically, the Treasury Secretary can (i) prohibit opening, and prohibit or impose strict conditions on maintaining, in the United States, a correspondent account or a payable-through account by such foreign financial institution; or (ii) block all property and interests in property that are in the United States, that come within the United States, or that are or come within the possession or control of any United States person (including any foreign branch) of such foreign financial institution, and provide that such property and interests in property may not be transferred, paid, exported, withdrawn, or otherwise dealt in. The order also (i) subjects to new sanctions persons and financial institutions that knowingly engage in transactions for the supply of significant goods or services used in connection with the automotive sector of Iran, and (ii) expands sanctions against those who materially assist, sponsor, or provide financial, material, or technological support to persons designated by Treasury as the “Government of 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. The banks also have undertaken a comprehensive overhaul of their structure, controls, and procedures, including to (i) simplify the control structure, (ii) create new compliance positions and elevate their roles, (iii) adopt a set of guidelines limiting business in those countries that pose a high financial crime risk, and (iv) implement a single global standard shaped by the highest or most effective anti-money laundering standards available in any location where the banks operates. Pursuant to the DPA, an independent monitor will evaluate the banks’ continued implementation of these and other enhanced compliance measures.
In a separate matter, on December 10, Manhattan District Attorney Cyrus R. Vance, Jr. and the DOJ announced the resolution of a joint investigation into a British bank’s alleged movement of more than $200 million through the U.S. financial system primarily on behalf of Iranian and Sudanese clients by removing information that would have revealed the payments as originating with a sanctioned country or entity, and thereby avoiding OFAC scrutiny. To resolve the matter, the bank was required to pay $227 million in penalties and forfeiture, and to enter into a DPA and corresponding Statement of Facts. Through the DPA, the bank admitted that it violated New York State law by falsifying the records of New York financial institutions and by submitting false statements to its state and federal regulators about its business conduct, and agreed to certain enhanced compliance practices and procedures. The payment also satisfies a settlement with OFAC over the same practices, while the Federal Reserve Board required an additional $100 million penalty to resolve its parallel investigation. The settlement follows an earlier settlement between this British bank and the New York Superintendent of Financial Services regarding the same alleged conduct.
On August 14, the New York Superintendent of Financial Services announced the resolution of recent charges that a British bank and its U.S. subsidiary engaged in deceptive and fraudulent misconduct in order to move substantial funds on behalf of client Iranian financial institutions that were subject to U.S. sanctions. While the details of the settlement have not been released, the Superintendent stated that the bank must (i) pay a civil penalty of $340 million to the New York State Department of Financial Services (DFS), (ii) install a monitor for a term of at least two years who will report directly to DFS and who will evaluate the money-laundering risk controls in the New York branch and implementation of appropriate corrective measures, (iii) allow DFS examiners to be placed on site at the bank, and (iv) permanently install personnel within its New York branch to oversee and audit the bank’s offshore money-laundering due diligence and monitoring program.
On August 6, the New York Department of Financial Services (NY DFS) ordered the U.S. subsidiary of a British bank to appear on August 15 to respond to allegations of money laundering that, if true, could cost the bank its license to conduct business in New York. The order alleges that the bank engaged in deceptive and fraudulent misconduct in order to move at least $250 billion through its New York branch on behalf of client Iranian financial institutions in contravention of U.S. sanctions. While the bank acknowledges that it has been conducting a historical review of its money laundering compliance, and that it has voluntarily disclosed that review to federal agencies, it argues that the NY DFS is misinterpreting the transactions at issue and strongly refutes the allegations.
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