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London-based financial institution to pay $1.1 billion for U.S. sanctions violations
On April 9, U.S. and U.K regulators announced that a London-based global financial institution would pay $1.1 billion to settle allegations by the DOJ, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), the Federal Reserve Board, the New York Department of Financial Services (NYDFS), the Manhattan District Attorney, and the U.K.’s Financial Conduct Authority (FCA) for allegedly violating multiple sanctions programs, including those related to Burma, Cuba, Iran, Sudan, and Syria. According to the OFAC announcement, from June 2009 until May 2014, the institution processed thousands of transactions involving persons or countries subject to sanctions programs administered by OFAC, but the majority of the actions at issue concern Iran-related accounts maintained by the institution’s Dubai branches. OFAC alleged the Dubai branches processed transactions through the institution’s New York branches on behalf of customers that were physically located or ordinarily resident in Iran.
According to the $639 million settlement agreement, OFAC noted, among other things, that the institution “acted with reckless disregard and failed to exercise a minimal degree of caution or care” with respect to the actions at issue. Moreover, OFAC alleged that the institution had actual knowledge or reason to know its compliance program was “inadequate to manage the [the institution]’s risk.” OFAC considered numerous mitigating factors, including that the institution’s substantial cooperation throughout the investigation and its undertaking of remedial efforts to avoid similar violations from occurring in the future.
The $639 million penalty will be deemed satisfied by the institution’s payments to other U.S. regulators, which includes, $240 million forfeiture and $480 million fine to the DOJ, $164 million fine to the Federal Reserve, and $180 million fine to the NYDFS. The institution also settled with the FCA for $133 million. The settlement illustrates the risks to foreign financial institutions associated with compliance lapses when processing transactions through the U.S. financial system.
OFAC reaches settlement with non-U.S. chemical manufacturer resolving Cuban sanctions violations
On February 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $5.5 million settlement with a German chemical manufacturer for 304 alleged violations of the Cuban Assets Control Regulations (CACR). According to OFAC, the settlement resolves the manufacturer’s alleged involvement in fulfilling Cuban orders for chemical reagents on 304 invoices. Prior to and upon acquiring the manufacturer, an Illinois-based company sent warnings to the manufacturer that all Cuban transactions must be ceased, along with guidelines for complying with U.S. sanctions. OFAC noted, however, that the manufacturer designed and implemented a system to conceal its on-going transactions, engaged an external logistics company to handle shipping documents and declarations, and conducted training sessions for staff to ensure the system was concealed from the Illinois company.
In arriving at the settlement amount, OFAC considered the following as aggravating factors: (i) the willful conduct of the manufacturer’s management; (ii) the utilization of written procedures to “engage in a pattern of conduct in violation of the CACR”; (iii) the number of transactions over an extended period of time “caused significant harm to the sanctions program objective of maintaining a comprehensive embargo on Cuba”; and (iv) the sophistication and revenue stream of the manufacturer, and the fact that it is a subsidiary of a large, international company.
OFAC also considered several mitigating factors, including the Illinois company’s cooperation with OFAC, voluntary self-disclosure, and execution of a tolling agreement on behalf of the manufacturer. OFAC further stressed the importance of implementing risk-based controls and due-diligence procedures to ensure subsidiaries comply with OFAC sanction obligations.
Visit here for additional InfoBytes coverage on Cuban sanctions.
OFAC reaches settlement with national bank to resolve alleged non-egregious sanctions violations
On October 5, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced an approximate $5.3 million settlement with a national bank for alleged violations of the Cuban Assets Control Regulations, the Iranian Transactions and Sanctions Regulations, and the Weapons of Mass Destruction Proliferators Sanctions Regulations. According to OFAC, the settlement resolves the bank’s potential civil liability for, among other things, allegedly processing net settlement payments for bank clients between January 2008 and February 2012, for which only 0.14 percent were attributable to interests of non-U.S. person entity members that were at various times identified on OFAC’s Specially Designated Nationals List, sanctioned, or located in countries subject to OFAC’s sanctions programs.
In arriving at the settlement amount, OFAC considered factors such as (i) prior to January 2012, the bank did not appear to have in place a process to independently assess participating member entities of the non-U.S. person entity for OFAC sanctions risk, despite allegedly receiving red flag notifications regarding OFAC-sanctioned members; (ii) staff members processing the net settlement transactions may have had actual knowledge of the members; and (iii) the bank is a large, commercially sophisticated financial institution.
OFAC also considered numerous mitigating factors, including (i) managers and supervisors were not aware of the conduct; (ii) the total harm caused was “significantly less than the total value of the transactions”; (iii) the bank cooperated with the investigation and entered into a retroactive agreement to toll the statutes of limitations; and (iv) the bank has implemented several steps as part of its risk-based compliance program to prevent future violations. OFAC also noted that the bank voluntary disclosed the violations, and that the violations constitute a non-egregious case.
OFAC Penalizes Credit Card Issuer for Violations of Cuban Assets Control Regulations
On November 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it had reached a $204,277 settlement with a U.S. financial institution for alleged violations of the Cuban Assets Control Regulations (CACR). The settlement involves actions taken by an international credit card company which, at the time of the apparent violations, was a wholly owned subsidiary of an entity that was itself 50 percent owned by the U.S. financial institution. According to the announcement, between 2009 and 2014, credit cards that the company issued to over 100 corporate customers were used to make purchases in Cuba or otherwise involved Cuba. OFAC asserts that the company failed to implement controls to prevent this even though it had policies and procedures in place to review transactions for compliance with CACR.
In determining the settlement amount, OFAC considered that (i) employees within the company had reason to know of the conduct that led to the alleged violations; (ii) none of the entities involved appeared to appreciate the risk that the credit cards might be used in Cuba; (iii) at the time they occurred, the actions resulted in harm to the US sanctions program objectives; (iv) the U.S. financial institution is a large and sophisticated financial entity; and (v) during the investigation, the entities provided “verifiably inaccurate or incomplete, including material omissions.” OFAC also considered the fact that the entities voluntarily self-disclosed the alleged violations and the U.S. financial institution took “swift and appropriate remedial action” upon discovery.
OFAC recently announced updates to CACR, covered by InfoBytes here.
OFAC Announces Cuban Assets Control Regulations Updates; Releases New FAQs
On November 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced amendments to the Cuban Assets Control Regulations to implement changes related to certain financial transaction restrictions and economic activities. In accordance with the National Security Presidential Memorandum issued by President Trump on June 16, the amendments will, among other things, prohibit “persons subject to U.S. jurisdictions” from engaging in financial transactions with entities and subentities identified on the State Department’s Cuba Restricted List. This effort is intended to “channel economic activities away from the Cuban military, intelligence, and security services, while maintaining opportunities for Americans to engage in authorized travel to Cuba and support the private, small business sector in Cuba.” The amendments will take effect November 9. OFAC also released updated FAQs and a fact sheet to answer questions related to the amended regulations.
Refer here, here, and here for InfoBytes coverage on OFAC settlements of alleged violations of the Cuban Assets Control Regulations.
OFAC Settles with International Insurance Group over Charges of Violating Sanctions Programs
On June 26, the Treasury’s Office of Foreign Asset Control (OFAC) reached a settlement with an international financial services and insurance company based in New York for alleged violations of OFAC sanctions programs. OFAC claimed that the company “issued policies and insurance certificates, and/or processed claims and other insurance-related transactions that conferred economic benefit to sanctioned countries or persons and undermined the policy objectives of several U.S. economic sanctions programs.” Specifically, OFAC maintained the company violated the following sanctions programs: (i) Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (ITSR); (ii) Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. Part 544 (WMDPSR); (iii) Sudanese Sanctions Regulations, 31 C.F.R. Part 538 (SSR); and (iv) Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR). The settlement requires the company to pay $148,698 to settle the claims, which the company voluntarily self-disclosed to OFAC.
For others to avoid these issues, OFAC suggested that “the best and most reliable approach for insuring global risks without violating U.S. sanctions law is to insert in global insurance policies an explicit exclusion for risks that would violate U.S. sanctions laws.”
OFAC Updates: New Sanction Designations and Additions to Specially Designated Nationals List
Recently, OFAC announced implementation of sanctions against several entities and individuals designated for, among others, materially assisting, sponsoring, or providing financial support to certain foreign entities. In addition, OFAC updated its list of Specially Designed Nations (SDN) and announced a settlement agreement with a Canadian-based motor vehicle finance company.
North Korea Suppliers of Weapons Proliferation Programs. On June 1, OFAC announced it was taking action against six entities and three individuals in response to their involvement in North Korea’s continued efforts to develop weapons of mass destruction (WMD). The announcement targets the country’s military, nuclear, and WMD programs, in addition to its overseas financial operations. The sanctions prohibit any U.S. individual from dealing with the designees, and further states that “any property or interests in property of the designated persons in the possession or control of U.S. persons or within the United States must be blocked.” John E. Smith, the Director of OFAC, stated, “Treasury is working with our allies to counter networks that enable North Korea’s destabilizing activities, and we urge our partners to take parallel steps to cut off their funding sources.” These sanctions are in addition to those imposed earlier in April on eleven North Koreans and one associated entity (see previous InfoBytes coverage here).
Iraq-Based Chemical Weapons Developers. On June 12, OFAC announced, for the first time, designations against individuals involved in the development of ISIS’ chemical weapons. The sanctions were pursuant to Executive Order 13224, which “provides a means by which to disrupt the financial support network for terrorists and terrorist organizations by authorizing the U.S. government to designate and block the assets of foreign individuals and entities that commit, or pose a significant risk of committing, acts of terrorism.” The property and interests in property of the two individuals identified in the designations, subject to U.S. jurisdiction, are blocked, and “U.S. persons are generally prohibited from engaging in transactions with them.”
Settlement Agreement with Motor Vehicle Finance Company. On June 8, OFAC announced it had reached a settlement with a motor vehicle finance company as a result of transactions by its Canadian based subsidiary. The enforcement action claims the majority-owned subsidiary, which “specializes in various forms of financing in the [U.S.] for purchasers, lessees, and authorized independent [auto] dealers,”—between 2011 and 2014—allegedly violated 13 Cuban Assets Control Regulations by leasing vehicles to the Cuban Embassy in violation of OFAC’s Blocked Persons and SDN list, which prohibited transactions with Cuban government entities. The company voluntarily self-disclosed the alleged violations and agreed to remit $87,255 to settle its potential civil liability.
Foreign Narcotics Kingpin Sanctions. On May 24 and 25, OFAC made additions to the SDN list, which designates individuals and companies who are prohibited from dealing with the U.S. and whose assets are blocked. Transactions are prohibited if they involve transferring, paying, exporting, or otherwise dealing in the property or interest in property of an entity or individual on the SDN list. Additions to the list were made under the Foreign Narcotics Kingpin Sanctions Regulations against several Mexican and Colombian individuals and entities.
OFAC Settles with Canadian Bank for Apparent Violations of Cuban Assets Control Regulations and Iran Sanctions
On January 13, Treasury’s Office of Foreign Asset Control (OFAC) announced a $516,105 settlement agreement with a Canadian-based bank and its online-brokerage subsidiaries in connection with accounts held and transactions processed on behalf of certain Specially Designated Nationals and Blocked Persons located in Cuba, Iran and other locations in the Middle East. OFAC also identified general “shortcomings in the bank’s OFAC compliance policies, procedures, and programs” including the bank’s failure to screen for any potential nexus to an OFAC-sanctioned country or entity prior to processing related transactions through the U.S. financial system and occurring due to shortcomings in the banks policies and procedures. The settlement agreement does, however, note that the Apparent Violations constituted a non-egregious case, that the Bank voluntarily self-disclosed the Apparent Violations, and that the applicable total base penalty amount for the apparent violations was $955,750—well above the $516,105 amount OFAC assessed.
Notably, in the agreement’s concluding paragraph, OFAC highlights, as a general matter, the risks associated with both “subsidiaries in high-risk industries–such as securities firms” and, in particular “online payment platforms when the financial institution is unable to restrict access for individuals and entities located in comprehensively sanctioned countries.”
OFAC Amends Cuban Assets Controls Regulations
OFAC took an additional step toward further implementation of President Obama’s new policy direction toward Cuba on October 17, with the publication of a final rule amending the Cuban Assets Control Regulations, 31 CFR Part 515 (CACR). Of those most relevant to financial institutions, OFAC updated the CACR by, among other things, amending paragraphs (c) and (f) of section 515.584, which relates to certain financial transactions involving Cuba. Section 515.584(c), as outlined in OFAC’s set of updated FAQs, “authorizes all transactions incident to the processing and payment of credit and debit card transactions for third-country nationals traveling to, from, or within Cuba.” FAQ number 49 further explains that “[a]ny person subject to U.S. jurisdiction, including U.S. financial institutions and their foreign branches, may conduct transactions authorized by [section 515.584(c)].” Section 515.584(f), as explained by FAQ 73, permits: Any banking institution …that is a person subject to U.S. jurisdiction is authorized to provide financing for exports or reexports of items, other than agricultural commodities, authorized pursuant to § 515.533, including issuing, advising, negotiating, paying, or confirming letters of credit (including letters of credit issued by a financial institution that is a national of Cuba), accepting collateral for issuing or confirming letters of credit, and processing documentary collections. OFAC’s amendments to the CACR are effective immediately.
OFAC Updates Cuba-Related FAQs
On July 25, OFAC updated its list of frequently asked questions related to Cuba to clarify requirements applicable to persons subject to U.S. jurisdiction that are providing carrier or travel services to Cuba pursuant to 31 C.F.R. § 515.572. According to new FAQ 38, where such a person is providing travel or carrier services to a customer traveling to or from Cuba under a specific license, OFAC will consider the collection and retention of the traveler’s specific license number to be equivalent to collecting and retaining a physical or electronic copy of the specific license, as required by § 515.572(b)(1). The carrier or travel services provider must maintain a record of the specific license number or a copy of the license for at least five years. Revised FAQ 39 reiterates that authorized carrier or travel service providers must also retain a certification from each customer traveling to or from Cuba indicating the provision of the Cuban Assets Control Regulations that authorizes travel and the names and addresses of the individual travelers for at least five years from the date of the transaction.