Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
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. The subsidiaries pleaded guilty to related specific acts of corruption, including those alleged in a separate criminal information. The DOJ alleged, among other things, that employees of certain subsidiaries engaged in at least three schemes to pay bribes to foreign officials in exchange for government contracts. In addition the parent company agreed to pay over $65 million and submit to compliance and monitoring requirements to resolve parallel SEC civil allegations that the company violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA.
Separately, the parent company entered into an agreement with the Treasury Department’s Office of Foreign Assets Control (OFAC) and a deferred prosecution agreement with the DOJ, as well as an agreement with the Department of Commerce, to resolve alleged sanctions and export controls violations. Collectively, those agreements require the company to, among other things, pay $100 million in penalties and fines—inclusive of a $91 million settlement with OFAC—and undergo external audits of its efforts to comply with the relevant U.S. sanctions law for calendar years 2012, 2013, and 2014. Those payments resolve allegations, described in part in another DOJ criminal information, that the company and certain subsidiaries exported or re-exported oil and gas drilling equipment to, and conducted business operations in, sanctioned countries—including Cuba, Iran, Sudan, and Syria—without the required U.S. Government authorization.
- Daniel P. Stipano to discuss "Regulatory changes: Proposed AML regulatory changes, marijuana banking and hemp/CBD" at the ACAMS Carolinas Chapter AML and OFAC Symposium-Technology and Hot Topics
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Buckley Webcast: Flirting with alternatives — Opportunities and challenges created by alternative data, modeling, and technology
- Daniel P. Stipano and Moorari K. Shah to discuss "Vendor management: What is the NCUA looking for?" at the National Association of Federally-Insured Credit Unions BSA Seminar
- Daniel P. Stipano to discuss "Reporting requirements for credit unions: CTRs and SARs" at the National Association of Federally-Insured Credit Unions BSA Seminar
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Summer Regulatory Compliance School
- Warren W. Traiger to discuss "CRA modernization" at the National Association of Industrial Bankers and the Utah Association of Financial Services Annual Convention
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Hank Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates and Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference