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Financial Services Law Insights and Observations


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  • Obama Administration Sanctions Numerous Russian, Ukrainian Officials

    Consumer Finance

    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.

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  • OFAC Announces Sanctions Settlement With Securities Intermediary

    Consumer Finance

    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.

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  • 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.

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  • Multinational Oil Services Company Resolves FCPA, Sanctions, And Export Control Matter

    Financial Crimes

    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.

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  • Treasury Fines Foreign Investment Firm Over Iran Sanctions Violations

    Consumer Finance

    On October 21, the Treasury Department’s Office of Foreign Assets Control (OFAC) imposed a $1.5 million civil penalty in an enforcement action against a UAE-based investment and advising company for violating the Iranian Transactions and Sanctions Regulations. OFAC determined that the firm recklessly or willfully concealed or omitted information pertaining to $103,283 in funds transfers processed through U.S.-based financial institutions for the benefit of persons in Iran. OFAC determined that the firm’s actions were egregious because (i) it did not voluntarily self-disclose the violations to OFAC, has no OFAC compliance program, and did not cooperate in the investigation, (ii) the firm’s management had actual knowledge or reason to know of the conduct, and (iii) the conduct resulted in potentially significant harm to the U.S. sanctions program against Iran.

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  • OFAC Issues Advisory on Efforts to Evade Iran Sanctions

    Consumer Finance

    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.

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  • U.S. Law Enforcement Authorities and Regulators Resolve Significant Money Laundering and Sanctions Investigations

    Financial Crimes

    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.

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