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$9 Billion in Penalties for Multi-Year Scheme to Violate U.S. Sanctions

Thursday, July 03, 2014
Sandler, Travis & Rosenberg Trade Report

U.S. authorities announced June 30 that a French bank will pay nearly $9 billion in fines and other penalties to resolve allegations that it engaged in “a systematic practice … that concealed, removed, omitted, or obscured references to, or the interest or involvement of, sanctioned parties” in thousands of financial and trade transactions worth billions of dollars that were routed to or through banks in the U.S. The Department of Justice said this is the first time a global bank has agreed to plead guilty to large-scale, systemic violations of U.S. economic sanctions, and the Treasury Department’s Office of Foreign Assets Control said its settlement with the bank is the largest OFAC settlement of any kind to date.

The specific payment practices the bank was charged with using to process certain sanctions-related payments to or through the U.S. included omitting references to sanctioned parties, replacing the names of sanctioned parties with the bank’s name or a code word, and structuring payments in a manner that did not identify the involvement of sanctioned parties in payments sent to U.S. financial institutions. The bank allegedly continued these practices for years after being warned against them by its own compliance officers, multiple law firms and OFAC.

According to a DOJ press release, under its plea agreement with that agency the bank will pay total financial penalties of $8.97 billion, including forfeiture of $8.83 billion and a fine of $140 million. It will also pay a civil monetary penalty of $508 million to the Federal Reserve and a penalty of $2.24 billion to the New York State Department of Financial Services. DOJ notes that these payments will be credited toward the bank’s criminal forfeiture penalty. In addition, a $963 million fine levied by OFAC will be satisfied by payments made to DOJ.

OFAC states that while the apparent violations were not voluntarily self-disclosed, there are a number of mitigating factors at play. For example, the bank has taken global remedial actions by increasing the frequency and content of its employee training program, adding additional resources to its compliance units, enhancing its internal audit process, implementing a stronger compliance review of its client base, reinforcing its existing internal controls (such as upgrading its interdiction filter to identify transactions where a sanctions target may have been removed from a set of payment instructions), and prioritizing compliance from the top levels of its senior management. It has also terminated all business and prohibited new business in any currency with sanctioned entities, relocated its group responsible for developing and strengthening sanctions policies from Paris to New York, and taken substantial steps to discipline individuals involved in the conduct at issue. In addition, OFAC did not issue a penalty notice or finding of violation to this bank in the five years preceding the earliest date of the transactions giving rise to the apparent violations.

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