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$787 Million in Penalties for Thousands of Financial Transactions for Sanctioned Entities

Thursday, October 22, 2015
Sandler, Travis & Rosenberg Trade Report

The Department of Justice announced Oct. 20 that a bank headquartered in France will pay $787.3 million in criminal and civil penalties for knowingly and willfully moving approximately $312 million through the U.S. financial system on behalf of sanctioned entities in Sudan, Burma, Iran and Cuba.

According to court documents, in more than 4,000 transactions between August 2003 and September 2008, subsidiaries of the bank employed deceptive practices that concealed the involvement of banks designated as specially designated nationals and other corporate entities in financial transactions that transited through the U.S. The bank has acknowledged that compliance personnel within these subsidiaries were aware of U.S. sanctions against Sudan and that these sanctions applied to payments the bank sent through the U.S. but authorized payments on behalf of the bank’s Sudanese customers anyway. The subsidiaries relied primarily on non-transparent payment messages, known as cover payments, to mask the unlawful payments sent through the U.S.

“In this case, the overwhelming majority of the unlawful conduct occurred at a foreign subsidiary that no longer exists,” noted U.S. Attorney Channing D. Phillips of the District of Columbia. “Although [the bank] moved quickly to end these unlawful transactions and fully cooperated with investigators, today’s resolution demonstrates that there will be significant consequences for any financial institution that allows its foreign subsidiaries that do not intend to respect U.S. law to, nevertheless, access the U.S. financial system.”

The penalties against the bank include the following.

- deferred prosecution agreements with the U.S. Attorney’s Office of the District of Columbia and the New York County District Attorney’s Office that each include a $156 million penalty

- settlement agreement with the Board of Governors of the Federal Reserve System that includes a $90.3 million civil penalty, a cease and desist order and remedial steps to ensure compliance with U.S. law in its ongoing operations

- settlement agreement with the New York State Department of Financial Services that includes a $385 million penalty and a requirement to employ a compliance consultant for one year

- settlement agreement with the Treasury Department’s Office of Foreign Assets Control that includes a fine of approximately $329.5 million that will be satisfied by payments to federal and local agencies

OFAC notes that the statutory maximum and base civil monetary penalties in this case were $1.46 billion. Aggravating factors include that the bank had indications that its conduct might constitute a violation of U.S. law before the earliest date of the apparent violations, several of the bank’s managers were aware of the conduct that led to the apparent violations, the bank is a large and sophisticated institution with a global presence but did not have appropriate controls in place and otherwise had an inadequate compliance program, and the bank’s conduct resulted in significant harm to several of the sanctions programs administered by OFAC and their associated policy objectives. Mitigation was extended because the bank had not received a penalty notice or finding of violation from OFAC in the five years preceding the earliest date of the transaction giving rise to the apparent violations, took appropriate remedial action in response to the apparent violations and provided substantial cooperation throughout the course of OFAC’s investigation. OFAC also considered that the majority of the apparent violations occurred between 2003 and 2005 and prior to the publication of a settlement in another case.

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