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$516,000 Penalty for Trade Finance Transactions Violating Sanctions on Iran and Cuba

Wednesday, January 18, 2017
Sandler, Travis & Rosenberg Trade Report

The Office of Foreign Assets Control announced Jan. 13 that a financial institution headquartered in Canada has agreed to pay $516,105 to settle potential civil liability for 167 violations of the U.S. sanctions against Iran and Cuba. OFAC has also issued a finding of violation to this bank for 3,491 sanctions violations by two wholly-owned subsidiaries that handle securities transactions. OFAC states that this enforcement action highlights the importance of institutions taking appropriate measures to ensure compliance with all applicable sanctions when they have subsidiaries in high-risk industries, such as securities firms, that may not be aware of the parent’s U.S. sanctions compliance obligations.

According to OFAC, the bank engaged in a series of trade finance transactions generally involving import-export letters of credit for Canadian customers that the bank failed to screen for any potential nexus to an OFAC-sanctioned country or entity prior to processing related transactions through the U.S. financial system. The bank also maintained several accounts in Canada for a business that ships oil and gas-related equipment to destinations in the Middle East and was listed as a sales agent for an entity on OFAC’s List of Specially Designated Nationals and Blocked Persons and located in Iran.

The total base penalty amount for the apparent violations was $955,750. OFAC found the following to be aggravating factors: several bank employees (including those in its compliance unit and supervisory and management personnel) were aware that the bank processed USD transactions on behalf of a Cuban entity and were aware of a gap in the bank’s procedures permitting such transactions to clear through the U.S. financial system; various bank personnel had reason to know of the conduct that led to the apparent violations due to documentation or information in the bank’s possession regarding various clients’ ties to, or locations in, countries subject to OFAC sanctions; the bank is a large and sophisticated financial institution with a global presence; and the bank’s compliance program does not appear to have had controls in place sufficient to identify and prevent the bank from processing transactions to, through, or within the U.S. that were for or on behalf of customers owned by entities located in, or that conducted business with, OFAC-sanctioned countries.

The following were considered mitigating factors: no bank managers or supervisors appear to have had actual knowledge regarding certain conduct; the Cuba-connected customers were eligible for specific licenses from OFAC to become unblocked Cuban nationals and were eventually covered by a general license published in January 2011; the bank has not received a penalty notice or finding of violation from OFAC in the five years preceding the earliest dates of the transactions giving rise to the apparent violations; the bank undertook a robust remedial response, including by changing its policies and procedures as well as its compliance structure; and the bank provided substantial cooperation to OFAC throughout its investigation by voluntarily self-disclosing the apparent violations, providing detailed and well-organized information in response to OFAC’s requests, and signing a tolling agreement and multiple extensions to the agreement thereafter.

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