OFAC Penalty Again Highlights Need for Care in Monitoring for Prohibited Activity
The Treasury Department’s Office of Foreign Assets Control announced Nov. 4 that the New York branch of a foreign bank has agreed to remit $139,500 to settle its potential civil liability for seven apparent violations of the Iranian Transactions and Sanctions Regulations. OFAC states that this enforcement action highlights the risks associated with failing to review multiple OFAC warning signs with respect to a particular customer, including transactions blocked or rejected by other financial institutions specifically due to OFAC sanctions, as well as the risks posed by relying on incomplete or inaccurate information when assessing a potential OFAC alert or match.
According to OFAC, the branch added to its “Good Guy Exception List” a company that was a customer of its parent bank after its OFAC interdiction software generated recurring alerts due to a word in the company’s name that signified a location in Iran. Although that company’s line of business included the importation of carpets from various countries to Brazil, the branch relied on verbal representations made to its parent bank by the company that it did not export products to or import products from Iran.
The branch subsequently processed three funds transfers originated by the company’s account at the parent bank and destined for a third-country beneficiary’s account at multiple third-country financial institutions. Although the branch later determined that these transfers, in part, constituted payments for Iranian-origin goods, it did not stop the transfers for manual review because its payment system cleared the alert due to the company’s inclusion on the exception list.
In addition, the branch processed a similar funds transfer that was flagged by a U.S. intermediary financial institution, which requested detailed information such as copies of any related invoices associated with the payment. The supporting documentation obtained “was of poor quality” but the branch determined that the invoice did not reference Iran and relayed this information and copies of the supporting documentation to the U.S. intermediary. That entity ultimately rejected the transaction and returned the funds to the branch “due to Iran involvement.” Nevertheless, the branch processed an additional three funds transfers that involved the company and payments for Iranian-origin goods. Two of those transfers indicated a different address for the company but the branch released them without requesting any additional information.
OFAC states that the total base penalty amount for the apparent violations was $310,000. The settlement amount reflects OFAC’s assessment that the bank may have been unaware of the risks associated with a false hit list that was not reviewed and updated regularly. Other mitigating factors include that the branch has not previously received a penalty notice or finding of violation from OFAC, took appropriate remedial action in response to the apparent violations and substantially cooperated with OFAC during the course of the investigation, including by identifying four of the apparent violations. On the other hand, OFAC found the following to be aggravating factors: several branch employees failed to exercise a minimal degree of caution or care with regard to the conduct that led to the apparent violations, including reliance on a partially illegible invoice to assess sanctions compliance; staff-level branch personnel and/or a branch senior compliance officer knew of the conduct that led to two of the apparent violations and had reason to know that the customer might process additional transactions in apparent violation of the ITSR; and four of the seven transactions resulted in harm to the sanctions program objectives of the ITSR by providing economic benefit to Iran.