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Sanctions Violations Yield $5.3 Million Penalty

Wednesday, October 10, 2018
Sandler, Travis & Rosenberg Trade Report

The Treasury Department’s Office of Foreign Assets Control announced Oct. 5 that a major bank has agreed to pay $5.3 million to settle its potential civil liability for processing payments that appear to have been attributable to interests of sanctions-targeted parties. OFAC states that this action highlights the risks associated with a U.S. person failing to take adequate steps to ensure that transactions it processes are compliant with U.S. economic sanctions laws, particularly when a U.S. person has actual knowledge or reason to know, prior to the transaction being effected, of an SDN’s past, present, or future interest in such a transaction.

According to OFAC, the bank operated a mechanism that resolved billings by and among various airlines and other participants in the airline industry on behalf of its client, a U.S. entity and its approximately 100 members, and a non-U.S. entity and its over 350 members, which included eight airlines that were at various times on OFAC’s list of specially designated nationals and blocked persons, blocked pursuant to OFAC sanctions, or located in countries subject to OFAC-administered sanctions programs.

OFAC notes that prior to January 2012 the bank does not appear to have had a process to independently evaluate the members of the non-U.S. entity for OFAC sanctions risk despite receiving red flag notifications regarding OFAC-sanctioned members on at least three occasions. As a result, for a number of years the bank processed payments that appear to have violated sanctions programs administered by OFAC.

The total base penalty amount for the apparent violations is $7.8 million. OFAC found a number of aggravating factors in this case, including (a) the bank appears to have acted with reckless disregard for its sanctions compliance obligations, (b) the bank engaged in a pattern of conduct where it missed red flags and other warning signs on several occasions, and (c) bank staff members had actual knowledge of the individual members, including OFAC-sanctioned entities, involved in each transaction.

On the other hand, OFAC considered the following to be mitigating factors: (a) no bank managers or supervisors appear to have been aware of the conduct or transactions that led to the apparent violations, (b) the total harm was significantly less than the total value of the transactions, (c) the bank cooperated with OFAC’s investigation, and (d) the bank has taken a number of steps (e.g., increasing compliance staff and implementing new sanctions screening software) as part of a risk-based sanctions compliance program.

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