Vital Trends and Lessons from OFAC Enforcement...
Transcript of Vital Trends and Lessons from OFAC Enforcement...
Saskia Rietbroek
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Principal, SanctionsAlert.com Partner, NoMoneylaundering.com Original Executive Director, ACAMS
(Global Headquarters) [email protected]
Welcome!
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Independent source of knowledge delivering vital sanctions
compliance training worldwide
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Live Webinars:Nov 10: OFAC’s Sibling: The Commerce Department’s Bureau of Industry and Security and How Its Regulatory and Criminal Powers Are Applied (FREE)Dec 1: Compliance Processes and Procedures That May Help Reduce Sanctions ProblemsJan. 11: What Bank Examiners Look For in OFAC Compliance ExaminationsFeb. 9: CDD 3.0: KYC To Unveil Sanctioned Parties and Hidden UBOs
Data collected in the SanctionsAlert.com OFAC Enforcement Action Database Project
Focus on data from US Treasury’s OFAC 2003-2015
SanctionsAlert.com OFAC Enforcement Action Project 6
All penalty figures were converted to real 2015 USD values
Data analyzed focuses on specific OFAC penalties, which may undercount or not capture other penalties against violators, especially in serious violations
SanctionsAlert.com OFAC Enforcement Action Project 7
913 cases since 2003 – Feb. 2016 against widely diverse businesses for a total penalties of $4.2B
Average of 5.9 cases per month
Average penalty $4.6M
Only 6 cases not accompanied by monetary penalty
Highest penalty BNP Paribas SA in 2014 with $963M (OFAC portion only)
SanctionsAlert.com Database Reveils:8
Major Trends in U.S. Economic Sanctions Enforcement
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Analysis and charts by Dr. Bryan Early, based on SanctionsAlert.com database of OFAC
enforcement penalties
Frequency of Enforcement Actions: Corporate Entities
The number of annual OFAC enforcement actions against corporate entities has declined substantially from the early years of the Bush Administration
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50
100
150
200
250OFAC Enforcement Cases Against Entities by Year
Bush Administration Obama Administration
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Frequency of Enforcement Actions: Individuals
OFAC initiated many enforcement actions against individuals early in the Bush Administration
Virtually ceased in the Obama Administration
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200
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OFAC Enforcement Cases against Individuals, by Year
Bush Administration Obama Administration
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OFAC Enforcement Actions in Bush and Obama Administrations, by Country Sanctions Program
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Burma Cuba FormerYugoslavia
Iran Iraq Sudan
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Sanctions Program
Number of OFAC Enforcement Actions by Sanctions Program
Bush Administration
Obama Administration
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Trends in OFAC Settlements and Penalties Against Corporate Entities
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
$80,000,000
Average Yearly Penalty/Settlement Amounts for Entities in 2015 U.S. Dollars
$0
$200,000,000
$400,000,000
$600,000,000
$800,000,000
$1,000,000,000
$1,200,000,000
Maximum Yearly Penalty/Settlement Amounts for Entities in 2015 USD
ING Bank N.V.Credit Suisse
BNP Paribas
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Major OFAC Enforcement Targets, by Administration and Sector
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Industries Targeted by OFAC with the Most Enforcement Actions by Administration
Bush Administration
Obama Administration
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Enforcing Sanctions against Iran
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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Number of OFAC Iran-Related Enforcement Actions Against Entities, 2006-2015
Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) Passed on July 1, 2010
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Iran Sanctions: Stronger Penalties Under Obama
Obama: Fewer enforcement
actions, but stronger penalties
Average Financial Sector
Penalty: $116 million
Average Non-Financial Sector
Penalty: $3.86 million
This was augmented by Treasury’s
use of other weapons, such as
Section 311 of the USA Patriot Act
and Executive Order 13224$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
Bush Obama
Average Iran-Related Penalty/Settlement Amounts for Entities in 2015 USD by Administration
$391,673
$41,400,000
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Data suggests Bush Administration pursued more cases, but imposed smaller penalties
Enforcement strategy of Obama Administration focuses on pursuing smaller number of high-profile cases that produce very large fines
FFIs have been most frequent targets and have suffered largest penalties
US Iran sanctions still heavily enforced
Conclusions Major Trends 17
Bush Administration Went Fishing; Obama Administration Goes Whale Hunting
Obama Administration pursues fewer targets, but assesses larger penalties and settlements in its cases
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
Bush Administration Obama Administration
Average Penalty / Settlement Amount in 2015 USD
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OFAC Penalties Against Financial Industry Compared to Other Sectors
In the Bush Administration, OFAC penalties against financialsector were 8 times larger than other sectors
In the Obama Administration, OFAC penalties against financialsector are 32 times larger than other sectors
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$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
$80,000,000
Other Sectors Financial Services Other Sectors Financial Services
Bush Bush Obama Obama
Average Penalty/Settlement Amounts for Entities in 2015 USD
$72.1 million
$2.32 million$317,069$39,274
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OFAC’s Largest Penalties All Targeted the Financial Sector during the Obama Administration
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Top Ten OFAC Penalties / Settlements, 2003-2015
Entity Name Year Country Amount (2015 USD)
BNP Paribas SA 2014 France $973,000,000
ING Bank N.V. 2012 Netherlands $644,000,000
Credit Suisse AG 2009 Switzerland $600,000,000
HSBC Holdings plc 2012 United Kingdom $390,000,000
Credit Agricole Corporate and Investment Bank 2015 France $330,000,000
Commerzbank AG 2015 Germany $259,000,000
Lloyds TSB Bank, plc 2009 United Kingdom $243,000,000
Barclays Bank PLC 2010 United Kingdom $192,000,000
Clearstream Banking S.A. 2014 Luxembourg $153,000,000
Standard Chartered Bank 2012 United Kingdom $137,000,000
Conclusions
Large companies, especially those in financial sector (but not only those!), are most likely OFAC targets
Individuals are not targeted by OFAC any longer and minor infractions do not receive the attention they once did
Failure to comply with U.S. sanctions can have serious consequences for businesses, but OFAC appears to be primarily interested in hunting “big game”
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Case Study 1: Clearstream Banking S.A.
Luxembourg financial institution Paid $152M OFAC penalty in 2014 Violated Iranian Transactions and
Sanctions Regulations, 31 CFR Part 560
No voluntary disclosure, OFAC said Internal accounting hid sanctioned
entity
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2007/2008: Hidden Iranian Owner
ClearstreamLuxembourg
U.S. Financial institution
Omnibus account
Omnibus account at U.S. Financial Institution 26 bonds Beneficial owner: Central Bank of Iran Value: $2.8 Billion.
Central Bank of Iran
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Meeting with OFAC
2007/2008: Meeting of OFAC and Clearstreamofficials
Discussed Clearstream business with Iran clients and implementing decision to terminate this business
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What Happened?
ClearstreamLuxembourg
U.S. Financial institution
Omnibus account
Use of internal accounting entries to bury CBI’s interest At least one supervisor and one senior executive knew or should have known Ultimate place of custody for securities with CBI’s interest remained in US
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EU Bank Account
Central Bank of Iran
Case Study 2: Commerzbank AG
German financial institution
Paid $258,660,796 settlement on March 12, 2015
Stripping: Deleted or omitted references to sanctioned entities
No voluntary disclosure
Global settlement among Commerzbank, OFAC, U.S. Justice Department, New York County District Attorney’s Office, Federal Reserve Board, New York Department of Financial Services
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What Happened?
Commerzbank AG Germany
Commerzbank AG NY Branch
Correspondentaccount
Use of non-transparent method of payment messages “Safe payment solution”: Use of special purpose entities to conceal sanctioned
entities Use of checks that listed only the Iranian bank’s address in London
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Iran, Sudan clients
Special purpose entities
History of OFAC Violations Commerzbank AG
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Date Voluntarily disclosed?
Program violated
Penalty/Settlement
2004 Yes Sudan $5,500
2011 No Cuba $175,500
2015 No Iran, Sudan, Proliferation, Burma, Cuba
$258,660,796
“Stripping” case, use of non-transparent methods
Multiple program violations
Involvement other government agencies
Importance of due diligence of affiliated respondent banks
Factors determining settlement amount
Lessons CommerzBank Case31
Case Study 3: Barclays Bank Plc
UK Financial institution $2.4M OFAC settlement in 2016 Violated 541.201 Zimbabwe
Sanctions Regulations, 31 CFR Part 541 (prohibits transactions involving
blocked property)
Not disclosed voluntarily to OFAC
First 50% rule penalty Held liable for violations that
resulted from inadequate sanctions screening
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What Happened?
Barclays UK
Barclays NY and other US FIs
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UBO =IDCZ
Barclays Bank of Zimbabwe,
Ltd
2008 2011 2012 2016
Sanctions Screening
KYC?
IDCZ ListedLittle UBO info
available
Barclays ZB identified IDCZ as UBO (on paper)
Barclays NY starts investigations Settlement
Corporate customers
2014
Revised Guidance OFAC on 50% Rule
US bank blocks US$ transactions
50% Rule34
UBO =IDCZ
Barclays Bank of Zimbabwe
3 Corporate customers
Industrial Development Corporation of Zimbabwe (IDCZ):Designated pursuant to EO 13469 on July 25, 2008
All property IDCZ owned 50 % or more: also blocked. Although not specifically listed, these entities are blocked as a matter of law
Listed
Not listed
Lessons Barclays Case
Highlights fundamental CDD/KYC aspect of sanctions compliance, which requires assessments beyond screening against lists
Be aware of customer relationship with entities that are not listed, but
blocked as a matter of law; Failure to act on records that demonstrate ownership by a
blocked person
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What You Learned
Trends, patterns and lessons from OFAC enforcement cases
Current enforcement strategy pursues fewer cases but which produce larger penalties
FFIs have most often been targeted and faced the largest penalties in recent years
Sanctions compliance failures at FFI that incensed the government
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Saskia Rietbroek, [email protected]
www.SanctionsAlert.comTel US: +1-305-433-7187
Tel Europe: +31-621811202
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