Vital Trends and Lessons from OFAC Enforcement Cases

© All rights reserved. 2016 SanctionsAlert.com

Saskia Rietbroek

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Principal, SanctionsAlert.com Partner, NoMoneylaundering.com Original Executive Director, ACAMS

(Global Headquarters) sr@sanctionsalert.com

Welcome!

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OFAC enforcement action database project

Major trends

Hunting big game

Case studies

Agenda4

SanctionsAlert.comOFAC Enforcement Actions

Database Project

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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

0

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

0

100

200

300

400

500

600

700

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

0

50

100

150

200

250

300

350

400

Burma Cuba FormerYugoslavia

Iran Iraq Sudan

Nu

mb

er

of

Enfo

rce

me

nt

Act

ion

s

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

0

20

40

60

80

100

120

140

160

180

Industries Targeted by OFAC with the Most Enforcement Actions by Administration

Bush Administration

Obama Administration

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Enforcing Sanctions against Iran

0

5

10

15

20

25

30

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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

Hunting Big Game

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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

$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

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 Studies

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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, CAMSsr@sanctionsalert.com

www.SanctionsAlert.comTel US: +1-305-433-7187

Tel Europe: +31-621811202

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