United States: US Authorities Continue To Pursue Enforcement Actions Big And Small

US authorities, including the New York Department of Financial Services (NY-DFS), continued to enforce the full range of its sanctions programs this quarter, resulting in settlements from the tens of thousands to the hundreds of millions. Notably, on July 9, a federal judge pushed back on the proposed terms of Fokker Services BV's $21 million settlement agreement with US authorities that stemmed from apparent violations of Iranian sanctions. Judge Richard Leon questioned whether the aerospace company had actually voluntarily disclosed its wrongdoing as the government had reported (and given it credit for) and expressed misgivings about the relatively lenient penalty imposed and the lack of charges against involved individuals. At a late July hearing, new evidence emerged indicating that the company was indeed already under investigation at the time that the alleged voluntary disclosure was made. The judge must approve the agreement before it can take effect.

On July 25, OFAC assessed a $4,073,000 penalty against US-based Epsilon Electronics Inc. for violations of the Iranian Transactions and Sanctions Regulations (ITSR). From August 2008 to May 2012, Epsilon violated § 560.204 of the ITSR when it issued 39 invoices for car audio and video equipment, valued at $3,407,491, shipped to a company that re-exports most, if not all, of its products to Iran and has offices in Tehran and Dubai. OFAC found that Epsilon knew or had reason to know that these goods were intended specifically for supply to Iran, particularly given that the company continued to issue invoices after receiving a cautionary letter from OFAC in January 2012.

On July 17, US-based Tofasco of America, Inc. agreed to pay $21,375 to settle potential civil liability for an alleged violation of the Weapons of Mass Destruction Proliferators Sanctions Regulations. Tofasco appears to have violated the sanctions in April 2009 when it engaged a bank to process a letter of credit transaction that represented payment for a shipment of recreational chairs, with a substitute bill of lading that omitted reference to the Islamic Republic of Iran Shipping Lines (IRISL), a blacklisted entity. Although OFAC found that Tofasco took deliberate steps to evade US sanctions requirements, it noted that the company had no prior sanctions history and was a small company lacking the sophistication of a larger company conducting international trade.

On July 24, OFAC announced a $16,562,700 settlement agreement with Bank of America, N.A. to settle potential liability stemming from apparent violations of the Foreign Narcotics Kingpin Sanctions Regulations, the Narcotics Trafficking Sanctions Regulations, and the Reporting, Procedures, and Penalties Regulations. Between September 2005 and March 2009, Bank of America processed 208 transactions totaling approximately $91,192 on behalf of, and failed to properly block five accounts owned by, ten individuals whom OFAC had previously added to its SDN List. In finding that 79 of those transactions that occurred on or after October 2006 were egregious, OFAC noted that Bank of America failed for more than two years to adequately address a known deficiency in its OFAC screening tool, which involved a failure to identify transactions involving individuals with multiple or multi-part last names on the SDN List.

On August 18, NY-DFS fined PricewaterhouseCoopers LLP $25 million for sanitizing a report to regulators on sanctions and money-laundering controls for Bank of Tokyo-Mitsubishi UFJ Ltd. The bank allegedly persuaded PwC Regulatory Advisory Services to omit or downplay certain issues from a 2007 compliance report related to financial transactions with sanctioned countries including Iran and Sudan through March 2007. PwC's Regulatory Advisory Services unit was also banned for two years from accepting some new consulting assignments from firms regulated by the NY-DFS and has been instructed to implement changes to address conflicts of interest in consulting. Bank of Tokyo-Mitsubishi UFJ, part of Mitsubishi UFJ Financial Group Inc., reached a $250 million settlement with NY-DFS in 2013 over apparent violations of US sanctions laws.

On August 19, UK-based Standard Chartered was fined an additional $300 million by NY-DFS for various compliance failures only two years after it paid a $340 million fine for numerous violations of US sanctions. The new fine followed the discovery of a flaw in the bank's transaction monitoring system that breached the terms of its 2012 settlement. NY-DFS has also ordered Standard Chartered to suspend clearing activity for "high risk" Hong Kong business clients and to exit certain client relationships at its branches in the U.A.E. The bank will not be allowed to accept new customers for dollar-clearing without prior approval by the NY-DFS.

On August 27, US-based Branch Banking & Trust Co. agreed to pay OFAC $19,125 to settle potential civil liability arising from one apparent violation of the Sudanese Sanctions Regulations (SSR). In June 2011, BB&T received instructions to process a $20,000 funds transfer on behalf of a customer, destined for a third-country company's account at a foreign financial institution. BB&T's filtering software stopped the payment for review due to a name in the payment details that appeared to match an entry on the SDN List. During the course of BB&T's investigation of the potential name match, the bank determined that the individual was a Sudanese national but failed to request additional information. After determining that the name was not an SDN List match, a BB&T compliance specialist added a reference in the payment details that included, inter alia, "NATIONALITY: SUDANESE" and then approved the wire. When BB&T's interdiction software rescreened the transaction it failed to generate an alert because the software did not contain the word "Sudanese" (or other similar terms relating to OFAC-sanctioned countries such as "Burmese," "Cuban," or "Iranian"). After BB&T processed the transaction, the bank's customer notified it that the individual referenced in the payment details was located in Sudan, and that the payment was for merchandise being shipped to Sudan in violation of sanctions targeting Sudan.

On September 3, Citigroup Inc. agreed to pay $217,841 in a settlement with OFAC stemming from apparent violations of the ITSR, the Foreign Narcotics and Kingpin Sanctions Regulations, and the Weapons of Mass Destruction Proliferators Sanctions Regulations. Between April and November 2009, Citigroup Trade Services Malaysia, or Citi Penang, processed four export bill collection applications totaling $638,074 on behalf of Citibank N.A., Hong Kong that involved the shipment of goods to Iran and to IRISL, which had already been designated as an SDN at that time. Separately, on four instances between February 2010 and October 2012, Citibank processed fund transfers totaling $133,786 involving entities blacklisted by OFAC because the bank's interdiction software did not identify references to sanctioned parties with slight name changes. OFAC stated that the settlement amount was below the base penalty because no Citigroup managers or supervisors were aware of the conduct that led to the apparent violations, no harm was done because the funds transfers were blocked, and the bank took remedial action to fix its interdiction software.

On September 9, Zulutrade, Inc., a Delaware-incorporated entity registered with the Commodities Futures Trading Commission, entered into a $200,000 settlement with OFAC over apparent violations of the ITSR, the Sudanese Sanctions Regulation (SSR), and E.O. 13582, which blocks the property of the Government of Syria and prohibits certain Syria-related transactions. Zulutrade operates an electronic trading platform that allows its customers to automatically place currency foreign exchange (FX) trades with broker-dealers through Zulutrade's platform. Beginning in 2009 and continuing for a number of years, Zulutrade maintained accounts for more than 400 persons in Iran, Sudan, and Syria, and exported services to these customers by placing FX trades via its platform. Zulutrade also originated eight funds transfers totaling $10,264.36 destined for two individuals located in Iran. Zulutrade allegedly failed to screen or otherwise monitor its customer base for OFAC compliance purposes at the time of the apparent violations. The settlement was coordinated with the CFTC, which brought its own enforcement action against Zulutrade for violations of CFTC rules arising out of the same conduct.

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