United States: Commerzbank AG, Schlumberger Oilfield Holdings, Ltd. And Paypal, Inc. Reach Regulatory Settlements Related To Allegations Of Economic Sanctions, Bank Secrecy Act And Anti-Money Laundering Violations

In March 2015, various US regulatory agencies reached settlements with Commerzbank AG ("Commerzbank"), Schlumberger Oilfield Holdings, Ltd. ("Schlumberger"), and PayPal, Inc. ("PayPal") related to claims that these companies violated laws and regulations prohibiting transactions involving certain foreign countries or individuals. While each action dealt with its own unique circumstances, there are also common themes among these matters that highlight the US government's increased regulation of prohibited transactions with foreign parties.

On 12 March 2015, Commerzbank reached a $1.45 billion settlement with several criminal and civil governmental agencies, including the DOJ, the US Treasury Department's Office of Foreign Assets Control ("OFAC"), the New York State Department of Financial Services ("DFS"), and other federal and state agencies. Commerzbank, a German bank, was accused of violating economic sanctions regulations by conducting approximately 60,000 transactions worth over $253 billion through Commerzbank's New York branch on behalf of Iranian and Sudanese entities from 2002 to 2008.

Commerzbank was accused of several practices in which it concealed the involvement of prohibited parties. In addition, Commerzbank was alleged to have violated the Bank Secrecy Act by failing to comply with anti-money laundering ("AML") regulations requiring the monitoring, investigation, and reporting of certain suspicious transactions. These alleged violations related to "correspondent banking" practices, whereby a party conducts transactions through an intermediary bank that makes it more difficult to ascertain the origin or ultimate beneficiary of a transaction, and other types of suspicious activity. Commerzbank resolved these claims through deferred prosecution agreements or consent orders with the regulators. In addition to the payment described above, some of these agreements held individual employees responsible for violations, required substantial remedial measures and imposed an independent monitor to review the compliance of the company's New York branch with the laws and regulations at issue. While Commerzbank admitted to certain underlying violations, it did not plead guilty to any criminal violations.

On 25 March 2015, Schlumberger, an oilfield services company, pleaded guilty and agreed with the DOJ and other governmental agencies to pay an approximately $238 million penalty (including a record $155 million criminal fine) for engaging in business with Iran and Sudan and enabling others to do the same. Schlumberger pleaded guilty to willfully violating US sanctions programs through deliberate steps to conceal its US business unit's dealings with Iran and Sudan by disguising communications and evading the company's internal programs checking for such activity. The company also agreed to a three-year probationary period and to continue to cooperate with the government. In addition, Schlumberger's parent company agreed to several conditions during the probationary period, including continuing to not operate in Iran and Sudan, hiring an independent consultant to review compliance policies, and reporting compliance-related information to the government.

On 23 March 2015, PayPal reached a settlement with OFAC related to transactions that the company processed allegedly in violation of US sanctions programs related to Cuba, Iran, and Sudan, as well as sanctions covering individuals on OFAC's Specifically Designated Nationals ("SDN") list naming particular people subject to sanctions. OFAC alleged that PayPal should have discovered the involvement of prohibited parties based on language in transaction documents. PayPal was also alleged to have failed to investigate several instances where its screening software detected SDN transactions. PayPal's agreement with OFAC covers almost 500 prohibited transactions worth approximately $44,000. While most of these alleged violations were deemed "non-egregious," OFAC considered the SDN claims to be egregious and therefore subject to a $17 million penalty for transactions totaling a mere $7,000. PayPal agreed to pay $7.66 million in the settlement and did not admit or deny any of OFAC's allegations.

While each of these three regulatory actions involves its own set of unique facts, including different types of transactions, companies in different lines of business and connections to the US and varying levels of severity, they also contain common elements. These matters show that US regulatory agencies actively investigate and enforce potential violations of US restrictions on transactions involving prohibited foreign countries and parties. These actions also show that US governmental agencies pursue these actions even against foreign companies that have only a portion of their operations in the US. In addition, these three agreements show that more serious violations (such as consciously ignoring or deliberately concealing prohibited transactions in order to evade US sanctions), generally call for larger financial penalties and more extensive remedial measures for a settlement to be reached. Some of these settlement agreements are subject to court approval. As discussed concerning the Fokker Services action above, the extent of remediation in a regulatory settlement relative to the severity of the government's allegations might impact whether a court will approve the terms of the agreement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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