United States: Settlements In Brief: Notable US Settlements In November

Enforcement actions by criminal and supervisory authorities are settled regularly. In light of this, companies are advised to take appropriate measures. This month we highlight some notable settlements that were reached in the US in November. The Office of Foreign Assets Control announced a settlement with Banco do Brasil for violations of the US sanctions regime regarding Iran. The New York State Department of Financial Services settled with Deutsche Bank over several violations of the Banking Law between 1999 and 2006 related to transactions with entities subject to the US sanctions regime.

Enforcement actions by criminal and supervisory authorities are settled regularly. In light of this, companies are advised to take appropriate measures. This month we highlight some notable settlements that were reached in the US in November. The Office of Foreign Assets Control announced a settlement with Banco do Brasil for violations of the US sanctions regime regarding Iran. The New York State Department of Financial Services settled with Deutsche Bank over several violations of the Banking Law between 1999 and 2006 related to transactions with entities subject to the US sanctions regime.

Banco do Brasil settles with OFAC over Iran sanctions violations

The Office of Foreign Assets Control (OFAC) has announced that Banco do Brasil, S.A., New York Branch (BBNY) has agreed to pay USD 139,500 in a settlement regarding seven alleged violations of the Iranian Transactions and Sanctions Regulations.

On 7 June 2010, BBNY manually added Isfahan Internacional Importadora Ltda (Isfahan) – a customer of its Brazilian branch (BBB) – to its false hit list, after Isfahan verbally stated that it did not import or export products from Iran. BBNY had earlier received alerts from its OFAC interdiction software, since Isfahan is located in Iran. Between October 2010 and February 2011, BBNY processed three transfers from Isfahan's account at BBB. It later turned out that these partly constituted payments for Iranian-origin goods.

During October 2011, a similar transfer was processed by BBB. However, a separate US intermediary financial institution requested detailed information regarding this transfer. Based on an invoice of "poor quality" relating to this transfer, BBNY stated that the invoice did not reference Iran, but did not request a better copy or additional information from Isfahan. However, the financial institution did identify references to Iran on the invoice and rejected the transaction. Despite this rejection, three more funds were transferred by BBNY between 2011 and 2012.

According to OFAC, the settlement amount of USD 139,500 reflects that BBNY may not have been aware of the risks of having a false hit list that is not regularly reviewed and updated. OFAC furthermore listed the following aggravating factors:

  • There was a lack of a minimal degree of caution or care by employees with regard to the transfers, e.g. relying on the invoice of poor quality
  • (Compliance) personnel of BBNY "knew of the conduct that led to two of the apparent violations" and had reason to know that more transactions would follow
  • Four of the total seven transactions provided economic benefit to Iran and thus harmed the sanctions programme objectives.

OFAC also listed the following mitigating factors:

  • That BBNY had never received a penalty notice or Finding of Violation from OFAC
  • BBNY's adequate remedial actions
  • BBNY's cooperation with the OFAC's investigation.

Deutsche Bank settles with the New York State Department of Financial Services over sanctions violations

The New York State Department of Financial Services (NYDFS) announced a settlement with Deutsche Bank (DB) of USD 258 million over alleged Banking Law violations in connection to transactions with countries and entities under the US sanctions regime. Moreover, DB agreed to dismiss six employees, ban three employees from duties regarding the firm's US operations, and install an independent monitor.

From 1999 to 2006, DB employees according to NYDFS developed and employed several techniques to circumvent sanction-related controls on payments in order to facilitate these payments. One of these processes consisted of employees removing information from payment messages which indicated "a connection to a sanctioned entity." As a result, the payment messages did not lead to "red flags" in filtering systems. In another process, Message Type 103 serial payment messages were split into two message streams: one including all details and one without details concerning the underlying parties. The latter were sent to DB New York and no sanctions-related suspicions were raised as a result.

According to NYDFS, several actions also indicated that the employees were aware that they were violating the sanctions regime. For example, clients of DB were instructed to use special notes or code words in their payment messages, which would then receive special treatment by the bank before being sent to the US. Moreover, DB's payments processing staff was instructed to make sure that no information which could raise sanctions-related suspicions was sent to its US correspondents. In addition, a training manual for new employees stated that banks under embargo were not to be displayed in orders to DB New York; this way, the transfers would not be frozen, according to NYDFS.

Another relevant factor, according to NYDFS, was that the employees did not want the aforementioned conduct to be publicised. For example, an email related to several payments with Iranian and Syrian connections was to be kept on "a 'need-know' basis". Finally, the NYDFS found that these practices were widespread within DB: they were employed in different countries, different business divisions and by employees with varying levels of seniority.

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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