Netherlands: Settlements In Brief: Clearstream And Bank Of Moscow Settle Iran Sanctions Offence

Cases on violations of US sanctions law are settled fairly regularly, and we often consider settlements as setting precedents. We provide a brief overview of the most important settlements every month. This month, we briefly discuss recent settlements reached in the US with Clearstream and Bank of Moscow for apparent violations of US sanctions against Iran.

Clearstream

Clearstream Banking SA of Luxembourg (Clearstream) agreed to pay USD 152 million to settle U.S. Treasury claims that it allowed Iran to evade US sanctions rules by providing access to the US banking system. According to the Treasury Department's Office of Foreign Assets Control (OFAC), Clearstream held an account at a US-based financial institution through which it enabled the Central Bank of Iran (CBI) to hold beneficial ownership interests in 26 securities. The securities had a nominal value of USD 2.8 billion.

Clearstream continued to hold the account even after informing US regulators in late 2007 and early 2008 that it had ended all of its business with Iranian clients. OFAC's enforcement information described that, according to the facts, Clearstream was well aware that CBI was the beneficial owner of the securities.

Although these are all aggravating factors, Clearstream's strong remedial response and substantial cooperation with OFAC were taken into account and were a major factor in OFAC's mitigation of the settlement amount. Clearstream has undertaken significant remedial action by enhancing its sanctions compliance policies and procedures to prevent a recurrence of the apparent violations.

Bank of Moscow

The Bank of Moscow agreed to pay USD 9.5 million over allegations that it handled money transfers with Bank Melli Iran ZAO (Melli), despite US sanctions. OFAC stated in an enforcement notice that the Bank of Moscow (formally known as the Joint-Stock Commercial Bank) sent 69 transfers totalling more than USD 41 million through the US between January 2008 and July 2009 on behalf of Melli, which was designated under US sanctions in October 2007.

According to OFAC, the Bank of Moscow failed to exercise an appropriate degree of caution or care in avoiding the conduct that led to the alleged violation and it resulted in significant harm to US sanctions program objectives. Also, the Bank of Moscow does not appear to have had adequate compliance policies or procedures in place at the time the alleged violations occurred.

One of the issues with the funds transfers, according to OFAC, stemmed from the payment messages the Bank of Moscow submitted to the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Those payment messages did not include any references to "Melli" or "Iran". Instead of using the SWIFT identification code for the Iranian bank, the Bank of Moscow used other abbreviations to identify Melli.

Mitigating factors for OFAC were that the Bank of Moscow took remedial actions to improve compliance with US sanctions laws and regulations. OFAC also took into consideration that the Bank of Moscow cooperated with OFAC's investigation by signing a statute of limitations tolling agreement.

According to OFAC, these enforcement actions highlight the particular sanctions risk faced by foreign financial institutions or other firms operating in the securities industry. These settlements should serve as "a clear alert to be vigilant with respect to dealings with sanctioned parties, and that omnibus and custody accounts require ensuring compliance with relevant sanctions law."

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