ARTICLE
27 March 2024

Swiss Finance Company To Pay Almost $4 Million For Sanctions Violations

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Bass, Berry & Sims

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Bass, Berry & Sims is a national law firm with nearly 350 attorneys dedicated to delivering exceptional service to numerous publicly traded companies and Fortune 500 businesses in significant litigation and investigations, complex business transactions, and international regulatory matters. For more than 100 years, our people have served as true partners to clients, working seamlessly across substantive practice disciplines, industries and geographies to deliver highly-effective legal advice and innovative, business-focused solutions. For more information, visit www.bassberry.com.
On March 14, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) announced that EFG International AG (EFG), a Switzerland-based bank, had agreed to pay roughly $3.74 million...
United States Finance and Banking
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On March 14, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) announced that EFG International AG (EFG), a Switzerland-based bank, had agreed to pay roughly $3.74 million to settle allegations that it had violated multiple U.S. sanctions regimes.

OFAC is the main U.S. government agency responsible for administering and enforcing U.S. economic sanctions.

According to OFAC, between 2014 and 2018, EFG caused U.S. firms to process 727 transactions on behalf of Cuban customers, 141 transactions for an individual designated as a narcotics kingpin, and five transactions for a person blocked under U.S. sanctions on Russia. Taken together, the value of these 873 transactions amounted to more than $30 million. The settlement provides a valuable reminder to U.S. and non-U.S. actors, especially in the financial services industry, about the long arm of U.S. sanctions jurisdiction.

EFG Provides Financial Services Around the World – Including to Persons Subject to U.S. Sanctions

Both on its own and through subsidiaries, EFG provides asset management and other financial services, such as investment advice and securities brokering for customers around the world. In some cases, this involves the purchase and sale of securities. Because it is not a U.S. company, EFG is not itself subject to U.S. sanctions. (EFG does have a U.S. subsidiary that is directly subject to U.S. sanctions, as is any U.S. individual employee of EFG, regardless of where located.)

However, because EFG apparently processed transactions through U.S. custodians and other U.S. market participants and the proceeds of transactions were held in U.S. omnibus accounts, EFG's conduct was subject to U.S. sanctions to the extent that the conduct caused U.S. parties to act in contravention of U.S. sanctions. It appears that U.S. parties were unaware of ultimate customers in many cases because transactions were conducted or proceeds were held in the name of EFG itself rather than in the name of individual EFG customers. Thus, U.S. parties were unable to screen ultimate customers.

In announcing the settlement, OFAC indicated that screening was the responsibility of EFG, which, to be fair, apparently did conduct screening in some instances. For example, with respect to transactions involving the designated narcotics trafficker and the designated Russian party, EFG imposed internal restrictions but failed to notify U.S. custodians that accounts of these designated parties were among the omnibus accounts the U.S. custodians held. U.S. custodians thus unknowingly continued to process transactions for the benefit of these prohibited parties.

$3.74 Million Fine Reflects Mitigating Factors

EFG agreed to pay $3,740,442 to settle the investigation—much less than the statutory maximum civil monetary penalty of over $275 million.

This was in large part based on mitigating factors that OFAC highlighted, including that EFG voluntarily disclosed the violations to OFAC, provided substantial cooperation in OFAC's review of the matter, and committed to implement significant remedial measures. In fact, OFAC agreed to suspend $1 million of the fine pending completion of certain compliance commitments.

Importance of Recognizing When U.S. Sanctions Apply

This settlement is yet another example of OFAC taking enforcement action against a non-U.S. financial institution. (This is unlikely to stop, as evidenced by a Tri-Seal Compliance Note entitled "Obligations of foreign-based persons to comply with U.S. sanctions and export control laws" that was issued earlier this month by OFAC, the Justice Department, and the Commerce Department.) While the penalty is being paid by EFG, it was U.S. parties that actually transacted with sanctioned parties at the instruction of EFG. It is not clear that any of these parties will themselves be subject to enforcement action.

Nonetheless, the matter is a good reminder of the importance for U.S. actors of ensuring their non-U.S. business partners are complying with sanctions. A U.S. bank or other financial institution that provides services to a non-U.S. business partner needs to confirm that it is not indirectly committing or causing a sanctions violation. While there is no way to prove a negative, it is important to get appropriate comfort from each non-U.S. partner that it has robust screening and other sanctions processes in place. Among other things, if ultimate customer names will not be made available, U.S. actors should request certification that screening has occurred and that no prohibited parties were identified.

One other note: The OFAC press release includes a paragraph about the whistleblower hotline maintained by the Financial Crimes Enforcement Network (FinCEN). As stated in the press release, FinCEN offers monetary awards to anyone who provides information that leads to a successful enforcement action. While the whistleblower initiative was signaled by the FinCEN Director in October 2023, to our knowledge this is the first time it has appeared in an OFAC Enforcement Release.

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.

ARTICLE
27 March 2024

Swiss Finance Company To Pay Almost $4 Million For Sanctions Violations

United States Finance and Banking

Contributor

Bass, Berry & Sims is a national law firm with nearly 350 attorneys dedicated to delivering exceptional service to numerous publicly traded companies and Fortune 500 businesses in significant litigation and investigations, complex business transactions, and international regulatory matters. For more than 100 years, our people have served as true partners to clients, working seamlessly across substantive practice disciplines, industries and geographies to deliver highly-effective legal advice and innovative, business-focused solutions. For more information, visit www.bassberry.com.
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