Vital Trends and Lessons from OFAC Enforcement Cases. All rights reserved SanctionsAlert.com

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1 Vital Trends and Lessons from OFAC Enforcement Cases All rights reserved SanctionsAlert.com

2 Saskia Rietbroek 2 Principal, SanctionsAlert.com Partner, NoMoneylaundering.com Original Executive Director, ACAMS (Global Headquarters) sr@sanctionsalert.com 22

3 Welcome! 3 Independent source of knowledge delivering vital sanctions compliance training worldwide Live Webinars: Nov 10: OFAC s Sibling: The Commerce Department s Bureau of Industry and Security and How Its Regulatory and Criminal Powers Are Applied (FREE) Dec 1: Compliance Processes and Procedures That May Help Reduce Sanctions Problems Jan. 11: What Bank Examiners Look For in OFAC Compliance Examinations Feb. 9: CDD 3.0: KYC To Unveil Sanctioned Parties and Hidden UBOs 33

4 Agenda 4 OFAC enforcement action database project Major trends Hunting big game Case studies

5 SanctionsAlert.com OFAC Enforcement Actions Database Project 5

6 SanctionsAlert.com OFAC Enforcement Action Project 6 Data collected in the SanctionsAlert.com OFAC Enforcement Action Database Project Focus on data from US Treasury s OFAC

7 SanctionsAlert.com OFAC Enforcement Action Project 7 All penalty figures were converted to real 2015 USD values Data analyzed focuses on specific OFAC penalties, which may undercount or not capture other penalties against violators, especially in serious violations

8 SanctionsAlert.com Database Reveils: 913 cases since 2003 Feb against widely diverse businesses for a total penalties of $4.2B Average of 5.9 cases per month Average penalty $4.6M Only 6 cases not accompanied by monetary penalty Highest penalty BNP Paribas SA in 2014 with $963M (OFAC portion only) 8

9 9 Major Trends in U.S. Economic Sanctions Enforcement Analysis and charts by Dr. Bryan Early, based on SanctionsAlert.com database of OFAC enforcement penalties

10 Frequency of Enforcement Actions: Corporate Entities 10 The number of annual OFAC enforcement actions against corporate entities has declined substantially from the early years of the Bush Administration OFAC Enforcement Cases Against Entities by Year Bush Administration Obama Administration

11 Frequency of Enforcement Actions: Individuals 11 OFAC initiated many enforcement actions against individuals early in the Bush Administration Virtually ceased in the 200 Obama Administration OFAC Enforcement Cases against Individuals, by Year Bush Administration Obama Administration

12 Number of Enforcement Actions OFAC Enforcement Actions in Bush and Obama Administrations, by Country Sanctions Program 12 Number of OFAC Enforcement Actions by Sanctions Program Burma Cuba Former Yugoslavia Sanctions Program Iran Iraq Sudan Bush Administration Obama Administration

13 Trends in OFAC Settlements and Penalties Against Corporate Entities 13 $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 Average Yearly Penalty/Settlement Amounts for Entities in 2015 U.S. Dollars $0 $1,200,000,000 $1,000,000,000 $800,000,000 $600,000,000 $400,000,000 $200,000,000 Maximum Yearly Penalty/Settlement Amounts for Entities in 2015 USD $0 Credit Suisse ING Bank N.V. BNP Paribas

14 Major OFAC Enforcement Targets, by Administration and Sector 14 Industries Targeted by OFAC with the Most Enforcement Actions by Administration Bush Administration Obama Administration

15 Enforcing Sanctions against Iran 15 Number of OFAC Iran-Related Enforcement Actions Against Entities, Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) Passed on July 1,

16 Iran Sanctions: Stronger Penalties Under Obama 16 Obama: Fewer enforcement actions, but stronger penalties Average Financial Sector Penalty: $116 million Average Iran-Related Penalty/Settlement Amounts for Entities in 2015 USD by Administration Average Non-Financial Sector Penalty: $3.86 million $50,000,000 $40,000,000 $41,400,000 This was augmented by Treasury s use of other weapons, such as Section 311 of the USA Patriot Act and Executive Order $30,000,000 $20,000,000 $10,000,000 $0 Bush $391,673 Obama

17 Conclusions Major Trends 17 Data suggests Bush Administration pursued more cases, but imposed smaller penalties Enforcement strategy of Obama Administration focuses on pursuing smaller number of high-profile cases that produce very large fines FFIs have been most frequent targets and have suffered largest penalties US Iran sanctions still heavily enforced

18 Hunting Big Game 18

19 Bush Administration Went Fishing; Obama Administration Goes Whale Hunting 19 Obama Administration pursues fewer targets, but assesses larger penalties and settlements in its cases Average Penalty / Settlement Amount in 2015 USD $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Bush Administration Obama Administration

20 OFAC Penalties Against Financial Industry Compared to Other Sectors 20 In the Bush Administration, OFAC penalties against financial sector were 8 times larger than other sectors $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 Average Penalty/Settlement Amounts for Entities in 2015 USD $72.1 million In the Obama Administration, OFAC penalties against financial sector are 32 times larger than other sectors $30,000,000 $20,000,000 $10,000,000 $0 $39,274 $317,069 $2.32 million Other Sectors Financial Services Other Sectors Financial Services Bush Bush Obama Obama

21 OFAC s Largest Penalties All Targeted the Financial Sector during the Obama Administration 21 Top Ten OFAC Penalties / Settlements, Entity Name Year Country Amount (2015 USD) BNP Paribas SA 2014 France $973,000,000 ING Bank N.V Netherlands $644,000,000 Credit Suisse AG 2009 Switzerland $600,000,000 HSBC Holdings plc 2012 United Kingdom $390,000,000 Credit Agricole Corporate and Investment Bank 2015 France $330,000,000 Commerzbank AG 2015 Germany $259,000,000 Lloyds TSB Bank, plc 2009 United Kingdom $243,000,000 Barclays Bank PLC 2010 United Kingdom $192,000,000 Clearstream Banking S.A Luxembourg $153,000,000 Standard Chartered Bank 2012 United Kingdom $137,000,000

22 Conclusions 22 Large companies, especially those in financial sector (but not only those!), are most likely OFAC targets Individuals are not targeted by OFAC any longer and minor infractions do not receive the attention they once did Failure to comply with U.S. sanctions can have serious consequences for businesses, but OFAC appears to be primarily interested in hunting big game

23 Case Studies 23

24 Case Study 1: Clearstream Banking S.A. 24 Luxembourg financial institution Paid $152M OFAC penalty in 2014 Violated Iranian Transactions and Sanctions Regulations, 31 CFR Part 560 No voluntary disclosure, OFAC said Internal accounting hid sanctioned entity

25 2007/2008: Hidden Iranian Owner 25 U.S. Financial institution Omnibus account Clearstream Luxembourg Central Bank of Iran Omnibus account at U.S. Financial Institution 26 bonds Beneficial owner: Central Bank of Iran Value: $2.8 Billion.

26 Meeting with OFAC /2008: Meeting of OFAC and Clearstream officials Discussed Clearstream business with Iran clients and implementing decision to terminate this business

27 What Happened? 27 U.S. Financial institution Omnibus account Clearstream Luxembourg EU Bank Account Central Bank of Iran Use of internal accounting entries to bury CBI s interest At least one supervisor and one senior executive knew or should have known Ultimate place of custody for securities with CBI s interest remained in US

28 Case Study 2: Commerzbank AG 28 German financial institution Paid $258,660,796 settlement on March 12, 2015 Stripping: Deleted or omitted references to sanctioned entities No voluntary disclosure Global settlement among Commerzbank, OFAC, U.S. Justice Department, New York County District Attorney s Office, Federal Reserve Board, New York Department of Financial Services

29 What Happened? 29 Commerzbank AG NY Branch Correspondent account Commerzbank AG Germany Special purpose entities Iran, Sudan clients Use of non-transparent method of payment messages Safe payment solution : Use of special purpose entities to conceal sanctioned entities Use of checks that listed only the Iranian bank s address in London

30 History of OFAC Violations Commerzbank AG 30 Date Voluntarily disclosed? Program violated 2004 Yes Sudan $5,500 Penalty/Settle ment 2011 No Cuba $175, No Iran, Sudan, Proliferation, Burma, Cuba $258,660,796

31 Lessons CommerzBank Case 31 Stripping case, use of non-transparent methods Multiple program violations Involvement other government agencies Importance of due diligence of affiliated respondent banks Factors determining settlement amount

32 Case Study 3: Barclays Bank Plc 32 UK Financial institution $2.4M OFAC settlement in 2016 Violated Zimbabwe Sanctions Regulations, 31 CFR Part 541 (prohibits transactions involving blocked property) Not disclosed voluntarily to OFAC First 50% rule penalty Held liable for violations that resulted from inadequate sanctions screening

33 What Happened? 33 Sanctions Screening Barclays UK Barclays NY and other US FIs US bank blocks US$ transactions KYC? Barclays Bank of Zimbabwe, Ltd UBO =IDCZ Corporate customers IDCZ Listed Little UBO info available Barclays ZB identified IDCZ as UBO (on paper) Barclays NY starts investigations Revised Guidance OFAC on 50% Rule Settlement

34 50% Rule Industrial Development Corporation of Zimbabwe (IDCZ): Designated pursuant to EO on July 25, 2008 All property IDCZ owned 50 % or more: also blocked. Although not specifically listed, these entities are blocked as a matter of law UBO =IDCZ 3 Corporate customers Barclays Bank of Zimbabwe Listed Not listed 34

35 Lessons Barclays Case 35 Highlights fundamental CDD/KYC aspect of sanctions compliance, which requires assessments beyond screening against lists Be aware of customer relationship with entities that are not listed, but blocked as a matter of law; Failure to act on records that demonstrate ownership by a blocked person

36 What You Learned 36 Trends, patterns and lessons from OFAC enforcement cases Current enforcement strategy pursues fewer cases but which produce larger penalties FFIs have most often been targeted and faced the largest penalties in recent years Sanctions compliance failures at FFI that incensed the government

37 37 Saskia Rietbroek, CAMS Tel US: Tel Europe: