Category Archives: Settlements

04.28.15
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OFAC Enforcement Action: First Data Resources, LLC fined $23,336

First Data provided third party data processing services to a SDNT (Specially Designated Narcotics Trafficker), with a total value of $69,144. Since the violations were voluntarily self-disclosed and were non-egregious, the base penalty was cut in half to $34,572.

So, why did First Data pay about 2/3 of the base penalty?

    • First Data failed to exercise a minimal degree of caution or care in
      reviewing the information flagged by its interdiction software;
    • First Data had reason to know that
      it was providing services to an SDNT as early as February 25, 2011, the date on which First
      Data’s automated interdiction software flagged the SDNT as a potential match;
    • The alleged
      violations caused significant harm to U.S. sanctions program objectives by conveying economic
      benefit to an SDNT and undermining the policy objectives of U.S. counternarcotics sanctions;
    • First Data is a highly sophisticated commercial entity;
    • First Data has no prior sanctions history in
      the five years preceding the date of the earliest transaction giving rise to the alleged violations;
    • The majority of the alleged violations occurred due to a deficiency in First Data’s OFAC
      compliance program that incorrectly categorized potential matches to OFAC’s List of Specially
      Designated Nationals and Blocked Persons (the “SDN List”), and the remainder of the alleged
      violations occurred due to a deficiency in First Data’s OFAC compliance program that allowed
      its client to reactivate the SDNT’s access to First Data services even after First Data deactivated
      the SDNT’s access in order to comply with OFAC regulations;
    • First Data took remedial action to
      correct the deficiency in its categorization of potential matches to the SDN List; and
    • First Data
      cooperated with OFAC during OFAC’s investigation of the alleged violations.

So, to sum it up, First Data was a little sloppy, and their program had some holes in it – but they were not willful, and that saved them from a much larger fine had it been judged to be egregious. Considering the statutory maximum for the narcotics programs can be as high as $1,075,000 per transaction, that’s a pretty big deal.

Link:

OFAC Enforcement Information

 

03.16.15
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The New Math: Multi-agency enforcement actions against Commerzbank AG

Everyone gets a piece of the pie here – the NY Department of Financial Services gets $610 million, OFAC’s official fine is in excess of $250 million (but is deemed paid on the basis of the lesser amount paid to the Department of Justice). All told, it’s another mega-fine of $1.45 billion dollars for conduct breaching the Iran, Weapons of Mass Destruction, Sudan, Burma and Cuba sanctions programs from 2002 until 2010.

Here is how OFAC saw matters in knocking down the penalty from a base of over $574 million:

The following were found to be aggravating factors:

  • At a minimum,Commerzbank acted with reckless disregard for U.S. sanctions requirements in processingtransactions in apparent violation of OFAC sanctions regulations;
  • management at Commerzbankknew or had reason to know of the conduct leading to certain of the apparent violations;
  • theconduct described above conferred significant economic benefit to persons subject to U.S.sanctions and undermined the integrity of multiple U.S. sanctions programs;
  • Commerzbank is alarge, commercially sophisticated financial institution; and
  • Commerzbank did not maintainadequate policies or procedures to ensure compliance with the sanctions programs administeredby OFAC.

Mitigation was extended because

  • Commerzbank has not received a penalty notice orFinding of Violation from OFAC in the five years preceding the date of the earliest transactiongiving rise to the apparent violations;
  • Commerzbank cooperated with OFAC’s investigation ofthe apparent violations by engaging in an extensive internal investigation, by responding forrequests for information, and by executing a statute of limitations tolling agreement withmultiple extensions; and
  • Commerzbank took remedial action in response to the apparentviolations described above.

The NY DFS was also able to extract, in return for settling the charges, the termination of multiple employees and the installation of an independent monitor at Commerzbank.

Links:

OFAC Notice

OFAC Enforcement Action

Treasury Department Settlement

Treasury Department Press Release

NY DFS Press Release

 

11.25.14
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OFAC Enforcement Action: ESCO pays $2,057,540 to OFAC for Cuban Sanctions Violations

ESCO Corporation, an Oregon company, settled allegations that it violated Cuban sanctions regulations between November 2007 and June 2011 when its subsidiary purchased products with nickel of Cuban origin.

The total amount of the transactions was $6,188,149 and the base penalty for the voluntarily self-disclosed, non-egregious violations was $3,048,208.

And here's why the penalty was reduced by less than 1/3 – according to the OFAC enforcement information:

OFAC considered the following to be aggravating factors:

  • ESCO actedwith reckless disregard for Cuba sanctions program by failing to identify, despite the presence ofcontemporaneous “red flags” in the public domain, that the nickel briquettes were made orderived from Cuban-origin nickel;
  • ESCO caused significant harm to the Cuba sanctions programand its policy objectives by conducting large-volume and high-value transactions in productsmade or derived from Cuban-origin nickel, which were ultimately sourced from SpeciallyDesignated Nationals; and
  • ESCO is a commercially sophisticated company with internationaloperations.

OFAC considered the following to be mitigating factors:

  • ESCO has not received apenalty notice or Finding of Violation from OFAC in the five years preceding the date of the firsttransaction giving rise to the apparent violations;
  • ESCO has enhanced its OFAC compliance planand conducted a thorough look-back; and
  • ESCO cooperated with OFAC’s investigation,including by executing and extending a statute of limitations tolling agreement.

So, even though the violations were non-agregious, they did “significant harm” to Cuban sanctions enforcement, and the firm's commercial sophistication means they should have spotted the red flags. Thus, not much of a discount beyond the 25% “first timer” one.

Link:

OFAC Enforcement Info

 

 

11.20.14
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BTMU fined – again – by NY DFS

This fine of $315 million is on top of the $250 million previously agreed to, and is a result of BTMU (Bank Tokyo-Mitsubishi UFJ Group) pressuring Price Waterhouse Coopers (PwC) to remove elements from its prior attestation to NY State that would have cast a dimmer view on its behavior.

In addition, the NY Department of Financial Services (DFS) insisted that one employee be fired and that he, and two others working elsewhere in BTMU, be barred from further involvement in the affairs of the NY branch. The hiring of an indepdendent consultant to conduct a program review through March 2015 (with a possible extension of up to September 2016) was also mandated, as was the relocation of the compliance functions to NY.

As the NY DFS doesn't provide any automated way to get its releases, I'm indebted to the FCPA Blog's story on this matter – link below.

Additionally, I've included links to the settlement and BTMU's statement in response to the settlement.

Word to the wise – like the credo for doctors: first do no harm. How much cheaper would it have been for BTMU to fess up in the first place? Much.

Links:

FCPA Blog story

Settlement between NY DFS and BTMU

BTMU Statement

 

11.10.14
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Indam In Hot Water with OFAC

Indam International agreed to pay $44,850 to settle 9 apparent violations of exporting or trying to export goods valued at $27,846 to the UAE that were ultimately intended for Iran. The violations occured between July 2006 and October 2008.

While the violations were not voluntarily self-disclosed, they were non-egregious. The base penalty for all the violations was $69,000.

Here is OFAC's explanation of the factors it considered:

OFAC considered the following to be aggravating factors:

  • Indamdemonstrated reckless disregard for U.S. sanctions requirements by failing to conduct duediligence to determine the end users of its products and thereby avoid the conduct that led to theapparent violations;
  • Indam was aware in 2008 that exporting goods for use on a rig in Iranianwaters constituted a violation of the ITSR because U.S. Customs and Border Protection (CBP)had seized an Indam shipment destined for a drilling rig located in Iranian waters in July 2006;
  • Indam’s management at least had reason to know of the subject transactions, given their apparentdirect involvement in the shipments;
  • the apparent violations aided, or would have aided, theIranian petroleum industry, resulting in actual or potential harm to the sanctions programobjectives; and
  • Indam did not implement appropriate policies and procedures to ensurecompliance with U.S. sanctions laws prior to engaging in the apparent violations.

OFACconsidered the following to be mitigating factors:

  • Indam did not appear to have actual knowledgethat the drilling rigs were destined for or located in Iranian waters at the time of the subjecttransactions (although Indam had reason to know these facts, because the facts were publicly andreadily available before and at the time of the apparent violations);
  • the harm to sanctionsprogram objectives was minimized because CBP detained in the United States five of the nine shipments, accounting for approximately 60 percent of the transactional value of the apparentviolations;
  • Indam is a small business;
  • Indam has not received a penalty notice or Finding ofViolation from OFAC in the five years preceding the date of the first transaction giving rise tothe apparent violations;
  • Indam took remedial measures by adopting internal controls andprocedures to prevent a recurrence of the apparent violations;
  • Indam cooperated with OFAC,including by agreeing to toll the statute of limitations; and
  • Indam forfeited the goods involved inat least four of the nine apparent violations to CBP.

Link:

OFAC Enforcement Information

 

 

11.04.14
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Even Obamacare doesn’t cover SDNs: Bupa Florida pays $128,704

OFAC and Bupa Florida agreed to a fine of $128,704 to settle liabilities for 39 apparent violations of the anti-narcotics sanctions programs and Cuba Asset Control Regulations (CACR) between March 2008 and March 2011. They offered “insurance support services for healthcare policies” for people sanctioned under the two anti-narcotics sanctions regulations, as well as reimbursing claims for medical treatment in Cuba.

The base penalties for these self-reported, non-egregious violations was only $95,337 (total transaction value was a touch over $190,000) – so why was the final amount so high? Let OFAC tell you:

OFAC found the following to be aggravating factors in this case:

  • BupaFlorida acted with reckless disregard for U.S. sanctions requirements and failed to exercise aminimum degree of caution or care to avoid the conduct that led to the apparent violations;
  • BupaFlorida had actual knowledge or reason to know that the policyholders it insured (andbeneficiaries of claims it serviced) were SDNTs or SDNTKs;
  • Bupa Florida’s conduct resulted inharm to U.S. sanctions program objectives; and
  • Bupa Florida does not appear to have had anOFAC compliance program at the time the apparent violations occurred.

OFAC considered thefollowing to be mitigating factors:

  • Bupa Florida has not received a penalty notice or Finding ofViolation in the five years preceding the earliest date of the transactions giving rise to theapparent violations;
  • Bupa Florida has taken steps to implement more effective controls andprocedures as its remedial response to the apparent violations; and
  • Bupa Florida substantiallycooperated with OFAC’s investigation by submitting the relevant documents and information ina clear and organized fashion, and by executing and then extending a statute of limitations tollingagreement.

Links:

OFAC Enforcement Information

 

 

09.10.14
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OFAC Enforcement Action: Zulutrade fined $200,000

As part of a broader settlement (the CFTC also gets a taste), Zulutrade, Inc. agreed to a civil monetary penalty of $200,000 for violations of Sudanese, Iranian and Syrian sanctions programs.

Zulutrade permitted nationals from all 3 countries to place foreign exchange trades via its trading platform. In addition, eight funds transfers for $10,264.36 for two Iranian individuals were originated by the company.

The violations were not voluntarily self-disclosed, as the company apparently was unaware of its sanctions compliance requirements. Despite the very large base penalty ($844,090,000), this constituted a non-egregious case.

How do you get from $844,090,000 to $200,000? Here’s how (reformatting mine):

OFAC considered the following to be aggravating factors:

  • Zulutrade acted recklessly in maintaining accounts for, and placing FX trades on behalf of, persons subject
    to U.S. sanctions without undertaking any measures to comply with OFAC regulations;
  • Zulutrade, including its senior management, had reason to know of the conduct that led to the
    apparent violations;
  • Zulutrade’s actions caused harm to U.S. sanctions program objectives; and
  • Zulutrade did not have an OFAC compliance program in place at the time of the apparent
    violations.

OFAC considered the following to be mitigating factors:

  • Zulutrade is a small
    company with limited business operations;
  • Zulutrade has taken remedial action in response to the
    apparent violations;
  • Zulutrade has not received a penalty notice or Finding of Violation in the
    five years preceding the earliest date of the transactions giving rise to the apparent violations;
    and
  • Zulutrade substantially cooperated with OFAC’s investigation.

Links:

OFAC Enforcement Information