On Monday, OFAC agreed to a settlement with Barclays Bank for 159 violations of the Zimbabwe sanctions program. The amount of the settlement is rather prosaic for this day and age: $2,485,890. The conduct occured between 2008 and 2013 and the total amount of the violations only totaled $3,375,617, with a base penalty of $5,029,000 for non-voluntarily self-disclosed non-egregious violations.
But here’s the thing: the transactions were “ for or on behalf of corporate customers of Barclays Bank of Zimbabwe Limited that were owned 50 percent or more, directly or indirectly, by a person identified on OFAC’s List of Specially Designated Nationals and Blocked Persons.” And, in case it wasn’t crystal-clear, this section from the enforcement information makes the regulatory expectation plain (highlighting mine):
This settlement demonstrates that an enforcement response may be particularly appropriate, even when an individual or entity is not included on the SDN List, in response to apparent violations in which: (a) the apparent violator is an institution that maintains direct customer relationships for entities that are beneficially owned, directly or indirectly, 50 percent or more by one or more SDNs, and is processing or routing transactions to or through the United States on behalf of such customers; (b) the institution’s own records clearly demonstrate or otherwise clarify the SDN ownership of the customer, but the institution failed to act on the information; and/or (c) information concerning the SDN ownership of the customer is publicly available and allows intermediary banks to identify and block such transactions.
This enforcement action highlights the importance for institutions with operations in countries with a significant presence of persons (individuals and entities) on the SDN List to take appropriate measures to ensure compliance with U.S. economic sanctions when processing transactions for or on behalf of their customers to, through, or within the United States.
I’ll leave it to the readers to paw through the details of the violations. But, OFAC’s thinking about how the penalty amount was calculated is always interesting:
OFAC found the following to be aggravating factors in this case:
- although Barclays attempted to comply with OFAC sanctions despite various constraints imposed by the local Zimbabwean authorities, Barclays failed to implement adequate controls to prevent the apparent violations from occurring despite numerous warning signs that its conduct could lead to a violation of U.S. sanctions laws;
- multiple business lines and personnel within Barclays, including supervisory and management staff in the bank’s Compliance and Audit functions, had actual knowledge or reason to know of the conduct that led to the apparent violations (including the bank’s awareness of the limitations of the systems used by BBZ with respect to capturing full information concerning the beneficial ownership of certain of its corporate customers);
- Barclays processed 159 funds transfers totaling approximately $3,375,617 that conferred economic benefit to, and provided indirect access to the U.S. financial system for, blocked persons, causing harm to the Zimbabwe sanctions program and its associated policy objectives;
- Barclays is a large and commercially sophisticated international financial institution; and
- Barclays’ compliance program was inadequate to identify BBZ’s customers as blocked persons and/or prevent the apparent violations from occurring.
OFAC considered the following to be mitigating factors:
- Barclays 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;
- Barclays took remedial action in response to the apparent violations; and
- Barclays substantially cooperated with OFAC’s investigation by submitting detailed and organized information, and by executing a statute of limitations tolling agreement and an extension to the agreement.
OFAC also considered the fact that the prohibited entities were not publicly identified or designated and included on the SDN List at the time that Barclays processed transactions for or on their behalf.
Lastly, I want to point out that commercial vendors have done this research, which is a pretty massive effort, especially because of the need to look below 50% because of the aggregation aspect of the 50% Rule. While I have strayed away from promoting any products for the last 3 years, I will make an exception here. My employer, Dow Jones Risk and Compliance, has been doing this research for well over a year, starting with the Ukraine-related sanctions program. That program alone found on the order of 5100 entities (forget the exact figure) where there was board or voting control, or at least 10% ownership by someone formally listed on the SDN or Sectoral Sanction Identification List, or their EU equivalents – in over 80 countries. We are now approaching 7000 total entities across all sanctions programs, and we’re not done yet (but should be soon). Considering this enforcement action, finding a ready-made database of 50% Rule entities is more urgent than ever and, given the number of entities my firm has identified, probably not a research effort one should embark on themselves.