Breaking: Standard Chartered Bank settles yet another set of sanctions violations

OFAC Notice:

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Standard Chartered Bank

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced a $639,023,750 settlement with Standard Chartered Bank (“SCB” or the “Bank”), a financial institution headquartered in the United Kingdom.  The bank has agreed to settle its potential civil liability for apparent violations of the now-repealed Burmese Sanctions Regulations (BSR); the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR); the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (ITSR); the now-repealed Sudanese Sanctions Regulations; and the Syrian Sanctions Regulations, 31 C.F.R. Part 542 (SySR), or Executive Order 13582 of August 17, 2011, “Blocking Property of the Government of Syria and Prohibiting Certain Transactions With Respect to Syria” (E.O. 13582). 

From June 2009 until June 2014, SCB processed 9,335 transactions totaling $437,553,380 that were processed to or through the United States. All of these transactions involved persons or countries subject to comprehensive sanctions programs administered by OFAC. The majority of the conduct concerns Iran-related accounts maintained by SCB’s Dubai, UAE branches (“SCB Dubai”), including accounts at SCB Dubai held for a number of general trading companies, and a petrochemical company. SCB Dubai processed USD transactions to or through SCB’s branch office in New York (“SCB NY”) or other U.S. financial institutions on behalf of customers that sent payment instructions to SCB Dubai while physically located or ordinarily resident in Iran. OFAC determined that the Bank did not voluntarily self-disclose the apparent violations, and the apparent violations constitute an egregious case.  

Separately, the bank has agreed to settle its potential civil liability for apparent violations of the Zimbabwe Sanctions Regulations (ZSR). The bank has agreed to remit $18,016,283.  All of the transactions giving rise to the Zimbabwe-Related Apparent Violations involved persons identified on OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”) or parties that were owned 50 percent or more, directly or indirectly, by persons on the SDN List at the time the transactions occurred. The designated and/or blocked persons maintained account relationships with SCB’s affiliate in Zimbabwe (“SCBZ”), and engaged in funds transfer or debit/credit card transactions whose net settlement transfers were sent to, and processed by SCB NY or other U.S. financial institutions. SCB NY processed 1,795 transactions totaling $76,795,414, for or on behalf, or that otherwise contained a property interest, of those sanctioned entities.

OFAC determined that SCB voluntarily self-disclosed the Zimbabwe-Related Apparent Violations and that the Zimbabwe-Related Apparent Violations constitute a non-egregious case.

Treasury Press Release:

U.S. Treasury Department Announces Settlement with Standard Chartered Bank

Treasury Settlement Part of Combined $1.1 Billion Settlement for Bank’s Apparent Violations of Multiple Sanctions Programs

WASHINGTON – As part of a combined $1.1 billion settlement with federal, state, local, and United Kingdom government partners, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced a $639 million agreement with Standard Chartered Bank (SCB) to settle its potential civil liability for apparent violations of U.S. economic sanctions.  Today’s settlement resolves OFAC’s investigation into apparent violations of a number of U.S sanctions programs, including those relating to Burma, Cuba, Iran, Sudan, and Syria.  OFAC is also settling a separate case involving apparent violations by SCB of sanctions related to Zimbabwe.

From June 2009 until May 2014, SCB processed 9,335 transactions totaling $437,553,380 that were processed to or through the United States.  All of these transactions involved persons or countries subject to comprehensive sanctions programs administered by OFAC (including Burma, Cuba, Iran, Sudan, and Syria).  The majority of the conduct concerns Iran-related accounts maintained by SCB’s Dubai, UAE branches (“SCB Dubai”), including accounts at SCB Dubai, held for a number of general trading companies and a petrochemical company.  SCB Dubai processed USD transactions to or through SCB’s branch office in New York or other U.S. financial institutions on behalf of customers that sent payment instructions to SCB Dubai while physically located or ordinarily resident in Iran.  SCB also processed online banking instructions for residents of comprehensively sanctioned countries.

These actions constitute apparent violations of the now-repealed Burmese Sanctions Regulations; the Cuban Assets Control Regulations, 31 C.F.R. Part 515; the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560; the now-repealed Sudanese Sanctions Regulations; and the Syrian Sanctions Regulations, 31 C.F.R. Part 542, or Executive Order 13582 of August 17, 2011, “Blocking Property of the Government of Syria and Prohibiting Certain Transactions With Respect to Syria.”

Under the settlement agreement, SCB has agreed to sustain its commitment to implementing robust compliance procedures by ensuring that it has a management team in place that: (1) is committed to a culture of compliance; (2) conducts regular risk assessments; (3) ensures that its internal controls appropriately mitigate the entity’s sanctions-related risks; (4) conducts regularized audits; and (5) provides ongoing sanctions compliance training throughout SCB.

OFAC worked closely and collaboratively with its counterparts at other government agencies in the investigation of this matter. ​ Today’s settlement is simultaneous with SCB’s settlements with the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S. Department of Justice, Criminal Division, Money Laundering and Asset Recovery Section, the U.S. Attorney’s Office for the District of Columbia, the New York County District Attorney’s Office, the New York State Department of Financial Services, and the United Kingdom’s Financial Conduct Authority.  

SCB’s $639 million settlement with OFAC will be deemed satisfied by the bank’s payment of a forfeiture and fine to the Department of Justice and fine to the Federal Reserve Board of Governors for the same pattern of conduct.

Separately, between May 2009 and July 2013, SCB Zimbabwe processed transactions to or through the United States involving Zimbabwe-related Specially Designated Nationals (SDNs) or entities owned 50 percent or more, individually or in the aggregate, by one or more Zimbabwe-related SDNs.  These transactions constituted apparent violations of the Zimbabwe Sanctions Regulations, 31 C.F.R. Part 541.  SCB will remit $18,016,283 to OFAC to settle civil liability relating to the apparent violations of the ZSR.

It’s important to note that the non-Zimbabwe part of this fine was for egregious conduct, which was not voluntarily self-disclosed. They were previously fined $132 million by OFAC in late 2012 (as part of a larger multi-agency settlement).

BTW, here is OFAC’s math, which reduced their penalty from the $2,715,100,479 base penalty amount (for the Global Settlement Apparent Violations):

OFAC found the following to be aggravating factors:

• At a minimum, SCB acted with reckless disregard and failed to exercise a minimal degree of caution or care with regard to the conduct that led to the Global Settlement Apparent Violations;

• SCB had actual knowledge and/or reason to know of the conduct at issue, and various supervisory and managerial personnel from multiple business lines, often including those with responsibility for financial crimes and sanctions compliance, were involved in discussions regarding specific customers or products and services that posed OFAC sanctions risks;

• The Global Settlement Apparent Violations resulted in significant harm to multiple economic sanctions programs, and provided dozens of companies subject to U.S. economic sanctions access to the U.S. financial system;

• SCB’s compliance program was inadequate to manage the bank’s risk and suffered from multiple systemic deficiencies, including failure to respond to warning signs in a timely and efficient manner; and

• SCB is a large, commercially sophisticated financial institution.

OFAC found the following to be mitigating factors:

• SCB provided OFAC with substantial cooperation throughout the course of its investigation, including by signing a tolling agreement and multiple extensions to the agreement, and submitting detailed, well-organized, and voluminous information and documents to OFAC throughout the course of the multi-year investigation;

• SCB has undertaken remedial efforts in order to curtail and inhibit similar apparent violations from occurring in the future;

• A small number of the Syria-related transactions occurred shortly after Executive Order 13582; and

• SCB had not received a penalty notice or Finding of Violation in the five years preceding the earliest date of the transactions giving rise to the Global Settlement Apparent Violations.

However, that last note is very deceiving – it says that SCB had not gotten in trouble from 2004 to 2009 – despite getting fined back in 2012, which was during the pattern of these violations.

It is interesting to note the much more severe accounting related to the Zimbabwean-related penalty:

OFAC found the following to be aggravating factors:

• Both SCB and SCBZ appear to have had actual knowledge regarding customer relationships that SCBZ maintained with persons identified on the SDN List over a period of several years;

• Components of SCB, including supervisory and managerial personnel in the Bank’s compliance unit, appear to have had actual knowledge of SCBZ’s exposure to OFAC- designated parties;

• The conduct resulted in significant harm to the sanctions program objectives embodied in the ZSR;

• SCB’s compliance program was inadequate to manage the Bank’s risk;

• SCB is a large, commercially sophisticated financial institution;

• SCBZ’s efforts to identify and “ring-fence” SDN customers were not sufficient to address the conduct leading to the Zimbabwe-Related Apparent Violations; and

• Multiple SCBZ personnel appear to have been unaware that the Bank’s customers (including those on the SDN List) could use their SCBZ-issued credit cards outside of Zimbabwe (including in the United States).

OFAC found the following to be a mitigating factor:

• SCB provided OFAC with cooperation including a statute of limitations tolling agreement.

Links:

OFAC Notice

Enforcement Information

Settlement Agreement

Treasury Press Release

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