On June 12th, the largest settlement was made between a bank and authorities over a clear violation of U.S. economic sanctions. ING Bank is paying a record $619 million dollar settlement after a joint investigation between the Department of Justice (DOJ) and the Manhattan District Attorney’s Office (DA) identified the bank moving billions of dollars through the U.S. financial system on behalf of Cuban and Iranian clients.
In a deferred prosecution agreement (DPA), ING admitted that on nearly 20,000 occasions between the early 1990s and 2007, it systematically violated both New York State and U.S. law by intentionally manipulating financial and trade transactions to remove references to Iran and Cuba. This is a practice that is more commonly referred to as “stripping.”
According to the DPA, ING’s conduct caused U.S. correspondent banks to process transactions that their OFAC filters would have otherwise caught and either blocked or rejected. The conduct happened at ING bank locations around the world, with the knowledge, approval and encouragement of senior corporate managers and legal and compliance departments.
The ING case is a clear illustration of something that OFAC/AML compliance officers need to heed: these types of investigations remain on the forefront of state and federal prosecutors’ offices.
The Manhattan DA and the DOJ have secured 1.8 billion dollars in settlements on stripping cases since 2009. These prosecutions have resulted in DPAs with Barclays (a $298 million penalty in 2010), Credit Suisse (a $536 million penalty in 2009) and Lloyds Bank (a $350 million penalty in 2009).
The government is not going to rest on its laurels. And the trend suggests, these types of prosecutions will only increase. It is not uncommon for a prosecutor’s investigation of one bank—foreign or domestic—to generate evidence that leads to opening an investigation into another bank. Although it was determined in the above cases that the U.S. correspondent banks were unaware of the criminal activity, problems could arise if prosecutors discover that a given correspondent bank did not have an adequate filter system or training program in place.
Furthermore, OFAC has demonstrated that it is widening its net from banks to others in the financial services arena. Just weeks ago, on May 21st, OFAC reached a $25 million dollar settlement with Genesis Asset Managers, LLP (“GAM”) for GAM’s alleged violation of the U.S sanctions against Iran in August 2007. This was the first case involving an investment fund and manager. It is doubtful that it will be the last.
Whether you are a financial institution or an investment fund, the above cases underscore the importance of understanding your OFAC requirements and having a sound OFAC compliance program. Sanctions violations, whether intended or unintended, can expose your organization to large civil fines, criminal prosecution and reputational damage.
K2 has the expertise and the technology to provide comprehensive products and services tailored to your specific institution. These include: designing a sanctions program that establishes appropriate filtering parameters and developing investigative protocols to clear or escalate potential OFAC violations; assistance with vendor selection; and independently investigating historical transactions to ascertain whether they violated OFAC requirements. K2 can work with your team to mitigate these risks.