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Britain's Standard Chartered Bank will pay $340 million to settle claims that it laundered hundreds of billions of dollars in illegal foreign transactions for Iran and other parties.
August 14 -
As the HSBC hearings demonstrate, there's a growing expectation that individuals, not just institutions, will be held accountable. Recent enforcement actions also show a more risk-based, rather than rules-based, approach.
July 26 -
Compliance chiefs at other banks should roll video of a Senate panel's grilling of HSBC executives about anti-money-laundering failures when they want to demonstrate the consequences of mismanaging risk.
July 17 -
WASHINGTON — ING Bank has agreed to pay $619 million to settle charges that it violated U.S. sanctions — the largest such settlement in history, the Treasury Department said Tuesday.
June 12
In light of the money-laundering revelations at two U.K. banks, it's worth examining another recent case to understand how banks can slip up, and how they can mitigate the damage.
Earlier this year, ING Bank agreed to a settlement with the Office of Foreign Assets Control over its violations of numerous economic sanction regulations, including the Trading with the Enemy Act and the International Emergency Economic Powers Act. A total of more than $1.67 billion in violations resulted in a civil penalty of $619 million without the bank admitting or denying fault. The
OFAC considers a number of factors in its
1) Willful or Reckless Violation of Law: According to the order, the senior management of ING's branch on the Caribbean island of Curacao, with the knowledge of legal and compliance staff at the parent company in the Netherlands, "regularly reminded …staff, by email and verbally, to avoid Cuba references in payment instructions." Netherlands Caribbean Bank, a joint venture between ING and the Cuban government, also provided similar instructions… directing the customers to … refrain from making any references to Cuba."
2) Awareness of Conduct at Issue: In 2004, an employee in ING's wholesale banking unit wrote in an email that ultimately reached the parent company's legal department, which read in part: "There are several countries which are subject to sanctions... We must not carry out any transactions involving payments to… these countries denominated in U.S. dollars, as all dollar payments …fall under U.S. jurisdiction ... Any failure… could place ING in breach of U.S. law."
An attorney in the parent's legal department wrote: "...we know what we are doing in avoiding any fines... direct any future concerns to me… before stirring up the whole business."
3) Harm to Sanctions Program Objectives: The apparent violations by ING Bank described above undermined U.S. national security, foreign policy and other objectives of U.S. sanctions programs.
4) Individual Characteristics: OFAC had not issued a penalty notice or finding of violation against ING Bank in the five years preceding the apparent violations.
5) Compliance Program: In messages on the SWIFT system, ING "used care not to include references to U.S. sanctioned countries … because they believed doing so was necessary to avoid the payments being blocked… in accordance with OFAC regulations. ING… maintained [U.S dollar] accounts on behalf of" Cubans on OFAC's Specially Designated Nationals list, which indicates an individual's assets are blocked by the U.S. And "from at least 1994 up to 2006, employees… processed transactions on behalf of these entities using suspense accounts and two other companies that were also clients… not listed on the SDN list…Furthermore, this practice was apparently known within ING Bank Legal…"
6) Remedial Response: Upon discovering the apparent violations, and under the direction of its regulator in the Netherlands, ING Bank took prompt and thorough remedial action through extensive, global measures.
7) Cooperation with OFAC: ING Bank cooperated with OFAC by conducting a historical review to identify weaknesses in its compliance program and providing well-organized information regarding the apparent violations for OFAC's assessment; signing a tolling agreement with OFAC; and by responding to multiple inquiries and requests for information. ING Bank did not consistently cooperate with OFAC with regard to explicit requests for information, however. The requested information was ultimately provided, but only after multiple submissions to OFAC of information that was heavily redacted.
8) Timing of Apparent Violation in Relation to Imposition of Sanctions: While the ING settlement does not explicitly address this general factor, the overwhelming majority of the violations were those of the Cuban sanctions programs, all of which had been in place for decades before ING's actions.
With the exception of a violation surrounding a $1.2 million letter of credit, ING self-reported all violations to OFAC. This act, in itself, cut the maximum civil penalty in half. ING ultimately paid much less than the maximum.
ING's self-reported violations totaled over 20,500 transactions for over $1.76 billion. The statutory maximum penalty for this amount would normally be about $2.6 billion (at $125,000 per transaction). Since this was ING's first civil penalty in five years, there is a maximum discount of 25%, reducing the penalty to $1.9 billion. As the resulting penalty was less than one third of this reduced total, OFAC must have given significant weight to the bank's swift and comprehensive remedial action, as well as its substantial (although not uniformly so) cooperation with investigating authorities.
The ING settlement clearly demonstrates what it takes to train OFAC's microscope on a financial institution. What got the ball rolling was an advising bank reporting the letter of credit, which involved Iran's Bank Tejarat. However, what transformed that one violation into a massive civil penalty, and the attendant publicity, was a systemic lack of compliance, across multiple countries and business lines, with the knowledge of the firm's legal staff.
Eric A. Sohn (eric.sohn@BankersAccuity.com) is a principal engagement manager for Accuity's professional services group and consults for financial services firms. Accuity is a former holding of Investcorp, which owns SourceMedia, the parent of American Banker.
