[authors: Jamie L. Boucher, Keith D. Krakaur, Soo-Mi Rhee, Sean M. Thornton, Autumn M. Hunter]
Three law enforcement agencies — the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), the U.S. Department of Justice (DOJ), and the New York County District Attorney’s Office (DANY) — recently announced simultaneous, record-breaking settlements totaling $619 million with ING Bank N.V. (ING), a Dutch bank.1 The settlements, announced June 12, cover alleged violations of U.S. economic sanctions with respect to Cuba and other countries and, in the case of DANY, alleged violations of New York criminal laws requiring accurate business records. According to the government, ING manipulated information in more than 20,000 U.S.-dollar transactions with Cuba and other targets of U.S. economic sanctions in order to prevent U.S. financial institutions from identifying and interdicting them.
This is the largest in a series of similar settlements entered into by non-U.S. banks over allegations by these agencies — OFAC, DOJ and DANY — that the banks altered information in electronic funds transfers and other types of transactions to conceal the involvement of parties that are subject to U.S. economic sanctions. The previous record for such a settlement was $536 million. In addition to the large amount, the ING settlement is notable for its primary focus on Cuba, rather than Iran, which had been the focus of most of the other cases.
Although they reached agreement on a single settlement amount, the agencies did not rely on exactly the same facts. The OFAC settlement agreement focused on a five-year period from 2002 to 2007, and, of the $1.6 billion allegedly routed through the United States in contravention of OFAC’s regulations, less than $20 million related to economic sanctions programs other than Cuba (i.e., Burma (Myanmar), Iran, Sudan and the now-repealed Libya sanctions). The DPAs, however, cover a broader period beginning in the early 1990s, place relatively more emphasis on Iranian transactions than the OFAC settlement and do not cite violations of the sanctions pertaining to Burma, Sudan or Libya. DOJ also appears to have included, among the overt acts supporting a federal conspiracy charge, the processing of Iran payments that were actually lawful under OFAC’s regulations: “Although payments may have complied with exceptions in the [OFAC regulations] then in effect, ING Bank employees removed all references of Iran in payment messages sent to the United States to ensure that unaffiliated correspondent U.S. financial institutions could not identify the Iranian origin of the transactions ….”
These settlements have implications for internationally active companies in all sectors that have engaged in transactions subject to U.S. jurisdiction, including dollar- clearing and other transactions involving U.S.-origin goods or services, that implicate Iran, Cuba, or other targets of U.S. economic sanctions.
Potentially Serious Financial Consequences. The amount of the ING settlements, though already record-breaking, could have been far larger. OFAC asserted that the maximum civil penalty could have exceeded $1.6 billion, based on the volume and value of the transactions and the relevant statutes.
Importance of Cooperation. The government appears to have given ING a discount from the maximum penalties for, among other things, voluntarily disclosing all but one of the more than 20,000 transactions and for substantial cooperation with the government. Such cooperation included producing unredacted documents and making current and former employees available for interviews. All three agencies also asserted, however, that in their view, the bank’s cooperation was not consistent, and the perceived lack of full cooperation by the bank may have contributed to the overall high settlement amount.
Need to Promptly Recognize and Respond to Warning Signs. The DPAs and the OFAC settlement agreement give examples of potential warning signs within the bank dating back to 1997. In particular, the documents recount a 2004 email exchange between an ING employee and in-house counsel, in which the employee expressed concern that routing U.S. dollar payments involving sanctioned parties through New York exposed the Dutch bank to potential violations of U.S. law. (This exchange occurred more than a year before the landmark ABN AMRO settlement in December 2005.) The in-house counsel responded as follows: “[W]e have been dealing with Cuba (and ways around clearing through Manhattan) for a lot of years now and I’m pretty sure that we know what we are doing in avoiding any fines. So don’t worry and direct any future concerns to me so that we can discuss before stirring up the whole business.”
The Concerns Are Broader Than Iran. While Iran has been the public focus of U.S. sanctions in recent years, the U.S. sanctions against Cuba remain in place and are similar to the sanctions against Iran. While internationally active companies may be more aware of their risks under U.S. law with respect to Iranian business, they should remain mindful of their potential exposure with respect to other countries, entities or individuals that are subject to U.S. economic sanctions. The OFAC settlement agreement notes that among other remedial measures the Dutch bank has voluntarily disengaged from any new business, in any currency, involving Cuba, Iran, Burma (Myanmar), North Korea, Sudan or Syria.
The Concerns Are Broader Than Stripping. In addition to manipulating funds-transfer information to conceal the identity of the U.S. sanctioned parties (so-called “stripping”), the agencies alleged that the bank used an array of other procedures to help Cuban customers avoid detection by U.S. financial institutions, including using “front companies” to accept funds transfers on behalf of Cuban entities and using a false endorsement stamp for Cuba-related travelers checks. The DPAs also noted that an ING office in Europe used “dual” payment messages (MT 202s) to avoid referencing Iran in payment instructions processed on behalf of Iranian banks for payments routed through the United States.
Many Agencies Are Investigating Sanctions Compliance. Companies should expect that serious sanctions cases will invite the attention of multiple civil, criminal and regulatory agencies, and they will not necessarily share the same concerns. For example, the agencies here appear to have focused on slightly different facts. The OFAC agreement, as noted above, covers a five-year period from 2002 to 2007 involving five different sanctions programs, while the DPAs discuss a longer timeframe (beginning in the 1990s) and focus on just two sanctions programs (Cuba and Iran). In addition, DOJ apparently viewed as a criminal offense the processing of funds transfers that OFAC’s regulations permitted. The agencies also appear to have portrayed some key facts differently, such as different characterizations of ING’s remedial response by OFAC and by the criminal prosecutors.
One Size Does Not Fit All. The size of the ING settlements do not necessarily reflect a new norm. Soon after announcing its settlement with ING, OFAC announced a much lower settlement of $855,000 with the National Bank of Abu Dhabi for roughly similar allegations: removing or omitting references to Sudan in payment instructions for payments routed through financial institutions located in the United States. The final amount of an economic sanctions settlement mainly reflects the volume and value of such payments, which in the case of the National Bank of Abu Dhabi was just 45 transactions totaling approximately $4.4 million, adjusted for factors such as cooperation.
As has been demonstrated through many recent enforcement decisions, transactions involving countries that are subject to U.S. economic sanctions will continue to be scrutinized, even transactions by non-U.S. companies that were conducted years ago, for compliance with OFAC regulations and with New York recordkeeping requirements. Banks and other businesses in regulated industries or with a significant international nexus should ensure that their employees and affiliates are aware of and, where applicable, abide by U.S. economic sanctions and related laws.
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1 Specifically, ING entered into two separate Deferred Prosecution Agreements (DPAs) with DOJ and DANY in which the bank accepted responsibility for conduct set forth in the DPAs and agreed to forfeit $309.5 million to DOJ and $309.5 million to DANY. Concurrently, ING entered into a civil settlement agreement with OFAC in which it did not admit or deny any allegations set forth in the agreement. Under the agreement with OFAC, the civil settlement amount of $619 million is deemed satisfied by ING’s payments to DOJ and DANY.
