Compliance Blog

Sep 20, 2019
Categories: BSA

OFAC Dings London Bank for Attempt to Bypass U.S. Sanctions

British Arab Commercial Bank plc (BACB), a commercial bank organized under the laws of the United Kingdom and headquartered in London, recently settled with Treasury’s Office of Foreign Assets Control (OFAC) for apparent violations of the Sudanese Sanctions Regulations (previously found at 31 C.F.R. Part 538).  Although the bank has no offices, business or presence under U.S. jurisdiction, it was found to have processed 72 bulk funding payments totaling $190,700,000 related to Sudan through or to the United States involving a U.S. financial institution between September 21, 2010, and August 27, 2014.

BACB operated U.S. dollar accounts on behalf of at least seven Sudanese financial institutions, including the Central Bank of Sudan.  According to the settlement agreement, BACB actively solicited U.S. dollar business from Sudanese banks and processed the transactions by way of an internal book transfer process that involved a nostro account maintained at a foreign bank (Bank B) located in a country that imports Sudanese-origin oil.  (A nostro account is an account a bank holds in a foreign currency in another bank.)  Although these transactions were not processed to or through the U.S. financial system, the process to fund BACB’s U.S. dollar nostro account at the foreign bank did involve transactions processed by or through U.S financial institutions in apparent violation of the U.S. economic sanctions.

According to OFAC, BACB opened the U.S. dollar nostro account in 2006 for the stated purpose of “facilitating payments involving Sudan.” The account was funded by routing large, periodic, U.S. dollar denominated wire transfers or bulk funding into it from non-U.S. financial institutions in Europe. The institutions in Europe then passed the U.S. dollar denominated transfers through banks in the United States for further credit to BACB’s nostro account at Bank B. Once the funds arrived in its U.S. dollar nostro account at Bank B, BACB instructed the institution to process individual or third party payments involving a variety of Sudanese parties, including Sudanese financial institutions.  Several BACB employees, including certain managers and a member of the compliance team, were aware of this funding arrangement.

OFAC determined BACB did not make a voluntary self-disclosure of the sanctions violations.  As the case was considered egregious, the total base penalty amount came to $381,400,000.  However, OFAC and BACB’s domestic regulator, the United Kingdom’s Prudential Regulation Authority, also determined that as the bank does not have a strong financial position, it would be “disproportionately impacted” if it was required to pay an initially proposed penalty of $228,840,000.  BACB’s penalty was reduced to $4,000,000 with the remaining balance suspended due to the following:  1) it stopped the activity leading to the sanctions violations; 2) the bank’s operating capacity would have caused it to be disproportionately impacted by the full penalty; 3) it agreed to the settlement agreement and will maintain the compliance commitments as outlined in the agreement.

Under the terms of the agreement, BACB’s sanctions compliance commitments include:

  • Management Commitment – senior management, executives and board members will approve an OFAC compliance program, institute policies and procedures to control risk, ensure adequate resources and training relative to its overall risk profile and promote a “culture of compliance” throughout the organization.
  • Risk Assessment – conducting and maintaining an updated risk assessment that adequately accounts for potential risks.  Perform regular testing and/or audits of this function for any apparent violations or systemic weaknesses.
  • Internal Controls – developing and implementing policies and procedures that communicate and outline the bank’s sanctions compliance plan to its personnel.  The bank will enforce these policies and procedures, correct any issues and follow the OFAC requirements.
  • Testing and Audit – conduct independent testing or audits of its procedures that are appropriate to the level and sophistication of its sanctions compliance program and correct any negative testing result.
  • Training provide adequate OFAC-related training appropriate for the bank’s products and services, its customers, clients and partnership relationships and the geographic regions where it operates.  This training is to be provided at a frequency appropriate to its risk assessment and risk profile but at a minimum, at least once a year to all relevant employees.
  • Annual Certification – Annually for five years, a senior-level executive or manager will submit a certification that the bank has implemented and continues to maintain the sanctions compliance measures outlined in the settlement agreement.

This enforcement action illustrates OFAC’s commitment to ensure that complex payment structures do not provide an indirect opportunity for U.S. sanctions targets to access the U.S. financial system.  The sanctions compliance commitments outlined in this settlement agreement reaffirm the standards for a robust OFAC-sanctions compliance program.

About the Author

Shari Pogach, NCCO, NCBSO, Regulatory Paralegal, NAFCU

 Shari Pogach, NCCO, NCBSO, Regulatory Paralegal

Shari R. Pogach, NCCONCBSO, has served as Regulatory Paralegal for NAFCU's Regulatory Compliance and Regulatory Affairs divisions since 2007.

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