Commerzbank Reaches US$1.45 Billion Global Settlement with US Authorities for US Sanctions and Money Laundering Violations and Enters Deferred Prosecution Agreement
German bank Commerzbank AG and its U.S. branch, Commerzbank AG New York Branch, (collectively, Commerzbank) agreed earlier this month to a US$1.45 billion settlement with various U.S. federal and state agencies for allegedly moving funds through the U.S. financial system between 2002 and 2010 in unauthorized transactions involving individuals, entities and countries subject to U.S. sanctions programs and failing to report suspicious transactions in violation of the Bank Secrecy Act. This global settlement involved OFAC, the DOJ, the Board of Governors of the Federal Reserve System (Federal Reserve Board), and New York State Department of Financial Services (DFS).
Commerzbank’s US$260 million settlement with OFAC related to allegations that it engaged in certain payment practices to escape U.S. sanctions restrictions in 1,596 transactions between 2005 and 2010 by removing, omitting, obscuring or otherwise failing to include references to U.S. sanctioned persons in payment messages to U.S. financial institutions. The related transactions resulted in apparent violation of the Iranian Transactions and Sanctions Regulations (ITSR), the Sudanese Sanctions Regulations (SSR), the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR) and Executive Order 13382, the Burmese Sanctions Regulations (BSR), and the Cuban Assets Control Regulations (CACR).
The large settlement amount reflects OFAC’s estimation that: (1) Commerzbank’s alleged violations constituted an egregious case; (2) Commerzbank did not submit a voluntary self-disclosure; (3) Commerzbank acted with reckless disregard for U.S. sanctions regulations; (4) Commerzbank’s management had reason to know of the practices leading to some of the apparent violations; and (5) Commerzbank did not have adequate sanctions compliance policies or procedures despite its commercial sophistication. With a base penalty amount of US$574,801,770, however, the settlement amount also reflects OFAC’s consideration of the fact that Commerzbank cooperated in the investigation, agreed to a statute of limitations tolling agreement with multiple extensions, adopted remedial measures, and had not received a Finding of Violation or penalty notice from OFAC in the five years leading up to the earliest problematic transaction.
Commerzbank separately entered a three-year deferred prosecution agreement with state and federal prosecutors, admitting that it violated New York law by falsifying New York financial institution records and admitting criminal conduct in violation of the BSA and the International Emergency Economic Powers Act (IEEPA). In connection with these violations, Commerzbank agreed to forfeit US$563 million and pay a fine of US$79 million. OFAC’s civil penalty will be settled by these payments.
In addition, Commerzbank agreed to pay a civil penalty of US$200 million to the Federal Reserve Board and US$610 million to DFS.
BVI Holding Company Agrees to Guilty Plea including US$232.7 Million Penalty for IEEPA Violation
In late March 2015, Schlumberger Oilfield Holdings Ltd. (SOHL), incorporated in the British Virgin Islands, agreed to plead guilty and pay a US$232.7 million penalty to the U.S. government for conspiracy to violate IEEPA by facilitating transactions in Iran and Sudan and exporting technical services involving these sanctioned countries. The penalty includes a US$155.1 million criminal fine, the largest IEEPA-related fine ever, as well as a US$77.6 million criminal forfeiture. The terms of the plea agreement also impose on SOHL a three-year period of corporate probation.
According to court filings, from 2004 to 2010, SOHL’s Drilling & Measurements (D&M) business segment, a U.S.-based oilfield services provider, facilitated trade with Iran and Sudan from D&M’s Texas office, and D&M employees in the United States made and implemented decisions directly affecting D&M’s Iran and Sudan operations. The court filings also indicate that D&M maintained an illegal process for approving capital expenditure requests for Iran and Sudan. Under this process, D&M personnel operating outside the United States apparently referred to Iran as “Northern Gulf” and Sudan as “Southern Egypt” or “South Egypt” in email communications with D&M personnel in the United States or used incorrect country codes that referred to non-embargoed countries. A U.S. manager then reportedly approved the disguised Iran- and Sudan-related requests.
In addition, D&M’s Texas office also apparently illegally exported services to Iran and Sudan, according to the court filings. This reportedly occurred when D&M oilfield technicians located in Iran and Sudan experienced technical problems; the technicians queried a computer system that automatically routed questions to a local technical expert. Sometimes, however, the queries were automatically routed to D&M personnel located in the United States, resulting in prohibited technical services being provided to Iran or Sudan.
Though SOHL had a U.S. sanctions compliance program, it reportedly failed to adequately train D&M personnel to comply with the program.
As part of the plea agreement, Schlumberger Ltd., SOHL’s parent company, with principal offices in Paris, Houston and The Hague, has agreed to cooperate with U.S. authorities during SOHL’s three-year probation. It has also agreed to hire a consultant who will review the parent company’s internal sanctions policies, procedures and company-generated sanctions audit reports. In addition, the parent company guaranteed and secured payment of the US$232.7 million penalty by its subsidiaries.
Press reports regarding this plea agreement include a statement from Schlumberger that “[t]his plea fully resolves the investigation of the Company, and we understand there is no ongoing investigation of Company personnel. The Company cooperated with the investigation, and we are satisfied that this matter is finally resolved.”
The plea agreement is contingent on court approval in the U.S. District Court for the District of Columbia.
PayPal Agrees to US$7.65 Million Settlement with OFAC for Apparent Violations of Multiple Sanctions Programs
PayPal, Inc., a licensed money services business (MSB) based in San Jose, California, entered into a US$7,658,300 settlement with OFAC for alleged violations of the WMDPSR, ITSR, CACR, SSR and Global Terrorism Sanctions Regulations (GTSR). According to OFAC, PayPal failed to use adequate screening procedures and technology to identify the possible involvement of sanctions targets in transactions it processed. The company consequently processed more than 490 transactions over a four-year period that either referenced the sanctioned country or an associated term (e.g., “Cuban” or “Tehran”) or involved a PayPal account for sanctioned individuals. The most problematic transactions related to apparent violations of the WMDPSR involving an A.Q. Khan associate on OFAC’s Specially Designated Nationals (SDN) List. Although PayPal filters identified transactions on behalf of this SDN on several occasions, its Risk Operations Agents dismissed the alerts without following company policy, which required reviewing additional information in order to clear the transactions. For the last transaction the company processed, a PayPal Risk Operations Agent had requested the SDN’s passport, which matched information on the SDN List, and nevertheless dismissed the match.
OFAC found that the WMDPSR violations constituted an egregious case in that: 1) the company acted with reckless disregard for the sanctions program in connection with failings in the alert process; 2) PayPal agents repeatedly ignored warning signs, thereby engaging in a pattern of conduct; 3) PayPal undermined the WMDPSR sanctions program and its objectives by providing economic benefit to a Specially Designated National; and 4) multiple agents failed to follow the company’s policies and procedures. Additional aggravating factors included the fact that: 1) company supervisors and management knew of the behavior leading to the apparent violations; and 2) PayPal did not have an adequate compliance program. However, the settlement, a reduction from the base penalty of US$17,018,443, reflects, among other factors, OFAC’s determination that PayPal voluntarily disclosed the alleged violations, had implemented compliance enhancements, and had cooperated with the investigation.
Maryland Man Pleads Guilty to AECA Violations for Firearms Exports to Pakistan
In early March 2015, Kamran Ashfaq Malik, of Maryland, pleaded guilty in the U.S. District Court for the District of Maryland to violations of the Arms Export Control Act (AECA) arising from the illegal export of semiautomatic rifles, accessories and parts to Pakistan. Between September and October 2012, Malik bought approximately 48 AR-15 100 round dual drum magazines from firearms dealers. He made some purchases in his own name and others under the name of an associate, at times using a false shipping address. Between October and November 2012, Malik shipped or caused others to ship firearms and parts and accessories to Pakistan without a required export license. He attempted to escape detection by falsely labeling the contents of packages, listing false return addresses, and instructing an associate to do the same. The court set sentencing for June 26, 2015. Malik faces up to 10 years in prison.
Former Taiwan Resident Sentenced for Violation of Anti-Proliferation Laws
In mid-March 2015, the U.S. District Court for the Northern District of Illinois sentenced 69-year old Hsien Tai Tsai, a former resident of Taiwan, to two years in prison following his guilty plea in October 2014, for conspiring to defraud the United States in its enforcement of the sanctions against proliferators of WMD. OFAC designated Tsai and two Taiwan-based companies with which he was associated as WMD proliferators. Following the designation, Tsai and the designated companies continued conducting business transactions, but tried to conceal their involvement by using different company names.
Tsai faced a possible five-year sentence and US$250,000 fine. The court credited Tsai for providing substantial and ongoing assistance to the United States in its investigations of WMD proliferators.