On Jan. 9, 2009, Lloyds TSB Bank Plc (“Lloyds Bank”), a financial institution registered and organized in the United Kingdom and headquartered in London, entered into two separate deferred prosecution agreements with U.S. and New York prosecutors (the “Agreements”) and agreed to forfeit $350 million based on allegations that it had violated the Iranian, Sudanese and Libyan economic sanctions programs administered by the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”).1
Essentially, Lloyds admitted to illegally “stripping” material information from U.S. dollar (“USD”) payment messages sent from Lloyds Bank’s branch offices in the United Kingdom, Dubai, and Tokyo, to correspondent banks in the United States to conceal the involvement of countries, banks or persons listed as sanctioned parties under these OFAC programs. Although Lloyds Bank has two branches in the United States (in New York and Miami), neither branch was involved in the activities described in the Agreements.
Pursuant to the Deferred Prosecution Agreement with the U.S. Department of Justice (“DOJ”), which was approved by the U.S. District Court for the District of Columbia (the “U.S. Agreement”), Lloyds Bank consented to the filing of a one-count Information charging Lloyds Bank with knowingly and willfully violating and attempting to violate the Iranian Transactions Regulations (“ITRs”). The ITRs are sanctions regulations administered by OFAC that prohibit the exportation of services from the United States to Iran without authorization, as well as any transaction in the United States that evades or avoids, or is meant to evade or avoid, such regulations.
To obtain USD clearing services, Lloyds Bank maintains correspondent bank accounts with U.S. banks located inside and outside the United States (the “U.S. Banks”). The Information alleges that Lloyds Bank conducted wire transfers through these U.S. Banks, from about the mid-1990s to about January 2007, on behalf of Iranian banks that were customers of Lloyds Bank in the United Kingdom, Dubai, and Tokyo (the “Iranian Banks”). To effect the USD clearing transactions for the Iranian Banks, Lloyds Bank employees outside the United States removed material data from the payment messages to conceal the Iranian Banks’ involvement. This resulted in the processing of transactions in the United States by the U.S. Banks that may have otherwise been prohibited.
Separately, the District Attorney for the County of New York (“DANY”) entered into a similar Deferred Prosecution Agreement with Lloyds Bank (the “N.Y. Agreement”). The U.S. Banks that Lloyds Bank sent the “stripped” payment messages to were primarily in New York. By removing material information from the payment messages sent to the U.S. Banks in New York (the “N.Y. Banks”), Lloyds Bank’s actions caused the N.Y. Banks to provide services to the Iranian Banks, in violation of the ITRs, and led to the falsification of the N.Y. Banks’ business records. Lloyds Bank removed the material information in order to avoid detection by the N.Y. Banks’ OFAC filters of transactions that may violate U.S. sanctions laws.
In the Agreements, Lloyds Bank agreed to: 1) acknowledge responsibility for its actions, 2) voluntarily terminate the conduct set forth in the Factual Statements attached to the Agreements, 3) cooperate with the United States and DANY by reviewing payment data (with an independent consultant) and providing certain SWIFT payment messages related to USD payments for the period from April 2002 through December 2007, as well as providing other relevant information, 4) demonstrate its future good conduct and full compliance with international Anti-Money Laundering and Combating Financing of Terrorism best practices and the Wolfsberg Anti-Money Laundering Principles for Correspondent Banking and 5) settle any and all civil and criminal claims currently held by the United States and DANY for any act within the scope of the Factual Statements by forfeiting $175 million to each of the United States and DANY (for a total forfeiture of $350 million).2
The United States, for its part, agreed that if Lloyds Bank is in compliance with all of its obligations under the Agreements, it will move to dismiss the Information with prejudice at the end of the 24-month period during which prosecution is deferred. The United States and DANY also agreed not to prosecute Lloyds Bank; its affiliates, successors or related companies; or its current and former employees, officers or directors for any act within the scope of, or related to, the Factual Statements that violated the law from March 1995 to the date of the Agreements, unless there is probable cause to believe that the parties knowingly and willfully transmitted funds from or to persons designated by OFAC as “specially designated terrorists,” “specially designated global terrorists,” “foreign terrorist organizations” or “proliferators of weapons of mass destruction.” The Agreements bind Lloyds Bank and the United States and DANY, respectively, but do not bind any other federal agencies, or state or local authorities.3
According to the Factual Statements, Lloyds Bank systematically violated the laws of both the State of New York and the United States by falsifying USD payment messages that involved countries, banks or persons listed by OFAC as sanctioned parties. Lloyds Bank implemented a procedure whereby the processing staff in its U.K.-based international payment processing unit would receive and manually review each SWIFT message received from the U.K. subsidiaries of the Iranian Banks that maintained correspondent accounts at Lloyds Bank (e.g., Bank Sepah, Bank Melli, Bank Tejerat, Bank Mellat, Bank Saderat and the Iranian Overseas Investment Bank). The processing staff would remove all references to Iran, including the Iranian Bank names, from the USD SWIFT messages that were sent to the U.S. Banks. The payments would be manually re-keyed into Lloyds Bank’s automated payment processing system and then transmitted to the relevant U.S. Bank, making it look as though the transactions had originated with Lloyds Bank. By removing (or “stripping”) information from transactions that would otherwise be blocked for investigation or rejected, Lloyds Bank was able to deceive the OFAC filters of the U.S. Banks. Lloyds Bank also provided USD payment services to other sanctioned persons, such as Sudanese banks and a Libyan customer, by stripping information from outgoing USD payment transactions.
According to the Factual Statements, in early 2002, Lloyds Bank’s senior processing staff and the director of its Group Financial Crime Unit (“GFC”) expressed concern to the Financial Institutions Unit (“FI”), a unit within Lloyds Bank’s Wholesale and International Banking Division, over the practice of intentionally removing information from the USD payments that involved the Iranian Banks. The FI recommended that the processing staff stop removing Iran-related information from the SWIFT messages and, instead, return the messages to the Iranian Banks so that they could strip the messages. When this recommendation was adopted around July 2002, FI advised the Iranian Banks how to strip the messages in order to avoid detection by OFAC filters. In September 2002, the GFC director asked the senior processing and FI staff to review the risk associated with the Iranian USD payment business. The senior processing staff continued to raise concerns regarding these USD payments, while the FI mistakenly believed that because Lloyds Bank is a U.K. institution, it was not subject to OFAC regulations for such processing activity. When the issue of stripping the SWIFT messages came to the attention of Lloyds Bank’s Group Executive Committee in April 2003, the Committee decided to terminate the Iranian USD payment business. By April 2004, Lloyds Bank had wound down all USD correspondent accounts held for the Iranian Banks in the U.K. The Dubai and Tokyo branches closed their USD correspondent accounts for Iranian Banks in October 2004.
Although Lloyds Bank ceased to provide USD payment services to the Iranian Banks in 2003 and closed the Banks’ accounts in 2004, it continued providing USD payment services and USD correspondent bank accounts to Sudanese banks, which were also U.S. sanctions targets, until 2007. Lloyds Bank’s processing staff reviewed outgoing Sudanese USD payment messages and removed material information in the same manner as had been done for the Iranian payments until January 2007. By September 2007, Lloyds Bank had wound down its Sudanese business and closed all of the Sudanese USD correspondent accounts.
Additionally, according to the Factual Statements, Lloyds Bank’s branches engaged in certain USD trade finance transactions, such as letters of credit, inward and outward documentary collections, and guarantees, involving banks from countries that are the subject of OFAC sanctions, principally Iran and Sudan. In these transactions, Lloyds Bank removed material information from certain USD payments made in furtherance of the underlying trade finance transactions.
In April 2007, Lloyds Bank’s representatives in New York were advised by prosecutors that there was an investigation into its USD business conducted on behalf of U.S.-sanctioned entities, and that there was evidence of violations of N.Y. State and U.S. laws. The prosecutors asked Lloyds Bank to disclose the nature and extent of its misconduct and provide evidence of the misconduct. Lloyds Bank promptly began an in-depth internal investigation of its international USD clearing business and provided substantial assistance to the DOJ, DANY and other relevant regulators. As noted above, Lloyds Bank accepted and acknowledged its misconduct as described in the Factual Statements. Further, it agreed to take the steps necessary to enhance its sanctions compliance programs.