On August 24, 2009, the Department of Treasury's Office of Foreign Assets Control (OFAC) announced its settlement of the Australia and New Zealand Bank Group, Ltd.'s (ANZ) alleged violations of the Sudanese Sanctions Regulations (SSR) and the Cuban Assets Control Regulations (CACR)1. The $5.75 million penalty against ANZ is significant not only for its size, but in demonstrating OFAC's ongoing assertion of jurisdiction over non-U.S. entities' actions outside the United States.
The ANZ settlement covers 16 transactions found to have violated the SSR,2 and 15 transactions deemed to have violated the CACR3. The violations occurred between 2004 and 2006, and involved ANZ processing financial transactions through correspondent accounts at U.S. banks. OFAC found that ANZ had actively removed references to Sudan and the identity of entities subject to U.S. sanctions in ANZ's Society for Worldwide Interbank Financial Telecommunication (SWIFT) messages, thereby impeding the ability of U.S. banks to detect violations of the SSR. OFAC said that ANZ did not voluntarily disclose its violations of the SSR, but did voluntarily disclose its violations of the CACR4. OFAC mitigated ANZ's final penalty based on ANZ's substantial cooperation, swift remedial response, and its clean enforcement record in the five years preceding this occurrence.
The outcome in the ANZ case is consistent with the outcome in an expanding line of cases in which OFAC (or prosecutors) have asserted broad jurisdiction over foreign financial institutions for allegedly omitting or removing references to prohibited parties from transactions being transmitted to or through U.S. banks. OFAC asserts that, as a result, U.S. correspondents have processed prohibited transactions because they have not been able to identify the connection to a prohibited party.
- In 2005, for example, OFAC assessed a penalty of $40 million against ABN AMRO Bank, N.V., a Dutch bank, for participating in transactions that appeared to violate OFAC's Iranian and Libyan sanctions.5 As in the ANZ case, OFAC found evidence that ABN AMRO's overseas branches had removed or revised references to sanctioned entities before forwarding wire transfers, letters of credit, and U.S. dollar checks to a U.S. branch.
- Similarly, in 2007, the National Australia Bank Ltd. (NAB) remitted $100,000 to settle its alleged violation of the Burmese Sanctions Regulations,6 the SSR and the CACR.7 OFAC found evidence that NAB had unlawfully processed funds through its New York City branch and other U.S. banks.
- Most recently, in 2009, Lloyds TSB Bank entered into a deferred prosecution agreement with the Department of Justice and the District Attorney for New York for alleged violations of OFAC's Iranian and Sudanese sanctions.8 Pursuant to this agreement, Lloyds agreed to pay $350 million to the United States and State of New York as a result of its foreign branches having allegedly stripped identifying information from its transactions to evade Iranian and Sudanese sanctions.
These cases exhibit OFAC's interest in penalizing non-U.S. entities for "causing" a U.S. entity to violate OFAC's sanctions regulations. While the complete facts of the ANZ case are not yet public (and it is not clear whether ANZ's U.S. offices were involved), OFAC is apparently reading the jurisdictional grant in the IEEPA Enhancement Act9 to cover any person, wherever located, who causes a violation of OFAC sanctions to civil and criminal penalties. It seems likely that, for now, OFAC will continue to focus on foreign banks and financial service providers that process transactions through the U.S. financial system.
Accordingly, international banks should review their operations to assess their exposure to U.S. jurisdiction and consider whether they ought to strengthen their programs for OFAC sanctions compliance.