In a recent deferred prosecution agreement with the United States government and Manhattan’s District Attorney’s Office, ING Bank (“ING”) agreed to pay a record-breaking fine of $619 million for violations of the U.S. sanctions regime and the accompanying fraud that enabled the misconduct. ING admitted to funneling funds for Cuban and Iranian customers through the U.S. financial system throughout the 1990s and 2000s, in contravention of U.S. policies of sanctions against both countries. The enormous sum of ING’s payment illustrates the potential for massive liability that can arise when a company’s wrongdoing is not limited to the acts of a few individuals, but arises from an alleged corporate culture of malfeasance.
The U.S. Sanctions Regime
Throughout the twentieth century, the United States increasingly employed economic sanctions to influence or punish foreign governments. Pursuant to the Trading with the Enemy Act and the International Emergency Economic Powers Act, the United States prohibited engaging in financial transactions and wire transfers with Cuba, Iran, or nationals of either country. The laws also prohibit transactions designed to evade or circumvent the sanctions, for example by routing funds indirectly.
ING’s Dealings with Cuban and Iranian Customers
In the 1990s, the Cuban government allowed ING, an international bank headquartered in the Netherlands but with a substantial U.S. presence, to participate in Cuban joint ventures and to open a Cuban office. ING’s various Cuban entities serviced Cuban private and government clients. To allow its Cuban customers to avoid the U.S. sanctions regime and conduct trade with U.S. entities, ING altered its procedures to conceal the Cuban origins of various payments. ING allegedly processed the payments in a way that made the payments appear to originate from other ING branch offices or shell companies. ING also eliminated all reference to “Cuba” or “Havana” from any transactions or communications with correspondent banks in the United States, utilized non-standard forms that omitted the identity of customers and beneficiaries, at times falsified the identities of parties to transactions, and altered its own software so as to automatically remove references to Cuba from outgoing financial messages. Although certain ING employees and attorneys allegedly knew of the potential illegality of ING’s actions, ING continued to facilitate transactions for Cuban clients, and employees who jeopardized the scheme, for example by accidentally referencing Cuba in transactional documents, allegedly were fired summarily.
ING similarly processed transactions with the United States for Iranian business and Iranian government agencies via its European offices. As ING had done in relation to its Cuban clients, the bank allegedly scrubbed all transaction documents of references to Iran or Iranian clients, and used means of processing transactions that omitted the identity of the clients involved.
The methods ING allegedly used to conceal the identities of clients subject to sanctions — and that the purpose of those methods was to circumvent sanctions — were openly discussed and acknowledged in various internal communications. ING’s intent to circumvent sanctions and the methods of doing so were also explicitly recorded in documents reflecting ING’s official internal procedures. Employees at all levels had access to these documents, thus the circumvention of U.S. sanctions on Cuba and Iran became ING’s acknowledged company-wide practice. This practice continued through the mid-2000s, and involved transactions with an aggregate value of $2 billion.
ING’s Scheme Comes Under Scrutiny
In 2005, one of ING’s officers brought his concerns regarding ING’s compliance with sanctions regimes to the attention of the Netherlands’ central bank (“DNB”). The DNB in turn commenced an inquiry into ING’s compliance with U.S. sanctions regimes, which spurred internal investigations at ING. The U.S. Department of Justice (“DOJ”) and Manhattan District Attorney’s Office, alerted to suspicions of ING’s wrongdoing by the U.S. Treasury’s Office of Foreign Assets Control, similarly commenced investigations into ING’s compliance. ING allegedly initially provided incomplete information to the government regarding the extent of its sanctions violations, and produced heavily redacted versions of the results of its internal investigations that disclosed only glimpses of the overall wrongdoing.
By 2010, however, the DOJ’s and Manhattan District Attorney’s investigations had developed such that ING had little choice but to cooperate and take responsibility for its wrongdoing in an effort to mitigate the now-inevitable penalties. ING appointed an officer to coordinate its cooperation with the government investigations. ING subsequently produced the results of its internal investigations in unredacted form, provided the U.S. government with access to ING’s employees, and retained forensic accountants to review its historical compliance with U.S. sanctions regimes relating to Cuba and Iran, but also Burma, Sudan and North Korea. ING also terminated its relationships with its sanctioned customers, and revised its company-wide policies to emphasize compliance with sanctions regimes. Finally, ING instituted centralized monitoring and screening of payments to preclude some of the circuitous processing of payments among multiple branches designed to conceal the identity of clients. These pre-settlement efforts of reform, self-investigation and cooperation were likely taken with the understanding that a pre-indictment acceptance of responsibility could lessen the amount of penalties ultimately assessed.
The Terms of the Deferred Prosecution Agreement
For its role in over $2 billion in transactions with sanctioned entities, ING agreed to forfeit $619 million, evenly split by the DOJ and the State of New York. The payment was the largest fine in history against a bank in connection with U.S. sanctions violations. ING also agreed to a raft of voluntary restrictions, future compliance programs and cooperation with future government investigations that may arise. If ING breaches the terms of this deferred prosecution agreement, it faces renewed prosecution for decades of sanctions violations.
The size of the forfeiture established by the deferred prosecution agreement highlights the potential liability created by an alleged corporate culture of legal noncompliance in the pursuit of profits. That the $619 million forfeiture was reached after a period of cooperation with a government underscores that the potential liability for such wrongdoing can be truly enormous, and can dwarf any profits that may be obtained during the life of such a scheme.