On November 18, 2014, New York’s Department of Financial Services (“DFS”) announced another major settlement with the Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”) arising from BTMU’s U.S. dollar clearing activity involving Iran, Sudan, and other regimes and entities subject to U.S. economic sanctions. This latest $315 million penalty comes in the wake of much-publicized settlements from 2013 in which BTMU previously resolved investigations by DFS and federal authorities for purportedly facilitating financial transactions with U.S. sanctions targets in Iran, Sudan, and Burma. It also follows multiple New Yorkbased regulatory and criminal investigations involving other institutions and entities arising from alleged violations of U.S. sanctions programs.
BTMU previously paid a $250 million monetary penalty to DFS in 2013, as well as over $8.5 million in civil penalties to resolve a parallel inquiry by the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). DFS’s latest settlement is the result of that agency’s specific focus on a historical transaction review report prepared by BTMU’s retained accounting professionals, which New York regulators purportedly relied upon when negotiating the terms and scope of the 2013 settlement. According to DFS’s public statements and the public Consent Order signed by BTMU, a copy of which may be found here, that transaction report materially underreported the full extent of BTMU’s U.S. dollar clearing services on behalf of sanctioned persons (including those in Iran, Sudan, and Burma), thereby misleading DFS regarding the true nature of BTMU’s prior misconduct. The most recent settlement resolves one key aspect of that renewed investigation, although parallel investigations by other authorities also have been reported in the news media.
In addition to signaling generally that DFS remains aggressive in its oversight of financial institutions having any contacts with New York, even for conduct principally occurring abroad, this most recent development further confirms that DFS and New York State Superintendant of Financial Services Benjamin Lawsky will continue to chart their own course when it comes to investigating blocked financial transactions or revisiting previously settled matters. This development also is consistent with the particular interest that New York regulators and law enforcement officials have taken in investigating and pursuing alleged violators of U.S. sanctions regulations – an interest that has already generated a string of well-publicized enforcement settlements, criminal investigations, and forfeiture proceedings by DFS, Manhattan’s District Attorney, and federal prosecutors in New York.
DFS’s Settlements with BTMU
In June 2013, DFS agreed to an omnibus settlement with BTMU relating to U.S. dollar clearing services involving sanctioned parties and entities listed on OFAC’s Specially Designated Nationals list. In particular, the settlement agreement stated that between 2002 and 2007, “BTMU engaged in a practice under which BTMU’s employees in Tokyo routed U.S. dollar payments through New York after first removing information from wire transfer messages that could be used to identify the involvement of sanctioned parties.” This alleged conduct covered approximately 28,000 U.S. dollar payments, valued at an estimated $100 billion, involving Iran, Sudan, Burma, and other persons subject to U.S. sanctions. BTMU consented to a $250 million penalty and the appointment of an independent consultant to monitor BTMU’s money laundering and sanctions compliance going forward.
According to the most recent settlement, following an interim investigation, DFS determined that BTMU employees had “pressured” BTMU’s retained consultants into “watering down” their report on BTMU’s prior transactions with sanctioned nations, thereby underreporting the overall number and dollar value of noncompliant transactions. The terms of the 2014 BTMU settlement state that BTMU violated the terms of the 2013 settlement, misled the regulators appointed to oversee BTMU, and violated both New York Banking Law § 200-c (requiring BTMU to keep accurate books and records at its New York branch) and DFS regulation 3 NYCRR § 300.1 (requiring BTMU to immediately report the discovery of fraud or other misconduct to DFS). Under this latest settlement, BTMU consented to a $315 million penalty, the disciplining of multiple BTMU employees, and an extension of the term of the bank’s independent sanctions compliance consultant.
BTMU’s recent settlement is merely the latest link in an increasingly long chain of New York-based investigations by federal, state, and local regulators and law enforcement officials regarding prohibited transactions under U.S. sanctions regulations. In addition to the BTMU settlements, DFS and federal authorities previously extracted significant settlements from Standard Chartered, Royal Bank of Scotland, and BNP Paribas in connection with alleged sanctions noncompliance. In 2013, federal authorities secured the forfeiture of a Manhattan skyscraper purportedly owned by Iranian owners in violation of the existing U.S. sanctions regime. Manhattan’s District Attorney likewise has made no secret of his office’s eagerness to investigate and pursue alleged sanctions violators.
BTMU’s recent settlement also further demonstrates that DFS will not be satisfied with the penalties the federal government imposes in settlements with alleged sanctions violators, and may seek to revisit earlier settlements if it later believes that those resolutions were premised on incomplete or inaccurate information. Recently, DFS and other authorities were reported to be similarly reexamining their prior resolution of a sanctions-related investigation involving Standard Chartered, and DFS’s recent pursuit of BTMU thus underscores the significant risks that financial institutions and other settling parties face when seeking to secure final resolutions from DFS and other regulators. Indeed, DFS continues to pursue penalties going well beyond monetary fines, creating further complications and risks for settling institutions. For example, similar to its earlier settlements with BNP Paribas and the Royal Bank of Scotland, DFS conditioned its 2014 BTMU settlement upon the continued oversight of BTMU by an independent consultant. Given the inherent complexities associated with maintaining a vigorous anti-money laundering and sanctions compliance regime, this creates significant downstream risks for any financial institution – as well as the assurance of continued scrutiny from New York regulators.