On August 18, 2010, United States District Judge Emmet G. Sullivan of the District of Columbia approved a Deferred Prosecution Agreement (“DPA”) between the Department of Justice and Barclays Bank PLC (“Barclays”), a U.K corporation with headquarters in London. As part of the two-year DPA, Barclays acknowledged the allegations in a criminal Information filed on August 16, 2010 that charged Barclays with one count each of violating the International Emergency Economic Powers Act (“IEEPA”)2 and the Trading With the Enemy Act (“TWEA”)3 for facilitating U.S. dollar transactions on behalf of customers from Iran, Cuba, Sudan and other countries subject to economic sanctions.4 In addition, Barclays, which had voluntarily disclosed the violations to the Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury which administers the economic sanctions programs, agreed to forfeit $298 million, $149 million each to the United States and to the Office of the New York County District Attorney.5 Barclays also entered into a settlement with OFAC that requires it to pay a fine of $176 million that will be deemed satisfied by Barclay’s payment of the larger criminal penalties. Lastly, Barclays was required to implement “stringent compliance measures.”
In a statement issued by the Department of Justice, Assistant Attorney General Lanny Breuer declared that “[b]anks like Barclays will not be permitted to disregard sanctions put in place by the U.S. government.” He added that “[n]ot just once, but numerous times over more than a decade, Barclays stripped vital information out of payment messages that would have alerted U.S. financial institutions about the true origins of the funds. . . . As I’ve said repeatedly, when corporations self-disclose their criminal wrongdoing to us, as Barclays did, they will not get a pass, but we will take their disclosure, cooperation and remedial efforts into considerations.”6 The DPA noted that, as part of its cooperation, Barclays had reviewed more than 100 million records, interviewed more than 175 current and former Barclays employees, and voluntarily enhanced its sanctions compliance program.7
Court Approval of the DPA
The Court held two hearings over a three day period during which it expressed serious reservations over the resolution. At a initial hearing on August 17, 2010, Judge Sullivan referred to the DPA a “sweetheart deal” and an “accommodation to a foreign bank, and that concerns me.” He questioned why the government was not “getting rough with these banks?” and seeking guilty pleas from them.8 At a further hearing on August 18, Judge Sullivan continued to question the propriety of this DPA and the use of DPAs generally. The Department’s representative replied that the DPA was a “fair and appropriate resolution” in light of the fact that the bank’s internal four year investigation had cost an additional $250 million.
The judge pointedly inquired if individuals would be charged, and if not, the reasons for not doing so. The Department stated that it had not concluded that any individual had violated U.S. law. Judge Sullivan found “shocking” that after so expensive and comprehensive an investigation, no individuals were found to be criminally liable and queried if there was not a paper trail, adding that “senior management [of Barclays] has to know who . . .mastermind[ed]” this conduct. The government responded that it did not believe that any member of senior management was criminally responsible for the conduct.
Judge Sullivan asked why shareholders should pay for the illegal conduct of the company since the cost of the investigation and the forfeiture were funded from bank profits. He questioned whether these costs should be taken from the personal assets of senior management. He expressed concern that the government’s action suggested that white collar criminals “can pay for their justice.” Nevertheless, Judge Sullivan ultimately approved the DPA, with the caveat that Barclays appear every three months for a status conference so that he could “monitor what is going on.”
Barclays admitted that, for at least a decade, it had violated U.S. and New York criminal laws “by knowingly and willfully moving or permitting to be moved hundreds of millions of dollars through the U.S. financial system on behalf of banks from Cuba, Iran, Libya, Sudan, and Burma,” and “persons listed as parties or jurisdictions” that were subject to U.S. economic sanctions.9 According to the factual statement that accompanied the DPA, Barclays followed customer’s instructions not to identify them in payment messages. 10 Barclays also processed payments for banks in sanctioned countries through an internal sundry or suspense account generally used for temporarily recording miscellaneous items until proper account designations were received. The government alleged that Barclays had “knowingly routed sanctioned payments” through these sundry accounts to “disguis[e] the true originator” of the payments and thus avoid them from being identified by OFAC filters used by U.S. banks and being blocked.11
Barclays also used an OFAC filter at its Poole, England, central payment center “to identify Sanctioned Entities in US dollar payment messages before the messages reached the United States.12 If a payment message was identified by the filter, Barclays would either return the payment to its originator, noting the language that had activated the filter and thus permitting the originator to resubmit the payment with the offending language excluded, or to alter the payment message if such an instruction was included.13
Further, Barclays used cover payments to conceal from U.S. banks the beneficiary and ordering customer information, thus allowing the processing of U.S. dollar transactions for banks in sanctioned countries.14 The government stated that “Barclays was aware of and accepted the fact that cover payments were being purposefully used to hide the identity of sanctioned parties so that the bank could continue to process payments involving” sanctioned entities and countries.15
Expanded Extra-Territorial Application of U.S. Economic Sanctions
Barclays is the latest foreign bank to settle charges that it had facilitated payments through the United States for countries and entities subject to U.S. economic sanctions. In January 2006, ABN AMRO Bank, N.V. (“ABN”) became the first foreign bank to settle such allegations when it agreed to pay a $40 million penalty to OFAC and the Board of Governors of the Federal Reserve System.16 Since then, Lloyds TSB Bank, PLC (“Lloyds”),17 Australia & New Zealand Bank Group, Ltd. (“ANZ”),18 Credit Suisse AG (“Credit Suisse”),19 and the Royal Bank of Scotland (“RBS”)20 have each been penalized for facilitating U.S. dollar payments involving targets of U.S. economic sanctions through the U.S. financial system by disguising, concealing or removing references to them in payment messages.
In the Lloyds, Credit Suisse, RBS, and Barclays cases, the U.S. has asserted its criminal jurisdiction over evasive conduct that occurred wholly outside of the United States that caused U.S. banks to process transactions that it would have otherwise been blocked or rejected as required by applicable sanctions regulations. These cases show that the government is determined to punish any conduct that impedes the effective enforcement of U.S. sanctions laws and regulations, regardless of where the conduct occurred.
Financial institutions and companies that conduct business directly or indirectly with countries, entities or individuals subject to U.S. economic sanctions should be mindful of this expansive extraterritorial reach of U.S. laws. In addition, it should be noted that the International Emergency Economic Powers Enhancement Act (“IEEPA Enhancement Act”) makes it unlawful for a person to “cause a violation” of, as well as to violate, or attempt or conspire to violate, economic sanction regulations promulgated under IEEPA.21 Although enacted in 2007 (after much of the conduct in the above referenced cases occurred), the government is nonetheless determined to penalize foreign institutions for causing such violations.
In light of the IEEPA Enhancement Act penalization of the “causation” of violations of IEEPA sanctions, and the government’s demonstrated interest in prosecuting those who evade U.S. sanctions laws and regulations regardless of where the conduct occurred, U.S. and foreign financial institutions and other companies should heighten their compliance efforts lest they become prosecution targets. The redoubled U.S. government interest in further sanctioning Iran, as evidenced by the recent enactment of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010,22 and other recent enhanced enforcement by Justice Department prosecutors,23 suggest that companies that conduct business, even indirectly, with Iran or other countries or entities subject to economic sanctions, should evaluate whether their sanctions compliance programs are sufficiently robust to meet current enforcement priorities.