BNP Paribas S.A. Reaches Global Settlement of U.S. Sanctions Violations Totaling Nearly $9 Billion
French bank BNP Paribas S.A. agreed in late June 2014 to a $963,619,900 settlement with OFAC in connection with allegations that it processed transactions to or through U.S. financial institutions that involved individuals, entities and countries subject to U.S. sanctions programs. These transactions led to more than 3,800 apparent violations of the Sudanese Sanctions Regulations (SSR), the Iranian Transactions and Sanctions Regulations (ITSR), the Cuban Assets Control Regulations (CACR) and the Burmese Sanctions Regulations (BSR). The large settlement amount apparently reflects OFAC’s estimation that (1) BNP’s alleged violations constituted an egregious case; (2) BNP did not submit a voluntary self-disclosure; (3) the alleged violations, representing a large volume of transactions over many years, appeared to have resulted from a systematic practice of employing methods to conceal the sanctioned parties’ involvement or interest in the transactions; and (4) despite BNP’s sophistication and size, it did not have adequate compliance policies in place. With a base penalty amount of $19,272,380,006, however, the settlement amount also reflects OFAC’s consideration of the fact that BNP cooperated in the investigation, agreed to a statute of limitations tolling agreement with multiple extensions and adopted remedial measures.
The OFAC settlement, the largest to date involving violations of U.S. sanctions, is part of a global settlement among BNP, OFAC and several U.S. state and federal government agencies, including the U.S. Department of Justice (DOJ), the New York County District Attorney’s Office, the Federal Reserve Board of Governors and the Department of Financial Services of the State of New York. As part of the agreement with DOJ, BNP agreed to plead guilty to the charge of conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) and to pay $8.9 billion, representing the proceeds derived from the transactions at issue. The agreement is historic, since it marks a departure from DOJ’s pattern of entering into deferred prosecution agreements with companies involved in sanctions violations. DOJ remarked that the hefty penalty was warranted, based on BNP’s prolonged misconduct and failure to cooperate with the U.S. government investigation. OFAC’s fine will be settled by the DOJ payments.
Bank of America, N.A. Enters into Settlement with OFAC Regarding Alleged Violations of Multiple Sanctions Programs
Bank of America, N.A. (BoA) agreed in late July to a settlement with OFAC of $16,562,700 regarding allegations that it violated multiple sanctions programs over approximately four years. OFAC alleged that BoA failed to properly block the accounts of, and processed more than 400 transactions on behalf of, individuals on OFAC’s Specially Designated Nationals (SDN) List and Specially Designated Narcotics Traffickers (SDNT) List, in violation of the Foreign Narcotics Kingpin Sanctions Regulations (FNKSR) and the Narcotics Trafficking Sanctions Regulations (NTSR). In addition, according to allegations, BoA did not file timely blocked property reports for SDNT accounts at the bank, in violation of the Reporting, Procedures and Penalties Regulations (RPPR).
Of note, the transactions at issue were valued at less than $200,000. The much larger settlement amount apparently reflects several factors. First, although BoA identified the majority of apparent violations, OFAC concluded that BoA’s disclosure was not voluntary, because OFAC was already aware of substantially similar apparent violations. Moreover, OFAC found that several of the violations were egregious, based on BoA’s failure to adequately address a known weakness in its SDN screening tool. In addition, OFAC noted BoA’s prior settlement for related activity, as well as its size and sophistication. With a reduction from the base penalty of more than $83 million, however, the settlement amount also reflected OFAC’s finding that some of the alleged violations may have been eligible for OFAC licenses, that BoA has since undertaken significant remedial action, and that BoA has hired additional compliance personnel and provided additional training to existing personnel.
Electronics Company Reaches $4 Million Settlement with OFAC for ITSR Allegations
Epsilon Electronics Inc. of California reached a $4,073,000 settlement with OFAC in late July in connection with alleged violations of the ITSR. OFAC alleged that Epsilon issued 39 invoices over a four-year period for sales of car audio and video equipment to a company that re-exports most of its goods to Iran and therefore knew or had reason to know that the products were to be transshipped to Iran. In its settlement announcement, OFAC noted that Epsilon issued five of these invoices after OFAC sent a cautionary letter explaining ITSR prohibitions. OFAC determined that these five transactions constituted an egregious case. The settlement amount, which is greater than the value of the goods exported, apparently reflects OFAC’s consideration that Epsilon acted in reckless disregard of U.S. sanctions, had no compliance program during the timeframe of the alleged violations, attempted to conceal the Iran-related sales, and offered false information in subpoena responses and other communications with OFAC. However, OFAC seems to have tempered its demand, based on the fact that Epsilon is a small company and agreed to a statute of limitations tolling agreement with OFAC.
IT Provider Settles Potential Civil Liability with OFAC for Trade Practices in Sudan and Iran
Network Hardware Resale LLC (NHR), a California-based provider of networking equipment and services solutions, agreed to a $64,758 settlement with OFAC for alleged violations of the SSR and ITSR, occurring between April 2008 and January 2011. During this time period, NHR allegedly exported 16 shipments of networking equipment and related accessories from the United States to Sudan, as well as two shipments with similar contents bound for Iran. OFAC determined that NHR’s actions resulted from a pattern of conduct and represented reckless disregard for U.S. sanctions requirements. With a reduction from the base penalty of $143,906, however, the settlement amount also reflected OFAC’s finding that NHR had no prior history of sanctions violations, voluntarily self-disclosed this matter, cooperated with OFAC during the investigation and promptly implemented corrective measures.
Red Bull North America, Inc. Settles with OFAC on Cuba Violation Claims
Energy drink giant Red Bull North America, Inc. (RBNA) agreed in late June to a $89,775 settlement with OFAC for seven alleged breaches of the CACR. In early June 2008, seven RBNA representatives spent 10 days in Cuba filming a documentary. RBNA management approved the travel associated with the filmmaking but failed to secure prior authorization from OFAC for the travel-related expenses.
OFAC established that RBNA was aware of existing U.S. sanctions, attempted to conceal the transaction and is a U.S. subsidiary of a multinational company well versed with the terms of international trade practices. Nevertheless, the settlement amount, which is less than the base penalty amount of $105,000, also reflects OFAC’s determination that RBNA took remedial measures by initiating an OFAC compliance program.
Consumer Products Manufacturer Tofasco of America, Inc. Settles Alleged Iran-WMD Violations with OFAC
California-based Tofasco of America, Inc. agreed in mid-July to a settlement with OFAC of $21,375 in connection with an alleged breach of the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR). In April 2009, Tofasco approached a bank to administer a letter of credit transaction compensating for a chair shipment involving the Islamic Republic of Iran Shipping Lines (IRISL), an entity whose property and interests are blocked pursuant to the WMDPSR. When denied, Tofasco engaged another banking institution to process this letter of credit transaction with a substitute bill of lading intentionally omitting the reference to the IRISL.
OFAC established that Tofasco demonstrated a reckless disregard for Iran sanctions, manipulated documents to elude sanctions and did not voluntarily self-disclose. However, the penalty was reduced from the base amount of $25,000 in apparent recognition that Tofasco is a small company lacking the sophistication of an organization equipped with international trade experience, and it has no prior sanctions violations history.
Read OFAC’s summary here.
Russian National Pleads Guilty to Conspiracy Charges Violating the AECA and the ITAR
Following a lengthy investigation by the U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations, Dmitry Ustinov pled guilty in the U.S. District Court for the District of Delaware to conspiring to export high-tech military technology, including night-vision devices and thermal imaging scopes subject to the ITAR to Russia.
According to a statement released by the U.S. Attorney’s Office for the District of Delaware, Ustinov partnered with a Virginia-based supplier from July 2010 to April 2013 to purchase and export this equipment without obtaining the required licenses from the U.S. Department of State. Ustinov orchestrated payments for various types of high-tech, night-vision and targeting devices via international wire transfers to the supplier’s bank account.
Upon sentencing on October 2, 2014, Ustinov faces a maximum penalty of five years in prison, three years of supervised release and a $250,000 fine.
Texas Woman Pleads Guilty to ITAR Violations and Is Sentenced to Prison
The U.S. Attorney for the District of Connecticut announced on June 19, 2014, that Janiece M. Hough of Kempner, Texas, had admitted to one count of smuggling goods from the United States, in violation of the ITAR. Hough sold two Advanced Combat Optical Gunsights (ACOGs), items on the U.S. Munitions List, to an individual in Connecticut with the understanding that the equipment’s intended destination was Germany. Hough was not licensed by the U.S. Department of State.
District Judge Stefan R. Underfill sentenced Hough to serve six months in federal prison, to be followed by three years’ supervised release, the first eight months of which is to be served as home confinement. Hough was also mandated to perform 100 hours of community service and forfeit a penalty of $198,054.
Based in Fort Hood, Texas, Hough was employed by a government contractor and operated a side e business offering surplus military clothing and equipment on eBay. She procured this merchandise from U.S. Army personnel, including a purchase from Michael Barth, who was sentenced to 24 months’ imprisonment in April 2013.
Read the Department of Commerce’s Bureau of Industry and Security (BIS) press release and statement issued by the U.S. Attorney for the District of Connecticut. Local coverage available at Our Town Texas.