Aug
26
Australian Bank Agrees to Pay $5.75 Million to OFAC
Posted by Clif Burns at 7:08 pm on August 26, 2009
Category: OFAC
ANZ Bank, Australia’s third largest bank, recently agreed to pay to the Office of Foreign Assets Control (“OFAC”) a fine of $5.75 million to settle allegations that the bank had engaged in transactions in Sudan and Cuba in violation of the U.S. embargo on those two countries. The OFAC announcement of the settlement noted that ANZ manipulated the SWIFT messages related to the Sudan transactions by removing all references to Sudan. ANZ was liable for these violations as a result of its banking office in New York City.
According to the announcement, 31 transactions with a total value of $106 million were involved. Given the size of the agreed penalty, it is clear that the applicable penalty to this case was not the penalty applicable before the International Economic Powers Penalty Enhancement Act (or $50,000 per transaction) but the enhanced penalties of $250,000 per violation or twice the value of the transaction imposed by that legislation. Under the enhanced penalties, ANZ was theoretically liable for $212 million. [UPDATE: Actually the maximum liability was $57,040,000. The Cuban transactions were subject to a maximum fine of $65,000 each. Thanks to Jim Slear in the comments for catching my mistake]
OFAC cited a number of mitigating factors justifying the reduced penalty including ANZ’s cooperation in the investigation, its voluntary disclosure of the Cuba violations, its adoption of revised compliance procedures, and its agreement to engage in, and report to OFAC, further audits of its activities to insure that it doesn’t process financial transactions involving embargoes countries through U.S. financial institutions. Australian banking authorities have agreed to review these examinations. The $5.75 million paid by ANZ is substantially less than the fines paid by Lloyds, ABN Amro and USB for similar violations which were, respectively, $350 million, $80 million and $100 million.
An article in the Brisbane Times provides more background on ANZ’s dealing with embargoed countries:
ANZ initially became aware of the issue in late 2006 when regulators last year blocked a $US15,000 transaction involving the import of stone from Iran.
ANZ appointed Deloitte to conduct an independent investigation of more than 330,000 trade finance transactions for Australian and international clients going back five years. This ultimately turned up 42 deals found to have breached US economic bans on 13 countries. However the fine from the US Treasury only relates to 31 trade finance transactions involving parties in Sudan and Cuba.
The OFAC announcement states that ANZ didn’t voluntarily disclose the Sudan transactions. That is somewhat hard to reconcile with this report of the Deloitte investigation unless ANZ kept the Deloitte investigation internal until OFAC independently uncovered the Sudan transactions.
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7 Comments:
Clif,
OFAC’s announcement states:
“Although ANZ did not voluntarily self-disclose the apparent violations of the Sudanese Sanctions Regulations, ANZ substantially cooperated with OFAC by conducting an extensive review of transactions. This review identified additional apparent violations of the Sudanese Sanctions Regulations of which OFAC was not aware, as well as apparent violations of the Cuban Assets Control Regulations, which ANZ voluntarily self-disclosed to OFAC.”
I read this to mean that OFAC discovered at least one potential violation of the Sudanese Sanctions Regulations and ANZ was notified. ANZ launched an internal investigation and discovered and voluntarily reported to OFAC additional apparent violations of the Sudanese Sanctions Regulations as well as apparent violations of the Cuban Assets Control Regulations.
What I wonder about are the other 11 deals implicating 11 other countries. Would it be common practice for OFAC to settle these other allegations with ANZ privately and without penalty?
OFAC’s decision to mitigate the penalty and not fining ANZ over $100 million (twice the amount of each economic sanctions violation [transaction] under the International Emergency Economic Powers Enhancement Act) was that ANZ cooperate and took prompt remedial response by upgrading their detection systems in addition to implementing new policies and procedures.
Another reason given was that in the years preceding the transactions, ANZ had not been subject to an OFAC enforcement action. With regard to the latter, it could very well be because they were never caught. With the former, it’s not like ANZ had any choice but to cooperate. They had to clean up their act.
Rather ironic that one of the remedial action ANZ is enacting is the implementation of an enhanced filtering system to detect transactions that might violate US sanctions. The Sudanese wires were deliberately effected, not because of system failure nor were they inadvertent transactions. OFAC’s decision is contrary to the International Emergency Economic Powers Enhancement Act.
There are some who believe the low fine is related to the depressed economy and that OFAC didn’t want to wipe out ANZ with a huge fine. My response? Duh? Didn’t ANZ cough up $550 million to acquire the RBS’ Asian banking operations last year?
Seriously speaking, I have spoken to some very senior and respected banking compliance officers who have been in the industry for over 40 years and they feel ANZ got a sweetheart deal. Given the same kind of circumstances, I rather doubt other financial institutions would have –or will–make out as well as ANZ.
Regards,
Kelly Yip
There is a serious question as to whether imposition of the higher penalties on acts that took place prior to enactment is constitutional. The legislative history makes clear that these “enhanced” penalties are punitive, not remedial. Perhaps the Aussies at A N Zed just have more fortitude in facing off with OFAC.
I believe the maximum calculation here should be closer to $57.04 million because the Cuba violations are TWEA-based, which carry a maximum civil fine of $65,000 and no transaction value plus-up.
Assuming the violations were deemed egregious (which seems so based on the penalty) under OFAC’s guidelines, the maximum civil fines would be $56 million for the Sudan violations(possibly higher if some transactions were valued at less than $250,000) plus $1,040,000 (16 X $65,000) for the Cuba violations.
If I am correct, this means the mitigation is on par with that given to National Australia Bank (i.e., almost 90 percent), but the penalty was many times higher because of the new transaction-based penalties under IEEPA for the Sudan violations.
Jim, your calculation is more accurate than mine because the Cuban penalties are indeed calculated under TWEA, not IEEPA. I’ve updated the post and credited you.
Does anyone know what happens to the money that OFAC/DDTC/BIS collect through fines? It seems there is a good amount of money involved & I’m wondering if we know where it goes?
Thanks!
Fines collected by these agencies are remitted to the General Treasury. If the agencies got to keep them them, DDTC could finance itself without imposing an unconstitutional export tax disguised as a registration fee.
