African media is reporting that the Office of Foreign Assets Control (“OFAC”) and CBZ Bank are in the process of negotiating over a jaw-dropping proposed penalty.  The penalty negotiations arise from CBZ’s allegedly having cleared U.S. dollar transactions for ZB Bank, a bank in Zimbabwe that appears on OFAC’s List of Specially Designated Nationals and Blocked Persons.

The charges by OFAC involve 15,127 violations, which led OFAC to write this in its initial penalty notice sent to CBZ in March:

Accordingly, the base penalty for the apparent violations equals the applicable schedule amount for each apparent violation, capped at US$250 000 per apparent violation, which in this case totals US$3,856,505,460.

The math here is a little whacked out for some reason since 15,127 times $250,000 is $3,781,750,000.  But what’s several hundred thousand dollars, more or less, when you’re talking Dr. Evil sized billion dollar amounts?  According to the press accounts, OFAC has already been bargained down to $385 million.  Of course, that is still a good chunk of the banks current total assets of $2.1 billion.

The transactions involved were allegedly all denominated in U.S. dollars.  Even so, the bank is trying to argue with OFAC that the transactions were “in-country” and therefore not subject to U.S. sanctions.  It’s not quite clear whether this is an argument that only transactions by CBZ with SDNs not in Zimbabwe may be sanctioned, an argument not likely to get much traction.  Or, alternatively whether this is an argument that no correspondent accounts in New York were used to clear the transactions, something that might have been possible for a few small transactions but not very likely for all 15,127 violations.

The better argument here, it seems, is that a $385 million dollar penalty against a bank with $2 billion in assets could cause a run on the bank and could harm ordinary people in Zimbabwe with accounts at the bank.  That, of course, assumes that the U.S. government cares about ordinary people in Zimbabwe.

The Office of Foreign Assets Control (“OFAC”) announced yesterday that Barclays Bank agreed to cough up $2,485,890 to settle charges that it dealt with parties blocked under the Zimbabwe sanctions. At issue were three parties that were not themselves on the SDN List but which “were owned, 50 percent or more, directly or indirectly, by” the Industrial Development Corporation of Zimbabwe (“IDCZ”).  Because IDCZ was put on the SDN List in 2008, the three parties at issue were blocked under OFAC’s 50 percent guidance.

The OFAC announcement offers a confusing description of how and why Barclays did not determine that the entities at issue were owned by blocked parties and were therefore themselves blocked. The story, such as it is, starts with OFAC noting that “local restrictions precluded Barclays from implementing measures for complying with economic sanctions, including sanctions screening, in Zimbabwe.” Because Barclays in Zimbabwe was legally forbidden to screen customers, Barclays did the screening in London, using electronic information which the Zimbabwe Barclays maintained but which, for some reason, did not include information beyond the name of the customer. As a result, Barclay’s processed transactions for the three IDCZ-owned customers from 2008, when IDCZ was added to the SDN List, until 2012, when a U.S. financial institution in the chain of the transactions blocked four transfers involving one of the three blocked entities. Even after Barclays NY conducted an investigation and determined that the customer was blocked as a result of the 50 percent rule, Barclays in London failed to upload that information into its screening filter until after four more transactions involving that customer had been processed.

It seems clear that Zimbabwe’s blocking laws played more than a casual role in the inability of Barclays to determine that the customers at issue were blocked due to the ownership interest of IDCZ. This is the first I’ve heard of Zimbabwe apparently making it illegal to screen parties against the U.S. list but, not surprisingly, OFAC is not going to be bothered with local laws (as we’ve seen before). OFAC does say that these local laws make it a non-egregious case but that, of course, did not mean that Barclays would escape getting its knuckles thwacked for $2.5 million by the agency. Apparently OFAC believes that the road to hell is paved with non-egregious actions.

ABOVE: Robert Mugabe

The Zimbabwe Herald, the alleged newspaper and confirmed propaganda organ of the sanctioned Mugabe regime, is all excited by the launch of the China International Payment System (CIPS). The system, which was launched earlier this month, seeks to use SWIFT-formatted messages to facilitate cross-border payments in renminbi. Although the renminbi is the fourth most utilized currency for cross-border payments, it still only accounts for less than 3 percent of all such payments, making it doubtful that CIP will, at least any time soon, cause the renminbi to challenge the dollar, the euro or the pound sterling as an international currency.

So why are Mugabe’s minions so excited about CIPS? The headline says it all: China Unveils International Payment System – Checkmates Piracy of U.S. Treasury.” The image of OFAC flying a Jolly Roger over Treasury while the agency roams the seas, swigging rum and saying “Yo Ho Ho!” is, of course, a lively piece of propaganda right up there with that old chestnut “running capitalist dogs.” The story refers to sanctions on Zimbabwe as “illegal” no less than four times (for its slower readers) but fails to offer any theory of why exactly they are “illegal,” other than, I suppose, because Mugabe says so. (Dictators, naturally, have wide berth to say what is and isn’t legal.)

Of course, sanctions against Mugabe and his cronies and crony companies do make it difficult to engage in international trade given that the dollar constitutes about 45 percent of all such payments. Any dollar payment involving a sanctioned individual or company in Zimbabwe will be blocked the moment it hits a U.S. bank as it almost inevitably will. It’s doubtful that a renminbi payment system will provide any immediate or significant relief to Mugabe and company.

But I suppose everyone can dream, can’t they?  (I’m a Cubs fan, so I should know.)