International Banking Group Fined $3.7 Million for Multiple OFAC Sanctions Violations

An International private banking group has agreed to pay a civil penalty of $3.7 million to resolve OFAC sanctions violations. Initially facing a base civil penalty of $10.6 million, the reduction to $3.7 million was attributed to the company’s proactive self-disclosure, full cooperation with the investigative process, and corrective measures to prevent future violations.

This case demonstrates the sanctions risk faced by financial institutions with foreign clients when using omnibus accounts with U.S. firms. It also shows the importance of enacting rigorous screening for denied parties in client onboarding and ongoing sanctions compliance by re-screening existing clients.

Keep reading to learn more about this case and how it may help your organization make pre-emptive changes to refine your OFAC screening processes for denied parties.

Key Takeaways:

• A Swiss-based international banking group self-reported multiple OFAC sanctions breaches, prompting an investigation that led to the civil penalty.
• A reduced penalty of $3.7 million, down from an initial $10.6 million, was ultimately finalized, thanks to significant mitigating factors acknowledged by OFAC.
• This case highlights the critical need for diligent denied party screenings for new and ongoing client relationships to ensure compliance.

A press statement from the agency reports that EFG International AG, a Swiss private banking group, has settled for $3.7 million with the Office of Foreign Assets Control (OFAC) over compliance violations. The banking group, with over 40 global subsidiaries, was found in violation of OFAC sanctions regulations in three main areas:

• Violations of Cuba Sanctions Regulations: The financial institute facilitated 727 transactions worth $29 million for Cuban clients through its subsidiaries in various countries, involving securities transactions like purchases, sales, and redemptions. These transactions occurred at multiple international subsidiaries over a four-year period, representing a significant lapse in screening processes.
• Kingpin Act Violations: 141 transactions totaling $468,615 were processed for a sanctioned individual designated under the Kingpin Act. The account, which was opened in 2009 allowed them to continue to accrue dividends and payments after being sanctioned in 2014.
• Violation of Sanctions Against a Russian Individual: In 2023, OFAC blocked a Russian individual who happened to be a client of an EFG subsidiary. In response, the subsidiary quickly detected and restricted the sanctioned individual, promptly notifying its U.S. counterparts. However, despite implementing internal restrictions on the individual’s account, an internal control error allowed the financial institution to inadvertently process five dividend payments totaling $1,200. It is important to note that even small transaction amounts like this can land businesses in hot water.

The settlement figure reflects the global banking group’s voluntary disclosure and the non-egregious nature of the OFAC sanctions violations, among other remedial actions taken, which we'll explore further.

OFAC's calculation of the total settlement amount considers both aggravating and mitigating factors, a standard process following a non-compliance incident. The infraction itself makes up the base amount of the fine, and any factors that affect the overall situation are taken into consideration before arriving at the final amount.

For this case, the base penalty of $10.6 million was reduced to $3.7 million, emphasizing the importance of self-disclosure and compliance adjustments. Aggravating factors included:

• Lack of adequate OFAC sanctions screening tools for denied parties enabled these preventable infractions to occur.
• Knowledge, or reasonable cause to suspect, it managed assets for blocked individuals.
• The processing of 727 transactions over four years that benefited the entities in Cuba and EFG financially.

The key mitigating factors that lowered the fine included:

• The firm restricted access to accounts belonging to sanctioned clients.
• OFAC had not sent the organization a notice of violation, the infractions were self-disclosed by the Swiss bank.
• Significant remedial actions taken after the OFAC sanctions violations include enhancing screening processes and cooperation during OFAC's inquiry.

The financial institution’s proactive approach to solving its blind spots and bolstering its screening process ultimately saved it approximately $7 million. Conversely, if the company had ignored these violations or taken steps to aggravate the situation, it’s possible that the base-level fine would have been increased.

OFAC's press release highlights the risks and responsibilities of global financial institutions in avoiding transactions with denied parties. The complexity of global operations does not excuse non-compliance, and financial services organizations must screen all partners and clients against OFAC's denied party list to prevent services to sanctioned entities.

Compliance with global sanctions is complex but crucial. The agency provides some guidance to help ensure OFAC sanctions compliance, and it provides resources like the SDN List to aid in denied party screening efforts. Fortunately, there are cloud-based tools that allow organizations to streamline OFAC screening against denied party lists, such as the solutions offered by Descartes.

It’s clear that simple oversight can result in significant fines, underscoring the need for vigilant monitoring and compliance practices. Take the time to invest in establishing or refining your processes to ensure lasting compliance.

Descartes is a provider of an industry-leading suite of denied party screening, 3^rd party risk management, export classification and documentation automation solutions, as well as trade content for leading business systems, that can be integrated with minimal disruption, sometimes in under an hour.

Our OFAC sanctions screening solutions provide accurate search results for restricted and denied parties against OFAC's SDN list. We also provide additional data to help you navigate OFAC's 50 Percent Rule.

Is it time to strengthen or build a comprehensive OFAC compliance program? Learn more about how Descartes can protect your organization from OFAC sanctions, fines, penalties, and reputational damage.

You can also check out what Descartes' denied party screening customers have to say on G2, a third-party software review site. Our ranking as one of the top 50 best software for enterprises is a testament to our commitment to helping businesses sail through the choppy waters of OFAC sanctions screening and trade compliance in general.