Louisiana’s pension fund for police has filed a lawsuit against JPMorgan Chase & Co. stemming from the bank’s $88.3 million settlement with the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) contending that the settlement constituted a breach of fiduciary duty by its directors.

The complaint was filed today in New York State Supreme Court. The case style is Louisiana Municipal Police Employees Retirement System v. Dimon, 653083/2011, and was filed in Manhattan. This complaint comes on the heels of an announcement last summer that JPMorgan agreed to resolve alleged violations of OFAC administered sanctions regulations including those involving the Cuban Assets Control Regulations and the Global Terrorism Sanctions Regulations.

As an investor in JPMorgan, the Louisiana Municipal Police Employees Retirement System provides retirement benefits for full-time municipal police officers in Louisiana. This organization accuses the current directors of the New York-based bank, including Chairman Jamie Dimon, of “knowingly” allowing violations of OFAC sanctions to occur.

According to OFAC’s press release on the settlement, JPMorgan, through its correspondent banks, engaged in prohibited financial transactions with sanctioned entities in countries including Cuba and Iran. As a result of these violations, JPMorgan agreed to pay $88.3 million to settle the violations.

This settlement covered JPMorgan’s actions between December 2005 to March 2011 involving the processing of 1,711 wire transfers for a total of $178.5 million from December 2005 to March 2006 in violation of sanctions targeting Cuba and facilitating a $2.9 million trade loan with a blocked affiliate of the Islamic Republic of Iran Shipping Lines.

The lawsuit does not specify the damages “caused by the individual defendants’ unlawful course of conduct and breaches of fiduciary duty,” or the costs to the company associated with the settlement, remedial measures, damage to goodwill and “increased regulatory scrutiny.”

When I review possible penalty scenarios for clients, the question sometimes comes up: “well if we are paying less in penalties than we are making by engaging in prohibited activities, shouldn’t we just look at potential liability as a cost of doing business?” Shaking my head, I always respond with a resounding “NO”. There are other consequences, outside of OFAC’s enforcement process that result from engaging in sanctions violations. For example, loss of reputation is common, as is the loss of business partners and clients who fear exposure to liability for sanctions violations that a company may engage in. Now we are seeing yet another consequence: potential lawsuits.

The point is that OFAC violations are never a cost of doing business and often cost more money in attorneys fees and loss of business than any penalty imposed by OFAC. As such, U.S. companies would be wise to continuously update their OFAC compliance programs and be on alert as to possible OFAC violations. Otherwise, it may not just be OFAC you have to worry about.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.