Typically when there is a civil penalty announcement by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) there is not a lot of detail included in the in the announcement. When it does happen it is usually when a financial an enforcement case with a financial institution is being resolved. Yesterday, was no different, when OFAC published the settlement agreement between themselves and Royal Bank of Scotland (“RBS”). RBS’ $33 million settlement with OFAC was the result of addressing a series of violations of country based sanctions programs and occurred simultaneously with settlements between RBS and The Board of Governors of the Federal Reserve System, and between RBS and the New York Department of Financial Services.
The conduct that served as the bulk of the factual basis was RBS’ policy of removing or leaving out information from MT202 cover payments so that certain transactions in US Dollars with destined to certain sanctioned countries (Cuba, Sudan, Burma, and Iran) could occur and for their manipulation of software and internal processes to ensure certain information was not included in those cover payments. Their processing of such transactions with Sudan was their greatest set of violation in which they processed approximately $32 million payments over a four (4) year period.
It seems RBS ceased its prohibited behavior in 2009, by implementing stricter controls and eliminating their policy of manipulating the information included in the MT202 cover payments. In addition, RBS cooperated with OFAC’s investigation, going so far as to sign a tolling agreement which allowed OFAC to continue its investigation past the five (5) year statute of limitation mark. What is interesting to note here is that OFAC will not actually be taking the settlement from RBS, but satisfaction of this settlement will occur when RBS pays their penalty to The Board of Governors of the Federal Reserve System.
The violations that occurred here are all related to the export of services (financial) to sanctioned countries and/or dealings in blocked property. The type of conduct that occurred in the RBS matter was not uncommon during the early and mid-2000s and is usually what we see in these types of bank civil penalty cases. While OFAC may get a bad rep for massive penalties and settlements, it should be noted that when these larger enforcement actions take place, there are usually multiple investigations going on and penalties being doled out. As such, it is not uncommon for an OFAC settlement to be deemed satisfied by a payment to another agency for violations arising out of the same conduct as was the case here. That, of course, shouldn’t be taken to mean that OFAC compliance, particularly for financial institutions is not of the utmost importance, but rather, sometimes the numbers that reach the headlines in these cases don’t always reflect the true nature of the settlement or penalty being imposed.