A large foreign banking institution, Credit Suisse AG (the “Bank”), agreed to pay $536 million to settle apparent violations of sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). The fine is the largest sanctions penalty assessed by OFAC to date, and is part of a global settlement that also involves the U.S. Department of Justice and the New York County District Attorney’s office. In addition to the fines, the Bank agreed to the filing of a criminal information in the U.S. District Court for the District of Columbia charging the Bank with violating the International Emergency Economic Powers Act (“IEEPA”) and accepted and acknowledged criminal responsibility for its conduct. As explained below, the Bank also consented to the issuance of a Cease and Desist Order (the “C&D Order”) by the FRB.
As asserted by OFAC in its press release and in its Settlement Agreement with the Bank, for more than 20 years the Bank engaged in the practice, in connection with payment transactions routed to or through the United States, of stripping or changing information in wire transfer instructions regarding the identities of the actual originators or beneficiaries of the transactions. For transactions totaling hundreds of millions of dollars, the actual originators or beneficiaries were Specially Designated Nationals, or parties from or located in Iran, Cuba, Sudan or other OFAC-sanctioned jurisdictions, making the transactions prohibited under OFAC sanctions regimes. The Bank also instructed its Iranian clients to falsify wire transfer instructions to enable the transactions to pass undetected through the U.S. financial system. In furtherance of these practices, the Bank developed internal procedural guidelines and trained employees to structure transactions to avoid disclosing the involvement of OFAC-sanctioned parties and jurisdictions. These actions were discovered by the Bank and halted internally in 2006, and the Bank then voluntarily disclosed the issue to OFAC.
The severity of the penalty assessed to the Bank reflects OFAC’s determination under its recently finalized enforcement guidelines (see the December 1, 2009 Alert) that the apparent violations were egregious. In making that determination, OFAC pointed to the presence of a number of aggravating factors, including the substantial economic benefit to sanctioned parties, the scope and severity of the apparent violations, and the awareness of the conduct within the Bank. While these past actions by the Bank contributed to the imposition of a large penalty, OFAC credited the Bank with taking certain positive steps, including voluntarily disclosing the apparent violations, taking remedial actions to reduce the likelihood of further violations, and providing extensive and substantial cooperation to OFAC’s investigation, all of which are viewed as mitigating factors under OFAC’s enforcement guidelines.
The Bank also consented to the issuance of the C&D Order by the FRB. Under the C&D Order, the Bank will be required to provide the FRB and the Swiss Financial Market Supervisory Authority (“FINMA”), the Bank’s home country supervisor, with an enhanced OFAC compliance program. Among other things, the C&D Order states that this compliance program should address (1) assessment of OFAC compliance risks related to the Bank’s business outside of the United States, (2) policies and procedures to ensure compliance with U.S. laws regarding cross-border payments, (3) establishment of a compliance reporting system to capture transactions involving OFAC-sanctioned persons and jurisdictions, (4) procedures for integrating the OFAC compliance program into the Bank’s overall compliance programs, (5) adequate training of the Bank’s employees, (6) an audit program to test OFAC compliance, and (7) an annual review of the OFAC complianceprogram by qualified personnel of the Bank or consultants. The Bank will be required to adopt the approved compliance program within ten days of approval by the FRB, and will need to report to the FRB and FINMA regarding its compliance with the program on a quarterly basis.
The Bank agreed to the fines as part of deferred prosecution agreements with the U.S. Department of Justice and the New York Country District Attorney’s Office and in settlement of civil claims by OFAC. Under the terms of the settlement, the Bank will pay $268 million to the U.S. government and $268 million to the New York County District Attorney’s office.