The U.S. Department of the Treasury’s Office of Foreign Assets Control entered into a $132 million settlement with the UK’s Standard Chartered Bank (SCB) over alleged violations of U.S. sanctions laws. The case was the subject of much media scrutiny this past August when the New York Department of Financial Services issued an order regarding SCB’s activities with sanctioned entities.
A reporter with the BBC’s Persian service spoke with me today regarding the significance of the penalty OFAC has imposed. I came up with three:
1. Financial Cost to SCB. This appears pretty obvious one, but as I pointed out, with the monetary penalty comes naturally legal costs as well as the time of SCB’s staff and particularly legal and compliance departments which were presumably usurped by the investigation.
2. Reputational Cost to SCB. This exposure is clearly not something SCB would like and it highlights the extra-legal dangers of violating the laws.
3. Continuation of a Theme. Again we see another major bank (and again, another foreign bank) penalized for violating the sanctions laws. Last summer, OFAC imposed a $600m+ penalty on ING bank for all types of dealings with sanctioned entities (in that case, particularly Cuba), and this is the latest of a string of these cases.
The challenge that these cases pose is that while they probably go a long way in scaring many from violating the sanctions laws, they may give off the impression that OFAC and other governmental authorities only pursue the big fish. This is not true.
Companies large and small get penalized from OFAC, as do individuals. Criminal penalties can arise. Also, even if a civil or criminal penalty is not imposed, entangling oneself into a civil OFAC investigation can be a very costly process. As I often tell clients and others, it’s not a matter of paying [what is usually] a sizable legal fee, but it also takes substantial time to handle the back and forth that can arise from an OFAC investigation.
So how do we avoid these types of risks? Step one: Know the law. How does that happen? By instituting a sanctions compliance program. Compliance programs are not just reserved for Fortune 100 companies – even the smallest companies that are exposed to potential violations should strongly consider implementing a compliance program. Step two: Take steps to prevent violations. Compliance programs are not a luxury only for the largest. Naturally such programs (which often include training for employees, screening names, using the right language in a contract, etc.) can vary based on various factors, including the size of the company.Even small companies should consider implementing more modest but nonetheless critical compliance methods. This will not only reduce the risk of illegal behavior, but it is also viewed favorably by OFAC if a violation occurs.
What is your opinion on the settlement amount? Do you think it’s a fair penalty?
It will be interesting to determine how much money was illicit. The bigger issue is the fact that the bank had an explicit policy of stripping the wires. I noticed the tone of this settlement was very different from the NY Order, which seemed to almost imply that $250 billion of dirty money moved through SCB. There is a tendency out there among some to think that anything remotely connected with Iran is for evil purposes, but one most note that the country also buys detergent, car tires, and watches. That said, banks (and everybody else) must be vigilant and comply with the laws. This case highlights the seriousness of that need.
I agree with the part of the point I think you’re making which is that companies and lenders with specific knowledge of the law and the intent to skirt the law deserve higher penalties than those that made honest mistakes. Thank you for your observations and attention you’re giving to this case.