OFAC Issues Finding of Sanctions Violation Against UAE Bank
A United Arab Emirates bank violated the U.S.’s now-repealed Sudanese Sanctions Regulations when it illegally processed more than 1,700 payments for Sudanese banks, the Office of Foreign Assets Control said Nov. 9. The bank, Mashreqbank psc, was issued a “finding of violation” by OFAC instead of a fine, partly because the bank voluntarily entered into a “retroactive statute of limitations waiver agreement,” which allowed OFAC to charge Mashreq with the sanctions violations.
Although Mashreq cooperated significantly with OFAC and avoided a fine by the Treasury Department, it was penalized $100 million by the New York Department of Financial Services and issued a cease and desist order from the Federal Reserve. “The sanctions regulations exist to protect the national security of the United States,” acting DFS Superintendent Adrienne Harris said, “and Mashreq’s actions to circumvent those regulations were illegal and dangerous and will not be tolerated in an institution that has enjoyed the benefits of doing business in New York.”
The bank’s London branch illegally processed the payments through U.S. financial institutions between 2005 and 2009, when it “deliberately” hid certain information from U.S. banks that would have identified the payments as illegal, DFS said in a consent order. Mashreq did this by instructing its employees to avoid “populating certain fields in the payment messages” to conceal their Sudanese connections, DFS said. “Because the payment messages sent to the U.S. financial institutions did not include the originating Sudanese bank,” OFAC said, “Mashreq’s U.S. correspondents could not interdict the payments, and the payments were successfully processed through the U.S. financial system.” DFS said Mashreq processed more than $4 billion in illegal payments between 2005 and 2009.
OFAC pointed to several mitigating factors to explain why it didn’t issue a fine, including Mashreq’s willingness to “toll the statute of limitations and extend that agreement multiple times,” the fact that it hadn’t received a penalty notice in the previous five years, and the fact that the total value of the transactions was higher than the total harm caused to the Sudanese Sanctions Regulations. The bank also stopped the activity that led to the violations “many years” before OFAC started its investigation in 2015.
Mashreq also told OFAC that it increased its compliance staff by more than 400% since 2007, closed all U.S. dollar accounts of Sudanese banks in 2009, and took a range of steps to improve its compliance program, including creating a new requirement for “originating bank and customer information to be included in payment messages.” The bank also transitioned from manual to automated screening of customer names in 2011, hired a law firm to conduct an OFAC risk assessment and installed upgraded vendor sanctions screening software. In total, Mashreq said it spent more than $122 million on “compliance enhancements” over the last four years, including new staff, internal controls, independent reviews and training. It also plans to spend another $40 million on “further compliance improvements and enhancements,” OFAC said.
The agency also pointed to several aggravating factors, including the fact that Mashreq “caused harm to the integrity of a U.S. sanctions program” and acted “recklessly regarding its U.S. sanctions obligations when” it didn’t “identify the involvement” of U.S.-sanctioned parties in specific payments. OFAC also said some senior bank employees knew about the illegal payments, and the bank’s internal controls didn’t stop it from violating U.S. sanctions.
The Federal Reserve said it issued a cease and desist order against Mashhreq for “having insufficient policies and procedures” to comply with U.S. sanctions laws. The order requires the bank to “implement an enhanced program to ensure global compliance with U.S. sanctions.”
Mashreq said the “core conduct” of the violations stopped in 2009, and OFAC said Mashreq “had intended to comply” with U.S. sanctions. “Mashreq has since dedicated significant resources to strengthening its compliance policies and procedures to ensure it is conducting its business in accordance with all applicable laws and regulations in the regions in which Mashreq operates,” the company said in a statement.