First Bank SA, a Romanian lender, and its US parent company JC Flowers & Co have agreed to remit $862,318 for First Bank’s processing of transactions that violated US sanctions on Iran and Syria. In a post on the US Treasury website, the Office of Foreign Assets Control (OFAC) ruled that First Bank “demonstrated a reckless disregard” for US sanctions in a series of breaches that occurred from 2016-19.
First Bank had processed 98 transactions with a total value of $3,589,189 through US banks on behalf of entities located in Iran and Syria. After JC Flowers acquired First Bank, Euro-denominated payments were made to persons in Iran. OFAC notes, however, that the maximum possible civil penalty totaled more than $31m. This amount was reduced substantially because the bank voluntarily disclosed the transactions, and the breaches were not viewed as egregious.
Critically, OFAC judged that First Bank did not understand that US sanctions also extend to banks without a physical presence in the country. These ‘secondary sanctions’ are a key tool of US foreign policy and are designed to protect national security interests by preventing non-US third parties from engaging in a range of specified trade activities with targeted countries.
In this case, OFAC judged the aggravating factors to be:
- A failure to implement “appropriate controls” to ensure compliance with US regulations on payment processing, alongside a failure to ensure transactions with a “US sanctions nexus” would be subject to additional review.
- First Bank “had actual knowledge or reason to know” it was responsible for processing payments on behalf of entities in Iran and Syria. It was in possession of finance and trade documents that referenced those countries.
- By conferring over $3.5m in economic benefit on entities in Iran and Syria, First Bank harmed the “integrity” of the Iran and Syria sanctions programs.
In mitigation, the bank hadn’t been fined for a sanctions violation in the five preceding years, cooperated with the investigation, and took remedial measures. These included updating the bank’s sanctions screening tool and implementing enhanced due diligence procedures. First Bank also more than doubled its compliance staffing tasked with sanctions oversight.
While firms are likely familiar with primary sanctions that apply within their local regulatory environment, compliance with secondary sanctions requires a broader approach. Firms must not only screen against their own country’s sanctions list but also those of any country they do business with. In this case, that meant sanctions lists maintained by OFAC.
To help compliance teams stay informed on the latest developments in sanctions programs around the world, we’ve created this guide: The Evolving Use of Sanctions.