On August 27, the U.S. Treasury announced that it had reached a settlement agreement with Romanian bank First Bank SA and its American parent company, JC Flowers & Co., for apparent violation of Iran and Syria sanctions. The bank and company agreed to pay $862,318 for processing 98 commercial transactions totaling $3.6 million through U.S. banks on behalf of parties in Iran and Syria. Out of the 98 transactions, 62 were linked to Iran, totaling $2.53 million.
Most of the payments were conducted in U.S. dollars through the U.S. financial system while others were transacted in Euros outside of the U.S. financial system. The latter 28 payments were still subject to U.S. sanctions because the bank was owned by an American.
The Treasury acknowledged that the violations were “voluntarily self-disclosed and non-egregious” and took that into consideration when determining the settlement amount of $862,318. Without mitigating factors, the maximum penalty could have been $31 million. But the Treasury also said that First Bank’s lack of controls amounted to a “reckless disregard” for U.S. sanctions regulations. The following are excerpts from the Treasury’s enforcement release.
OFAC Enters Into $862,318 Settlement with First Bank SA and JC Flowers & Co. for Apparent Violations of Iran and Syria Sanctions Programs
First Bank SA, located in Romania, and its U.S. parent company, JC Flowers & Co. (collectively, “Respondent”), have agreed to remit $862,318 to settle potential civil liability for First Bank’s processing of transactions in apparent violation of OFAC’s Iran and Syria sanctions programs. Specifically, First Bank processed 98 commercial transactions totaling $3,589,189 through U.S. banks on behalf of parties located in Iran and Syria. In 2018, after JC Flowers acquired a majority ownership interest in First Bank, First Bank processed Euro-denominated payments for persons located in Iran. The settlement amount reflects OFAC’s determination that the Respondent’s apparent violations were voluntarily self-disclosed and non-egregious.
Description of the Conduct Leading to the Apparent Violations
In early 2019, First Bank’s regulator, the National Bank of Romania, flagged a U.S. dollar transaction that First Bank had processed for a shipment of timber from Romania to Syria. As a result, First Bank commenced a five-year lookback in March 2019, the results of which Respondent voluntarily selfdisclosed to OFAC. The apparent violations related to three categories of payments (“Apparent Violations”):
- Processing U.S. Dollar Payments for Individuals or Entities Located in Iran: From March 2, 2016 to December 5, 2018, First Bank processed 34 outgoing payments totaling $991,246 through U.S. banks in which the end user of the underlying commercial transaction was in Iran and the payments were made on behalf of Iranian customers of First Bank. These transactions constituted an indirect exportation of financial services to Iran and caused U.S. financial institutions to export financial services to Iran, in apparent violation of §§ 560.203 and 560.204 of the Iranian Transactions and Sanctions Regulations, 31 CFR part 560 (ITSR).
- Processing U.S. Dollar Payments for Individuals or Entities Located in Syria: From July 15, 2016 to December 6, 2018, First Bank processed 36 outgoing payments totaling $1,061,104 through U.S. banks in which the underlying trade finance documentation showed that the importers were located in Syria. These transactions constituted an indirect exportation of financial services to Syria and caused U.S. financial institutions to export financial services to Syria, in apparent violation of §§ 542.205 and 542.207 of the Syrian Sanctions Regulations, 31 CFR part 542 (SySR).
- Processing Euro-Denominated Payments to Iran as a Foreign Subsidiary of a U.S. Company: In June 2018, JC Flowers acquired a majority ownership interest in First Bank, making First Bank an entity majority-owned by a United States person and thus subject to the prohibitions of § 560.215 of the ITSR. Between October 17, 2018 and March 4, 2019, First Bank processed 28 Eurodenominated payments totaling $1,536,840 outside the U.S. financial system involving Iranian parties and interests where there was no applicable authorization or exemption, with actual knowledge or reason to know that the payments were for Iranian parties. Accordingly, these transactions constituted apparent violations of § 560.215 of the ITSR.
The Apparent Violations resulted from First Bank’s lack of understanding of the scope of U.S. sanctions regulations applicable to financial institutions without a physical presence in the United States. In particular, the bank’s training and procedures for monitoring potential sanctions-related activity did not address the risk that First Bank could be indirectly exporting financial services through the U.S. financial system to sanctioned parties or comprehensively sanctioned jurisdictions noted in underlying trade finance and shipping documents, or processing transactions that did not transit the United States but were processed while majority owned by a U.S. person.
Penalty Calculation and General Factors Analysis
The statutory maximum civil monetary penalty applicable in this matter is $31,159,872. OFAC determined that Respondent voluntarily self-disclosed the Apparent Violations and the Apparent Violations constitute a non-egregious case. Accordingly, under OFAC’s Economic Sanctions Enforcement Guidelines (“Enforcement Guidelines”), the base civil monetary penalty amount applicable in this matter is $1,742,056 in this case. The settlement amount of $862,318 reflects OFAC’s consideration of the General Factors under the Enforcement Guidelines.
Click here for the full release.