OFAC Settlement Highlights Sanctions Compliance Extends Beyond the US Dollar
On August 27, 2021, the US Department of the Treasury announced that it had reached a settlement agreement with Romanian bank First Bank SA (First Bank) and its US parent company, JC Flowers & Co. (JC Flowers), resulting from financial services First Bank provided to parties located in Iran and Syria. Specifically, JC Flowers and First Bank agreed to pay Treasury more than $850,000 in civil penalties associated with 98 commercial transactions that may have violated Treasury’s Office of Foreign Assets Control (OFAC)’s Iran and Syria sanctions programs.
According to Treasury, these 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 one regard, First Bank’s “lack of understanding” was typical of what is seen in many other OFAC settlement agreements with foreign banks operating outside the United States: First Bank processed trade finance transactions involving Iran and Syria in apparent violation of OFAC’s regulations because the payments were US-dollar denominated and transited the US financial system. What makes this settlement agreement notable is that OFAC also cited as apparent violations a number of Euro-denominated payments that occurred completely outside of the US financial system involving Iranian parties. This was because First Bank processed the payments after JC Flowers acquired a majority stake in the bank. Thus, even though the payments fell outside the US financial system, they were still prohibited by US sanctions because the bank is owned by a US person. While not an acceptable excuse from OFAC’s perspective, First Bank’s local Romanian employees may not have appreciated that Iranian-related payments may violate OFAC regulations even when not denominated in US dollars.
Accordingly, the settlement serves as a reminder to non-US banks and other non-US companies that US sanctions reach outside the United States in many dimensions, and there are no shorthand compliance measures that can guarantee protection from US sanctions (despite the common misimpression that avoiding US dollars is sufficient to avoid US sanctions). To learn more about these developments, read our Advisory here.
© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.