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The Office of Foreign Asset Control (OFAC) has issued a fine of $4 million to the
British Arab Commercial Bank (BACB) regarding violation of Sudanese
sanctions.
BACB operated a number of US dollar accounts on behalf of
Sudanese financial houses between 2010 to 2014. These payments were
processed through a bulk funding agreement totalling $190
million.
There are two important factors to note within the BACB
enforcement action:
The scope and extent to which banks and financial institutions
are liable to a potential OFAC action
The actual financial penalty, originally set at $229 million,
was reduced after an intervention by BACB's local regulator in the
United Kingdom
BACB has no offices, business or presence in the United States
but still received an OFAC enforcement action. The reason stated
for the action was that 'the process to fund its USD nostro
account, did involve transactions processed to or through US
financial institutions in apparent violation of US
economic sanctions.'
This case highlights the impact OFAC regulations can have even
on banks and institutions that have a minimal US business
operation. It is a timely reminder that OFAC's jurisdiction extends
to those who trade or make payments in USD, maintain a business
presence in the United States or operate within the global supply
chain with US patented goods, software or services.
The other interesting aspect to the enforcement action is the
98% decrease in the original penalty from $228 million to $4
million. OFAC state that it 'determined that the Bank's
operating capacity was such that it would face disproportionate
impact if required to pay the proposed penalty.' The United
Kingdom Prudential Regulation Authority stepped in and successfully
lobbied on BACB's behalf for the reduction.
The leniency shown by OFAC is surprising as past enforcement
actions have not always taken into consideration the ability of the
company to pay its fine. The example of ZTE Telecommunications in 2017,
ordered to pay a $1 billion fine that had the potential to put the
company out of business, does not appear to have been offered the
same terms as BACB. On the other hand, there are a few mitigating
factors for BACB; its willingness to co-operate with the OFAC
action and a number of remedial measures put in place by the bank
to prevent any further sanctions breach. This was not how ZTE
responded to its enforcement action at the time.
Equally, some conditions remain the same. BACB must commit to
regular reviews of its sanctions compliance program by the US
regulator, an internal review of its 'Know Your Customer'
procedures and processes, reorganising its executive structures and
strengthening its compliance teams in general.
The BACB case is a stark warning that breaking economic
sanctions can lead to severe consequences for a bank's core
business activity. Whilst the original enforcement fine was reduced
this is not a common occurrence and is unlikely to repeat itself in
future OFAC actions. Finally, banks and financial institutions need
to review their sanctions compliance program for exposure to the US
banking system and ensure that they have covered, as the bare
minimum, the main recommendations from the Framework for Compliance
Commitments.
Posted 24 September 2019 by Byron McKinney, Director - Product Management, Maritime & Trade, IHS Markit
