Trade finance becomes of a high interest to regulators. We can see more and more headlines on the actions taken by different U.S. regulators against well-known international banks that have led to high fines. Just recently several settlement agreements were concluded between the U.S. Department of the Treasury and banks. A wellknown bank after three years of collaboration with regulators and by performing of extensive internal investigation reached a final settlement with OFAC (The Office of Foreign Assets Control). In December 2012 the U.S. Department of the Treasury announced settlements amounting to $375 million with another widely known bank. In the middle of 2012 investigation of one more bank was finished with a $619 million settlement, primarily for violation of the Cuban Assets Control Regulations¹.
These examples show that American regulators are tightening the screws and are pushing the banks to perform internal investigations and disclose voluntary past violations to avoid extremely high penalties for sanctions non-compliance. In addition American authorities are reinforcing sanctions especially against Iran putting pressure on the banks to exclude Iranian access to the American financial system.
In the last 10 years banks were still quite creative in avoiding the sanctions and trying to keep their business, they processed USD transactions through US financial institutions that involved countries, entities, or individuals subject to US sanctions. Banks could find several easy tricks in SWIFT messages to avoid the indications of sanctioned countries or entities. For example, they used bank’s own name or name of non-sanctioned client as an ordering customer in the place of real sanctioned client name or just removed information from SWIFT such as location information or replaced words by not clear abbreviations. All this helped to avoid payments to be stopped by financial institutions in the US. In addition to manipulating SWIFT information several banks were accused in advising their customers to use “front companies” to accept fund transfer on behalf of entities from sanctioned countries.
As shown by recent settlements regulators will continue to scrutinize transactions involving countries that are subject to US economic sanctions for compliance with OFAC regulations. It becomes a real challenge for the banks now to comply with sanctions as banks need to be conscious of the complexity and nuances of sanction law, to have a global clear sanction policy, technological base and competent staff.
¹ Source: official site of The Office of Foreign Assets Control