The Department of Commerce, Department of Treasury, and Department of Justice issued a Tri-Seal Compliance Note on July 26, 2023, outlining their individual policies on voluntary self-disclosure (VSD). The Office of Foreign Assets Control (OFAC) encourages voluntary disclosure of apparent sanctions violations. “OFAC considers VSDs to be a mitigating factor when determining appropriate enforcement action to take in response to a particular case. Additionally, in cases where a civil monetary penalty is warranted, a qualifying VSD can result in a 50 percent reduction in the base amount of a proposed civil penalty. In reviewing the underlying conduct in a VSD, OFAC considers the totality of the circumstances surrounding the apparent violation, including, among other factors, the existence, nature, and adequacy of the subject’s compliance program at the time of the apparent violation and the corrective actions taken in response to an apparent violation.”
Emigrant Bank OFAC Settlement
On September 21, 2023, the Department of Treasury’s OFAC published an Enforcement Release between OFAC and Emigrant Bank. The Enforcement Release noted that from 1995 to June 2021, Emigrant Bank opened, maintained, and facilitated monetary transfer to/from a certificate of deposit (CD) account for two Iranian nationals. Between June 2017 and March 2021, Emigrant facilitated 30 wire transfers in the approximate amount of $91,051.13. Emigrant had records verifying that the account holders were indeed Iranian with a permanent address in the country among other supplementary documents. These transfers were able to be successfully completed due to gaps in Emigrant’s sanctions compliance screening processes and an erroneous reliance on outdated guidelines regarding U.S sanctions on Iran. Due to a regulatory examination, Emigrant’s management team was able to identify the sanctioned account, and immediately restrict then close it while screening for similar accounts in the system.
OFAC determined Emigrant’s violations to be self-disclosed and non-egregious under the general factors and reached a settlement of $31,867.90; however, the maximum civil monetary penalty applicable to this matter was $9,928,410. There were several factors that played a key role in the decision for a reduced settlement.
OFAC determined the following to be mitigating factors: (1) OFAC has not issued a Finding of Violation or Penalty Notice to Emigrant in the five years preceding the earliest date of the transactions giving rise to the Apparent Violations; (2) Once Emigrant discovered the potential violations, it took appropriate remedial steps, including placing restrictions on the account in June 2021 and closing the account in November 2021, updating its customer data system to avoid screening inaccurate countries of residence, searching for other potentially violative accounts, and screening the permanent address of each account; (3) Emigrant voluntarily self-disclosed the Apparent Violations and cooperated with OFAC’s investigation, including by entering into a tolling agreement with OFAC; and (4) All of the transactions within the statute of limitations were sent to the Emigrant account of the accountholder’s son and daughter-in-law, residents of the United States; these payments resulted in negligible harm to U.S. sanctions policy objectives.
OFAC also noted that “Emigrant also took remedial action by implementing additional sanctions training and searched for other accounts whose owners reside in comprehensively sanctioned jurisdictions.”
Next Steps to Consider
From Russia, Palestine, South America, and the Middle East, the US Treasury is announcing new sanctions seemingly daily. Financial institutions should consider their risk related to foreign nationals and foreign addresses and understand how their systems are actively screening customer names and geographies. Financial institutions should understand how core system and AML system parameters are set relative to sanctions and determine if those parameters are adequate based on the FIs OFAC/Sanctions risk. Financial institutions should ensure that the geographies are screened for international transactions such as wire transfers and IAT ACHs as some sanctions programs cover countries in a more broad manner (e.g., Iran, North Korea, Cuba). The FIs OFAC/Sanctions policy and procedures should clearly identify which systems and specifically which reports are used for screening and the area in which the systems/reports are screening (e.g., customer base, wire transfers, IATs). It is not uncommon to find instances where FIs assume a core report covers a certain transaction type or customer base only to later determine during an independent review that those assumptions are incorrect. Several commonly utilized AML software systems have sanctions options for other lists in addition to the SDN lists that can be utilized for sanctions monitoring and AML risk purposes. Review these options, if available, and consider adding lists such as the US Department of State’s Terrorist Exclusion List, the United Nations Security Council Consolidated List, and the US Department of Commerce’s BIS Entity List.
For further information regarding VSD and the Emigrant Bank case, see below:
OFAC settlement with Emigrant Bank Case
Tri-Seal Compliance Note: Voluntary Self-Disclosure of Potential Violations
Authors: Jeremy Clifton CRCM CAMS, Nick Milcarek
Emigrant Bank OFAC Settlement
On September 21, 2023, the Department of Treasury’s OFAC published an Enforcement Release between OFAC and Emigrant Bank. The Enforcement Release noted that from 1995 to June 2021, Emigrant Bank opened, maintained, and facilitated monetary transfer to/from a certificate of deposit (CD) account for two Iranian nationals. Between June 2017 and March 2021, Emigrant facilitated 30 wire transfers in the approximate amount of $91,051.13. Emigrant had records verifying that the account holders were indeed Iranian with a permanent address in the country among other supplementary documents. These transfers were able to be successfully completed due to gaps in Emigrant’s sanctions compliance screening processes and an erroneous reliance on outdated guidelines regarding U.S sanctions on Iran. Due to a regulatory examination, Emigrant’s management team was able to identify the sanctioned account, and immediately restrict then close it while screening for similar accounts in the system.
OFAC determined Emigrant’s violations to be self-disclosed and non-egregious under the general factors and reached a settlement of $31,867.90; however, the maximum civil monetary penalty applicable to this matter was $9,928,410. There were several factors that played a key role in the decision for a reduced settlement.
OFAC determined the following to be mitigating factors: (1) OFAC has not issued a Finding of Violation or Penalty Notice to Emigrant in the five years preceding the earliest date of the transactions giving rise to the Apparent Violations; (2) Once Emigrant discovered the potential violations, it took appropriate remedial steps, including placing restrictions on the account in June 2021 and closing the account in November 2021, updating its customer data system to avoid screening inaccurate countries of residence, searching for other potentially violative accounts, and screening the permanent address of each account; (3) Emigrant voluntarily self-disclosed the Apparent Violations and cooperated with OFAC’s investigation, including by entering into a tolling agreement with OFAC; and (4) All of the transactions within the statute of limitations were sent to the Emigrant account of the accountholder’s son and daughter-in-law, residents of the United States; these payments resulted in negligible harm to U.S. sanctions policy objectives.
OFAC also noted that “Emigrant also took remedial action by implementing additional sanctions training and searched for other accounts whose owners reside in comprehensively sanctioned jurisdictions.”
Next Steps to Consider
From Russia, Palestine, South America, and the Middle East, the US Treasury is announcing new sanctions seemingly daily. Financial institutions should consider their risk related to foreign nationals and foreign addresses and understand how their systems are actively screening customer names and geographies. Financial institutions should understand how core system and AML system parameters are set relative to sanctions and determine if those parameters are adequate based on the FIs OFAC/Sanctions risk. Financial institutions should ensure that the geographies are screened for international transactions such as wire transfers and IAT ACHs as some sanctions programs cover countries in a more broad manner (e.g., Iran, North Korea, Cuba). The FIs OFAC/Sanctions policy and procedures should clearly identify which systems and specifically which reports are used for screening and the area in which the systems/reports are screening (e.g., customer base, wire transfers, IATs). It is not uncommon to find instances where FIs assume a core report covers a certain transaction type or customer base only to later determine during an independent review that those assumptions are incorrect. Several commonly utilized AML software systems have sanctions options for other lists in addition to the SDN lists that can be utilized for sanctions monitoring and AML risk purposes. Review these options, if available, and consider adding lists such as the US Department of State’s Terrorist Exclusion List, the United Nations Security Council Consolidated List, and the US Department of Commerce’s BIS Entity List.
For further information regarding VSD and the Emigrant Bank case, see below:
OFAC settlement with Emigrant Bank Case
Tri-Seal Compliance Note: Voluntary Self-Disclosure of Potential Violations
Authors: Jeremy Clifton CRCM CAMS, Nick Milcarek
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