On January 23, 2014, the US Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it had entered into a $152 million settlement agreement with Clearstream Banking S.A. (Clearstream) of Luxembourg.
Based on the settlement announcement and other publicly available information, the settlement stems from an investigation into certain securities transfers from at least late 2007 through June 2008. The securities transfers were processed through Clearstream’s settlement systems in apparent violation of the OFAC-administered Iran sanctions regulations, and arise from a decision by Clearstream in 2007 to close its Iranian customers’ accounts. Clearstream maintained an omnibus account at a US financial institution through which it held securities nominally valued at $2.813 billion for the benefit of the Central Bank of Iran (CBI). The apparent violations cited by OFAC arise from the provision of securities-related services exported to the CBI.
OFAC contacted Clearstream in January 2013 with the preliminary findings of its investigation. At the time, OFAC took the position that Clearstream’s apparent violations of US sanctions could warrant a $340 million civil penalty. Clearstream, which contended that it complied with US sanctions, found the amount to be “unwarranted and excessive” and vowed to challenge it. Then, after OFAC completed its investigation in late October 2013, it informed Clearstream that the issuance of a pre-penalty notice would result in a penalty of $168.8 million – about half of its initial assessment.
Determining Clearstream’s Penalty
OFAC’s Economic Sanctions Enforcement Guidelines provide for the evaluation of various factors, both aggravating and mitigating, when determining an appropriate civil penalty. With respect to aggravating factors, Clearstream was determined to have:
1. Acted recklessly by failing to perform adequate due diligence while providing securities services in its omnibus account;2. Acted with knowledge, or reason to know, of the benefit to the CBI; and3. Caused significant harm to US sanctions program objectives.
However, Clearstream was granted significant mitigation for having undertaken the following remedial measures:
1. Strengthening its sanctions compliance controls, policies and procedures, which include enhanced customer due diligence, transaction monitoring and employee training;
2. Limiting which of its customers are eligible to maintain omnibus accounts; and
3. Requiring that customers certify that they will not permit their accounts to be used in any manner that would violate sanctions.
Clearstream was also credited with cooperating with OFAC’s investigation by engaging external firms to conduct a comprehensive investigation, and by providing “substantial and well-organized information,” among other things.
Despite the recent temporary suspension of certain limited sanctions pursuant to the Joint Plant of Action (JPOA), the US government points to this settlement as an example of its continued aggressive enforcement posture towards sanctionable conduct falling outside the scope of the JPOA. In its announcement, OFAC highlighted “the need for vigilance in the securities industry, where vehicles such omnibus accounts – as well as the intermediated nature of the securities custody industry itself – can serve to obscure the beneficial ownership interests of sanctioned parties.”