On July 24, 2014 Bank of America, N.A. entered into a settlement agreement (pdf) with the Office of Foreign Assets Control (OFAC) in which the bank agreed to remit $16,562,700 to settle potential civil liability for 213 apparent violations of the Foreign Narcotics Kingpin Sanctions Regulations (FNKSR), the Narcotics Trafficking Sanctions Regulations (NTSR), and the Reporting, Procedures, and Penalties Regulations (RPPR).
This $16.5 million dollar settlement figure is in connection to a mere $91,192 in prohibited transactions. Moreover, 7 of the 10 Specially Designated Nationals (SDNs) who benefited from these prohibited transactions have since been removed from the SDN List, further indicating the lack of any real harm caused by these violations. However, OFAC’s press release and settlement agreement fail to clearly recognize this fact as a mitigating factor.
Given (1) the high rate of SDN removals associated with this settlement agreement and (2) OFAC’s recognition that “some of the apparent violations might have been eligible for a specific license under OFAC’s existing licensing policy at the time the transactions occurred” leads to me to believe that the unauthorized transactions were associated with the provision of legal services to those SDNs.
Although both 31 C.F.R. 598.507 and 536.506 authorize the provision of legal services to Specially Designated Narcotics Traffickers (SDNTs), receipt of payment for legal fees must be specifically licensed. Furthermore, the release of limited amounts of blocked funds for payment of legal fees must also be specifically licensed. You can read more about that on the following pdf. Given Bank of America’s status as a U.S. person, it seems likely that payments were made from what should have been blocked accounts without a specific license.
The apparent OFAC violations in this case were organized into three sets:
- Between September 10, 2005 and March 31, 2009 Bank of America processed 116 transactions totaling $28,596 for three SDNTs sanctioned pursuant to the FNKSR. Those three “narcotics traffickers” were: (i) Adrian Orozco Cardenas, (ii) Luis Miguel Carillo Rodriguez (removed from the SDN List on 06/10/2010), and (iii) Carlos Alberto Sanchez Osuna (removed from the SDN List on 12/19/2012).
- Between September 11, 2005 and August 17, 2007 Bank of America processed 92 transactions totaling approximately $62,596 for three SDNTs sanctioned pursuant to the NTSR. Those three “narcotic traffickers” were (i) German Rosero Angulo (removed from the SDN List on 12/14/2012), (ii) Freddy Orlando Dominguez, and (iii) Rolando Vidal Caggigas (removed from the SDN List on 12/22/2006).
- Between October 21, 2006 and March 3, 2009 Bank of America failed to file timely blocked property reports regarding five accounts owned by four SDNTs sanctioned pursuant to either the NTSR or the FNKSR. Those four “narcotics traffickers” were (i) Eleazar Fontes-Moreno, (ii) Maria Teresa Giraldo Castaneda (removed from the SDN List on 06/29/2012), (iii) Oscar Ignacio Martan Rodriguez (removed from the SDN List on 12/12/2012), and (iv) Luis Fernando Gaviria Mejia (removed from the SDN List on 10/02/2008).
Before representing clients appearing on the SDN List, U.S. person attorneys should study the relevant statutes and regulations associated with their client’s designation. As U.S. persons, the prohibitions apply even to the attorneys. However, most regulations promulgated by OFAC authorize the provision of legal services pursuant to a general license. But many of the regulations require an attorney to first obtain a specific license prior to accepting any legal fees for their provision of authorized services. One notable exception is the Iranian Transactions and Sanctions Regulations (ITSR). An attorney can be in receipt of payment from a non-SDN person subject to the ITSR without a specific license.
This settlement agreement further demonstrates OFAC’s tough stance against sanctions violations caused by financial institutions. Stiff fines presumably send a message to other financial institutions that they must constantly audit their compliance programs and make any requisite improvements or fixes in a timely fashion. Dragging one’s feet or ignoring the signs of a deficiency will not be tolerated. Anything short of effective self-policing by a bank will be considered an egregious violation even when, as was the case in this matter, seven of the 10 SDNs have since been unblocked and the dollar value of the prohibited transactions was under $100,000.
We are barely through to the second half of the year and OFAC has already issued over $1.2 billion in penalties and settlements.
Disclaimer: Blog posts should not be relied upon as legal advice and are only provided for informational purposes. Information contained in blog posts may also become outdated with the passage of time as laws change and U.S. foreign policy and national security objectives evolve.