Clearstream Banking OFAC Settlement: $151.9M (2014)

From at least December 2007 through June 2008, Clearstream maintained an account at a U.S. financial institution in New York through which the Central Bank of Iran ("CBI") maintained a beneficial ownership interest in 26 securities, with a nominal value of $2.813 billion, held in custody at a central securities depository in the United States. Due to the omnibus nature of Clearstream's account in New York, the CBI's beneficial ownership interest in the 26 securities was not transparent to the U.S. financial institution. Clearstream, as intermediary, served as the channel through which the CBI held an interest in these securities, exporting custody and related services from the United States to the CBI in apparent violation of the ITSR.

OFAC officials met with Clearstream in late 2007 and early 2008 to discuss Clearstream's business with Iranian clients, including implementing its decision to terminate this business. In February 2008, Clearstream, acting on instructions from the CBI, transferred the securities entitlements free-of-payment ("FOP") from the CBI's account with Clearstream to a European bank's newly-opened custody account at Clearstream, an account which allowed the CBI to continue holding its interest in the securities through Clearstream. As a result of the FOP transfers, the record ownership of the securities entitlements on Clearstream's books changed, but the beneficial ownership did not, resulting in the CBI's interest being buried one layer deeper in the custodial chain. Following the FOP transfers, the ultimate place of custody for the securities remained the United States, and the CBI's interest continued to be held through Clearstream's omnibus account in New York. Given the totality of facts and circumstances surrounding the transfers, Clearstream had reason to know that the CBI was retaining beneficial ownership of the securities. Clearstream's exportation of services from the United States to the CBI continued after the securities entitlements were moved to the European bank's custody account.

OFAC determined that Clearstream did not voluntarily self-disclose the apparent violations, and that the apparent violations were reckless and constitute an egregious case. The total base penalty amount for the apparent violations was $5.626 billion. The settlement amount of $151,902,000 reflects OFAC's consideration of facts and circumstances pursuant to the General Factors under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A.

This enforcement action highlights the particular sanctions risks faced by intermediaries, custodians, and other firms operating in the international securities markets.

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