EFG International AG OFAC Settlement: $3.7M (2024)

EFG's subsidiaries processed securities transactions through omnibus accounts at U.S. custodians on behalf of foreign clients. Because trades were made in EFG's name rather than its underlying clients', U.S. market participants were unaware they were processing transactions for OFAC-sanctioned persons.

Cuba. Between January 2014 and July 2018, EFG subsidiaries in the Bahamas, Cayman Islands, Luxembourg, Monaco, and Switzerland processed 727 securities-related transactions totaling $29,939,701 through omnibus accounts at U.S. custodians, including EFG Miami, on behalf of clients residing in Cuba or whose beneficial owners were Cuban nationals. Clients included a Panamanian company beneficially owned by a Cuban resident, two private investment firms domiciled in the British Virgin Islands and Panama whose ultimate beneficial owner was a Cuban national and resident, and individuals who EFG had reason to know resided in Cuba based on residency cards they provided to their respective EFG subsidiaries. For 404 of these transactions, EFG involved EFG Miami in a brokerage capacity. The transactions involved the purchase, sale, or redemption of securities positions as well as corporate actions such as interest payments or dividend distributions.

Kingpin Act-Designated Individual. EFG's Singapore branch opened an investment account in 2009 for a Chinese national that OFAC later designated in 2014 as a Specially Designated Narcotics Trafficking Kingpin ("SDNTK"). EFG Singapore imposed an internal account restriction but for more than four years did not notify its U.S. custodian or other U.S. securities firms transacting with the omnibus account that held the client's sub-account. This omission caused U.S. firms to process 141 securities transactions — nearly all of which were corporate actions such as interest payments and dividend distributions — totaling $468,615. Upon discovering this failure in 2018, EFG Singapore implemented additional controls and informed the involved U.S. securities firms of the underlying SDNTK interest.

Designated Russian Individual. In 2023, OFAC designated a client of EFG's Swiss subsidiary pursuant to Executive Order 14024. EFG imposed an internal restriction on the client's account and notified U.S. custodians about affected securities positions. Due to an error, however, EFG's notification overlooked three securities positions that the client had pledged to EFG Switzerland under a securities lending agreement and that were held under EFG's name rather than the client's. This lapse caused at least five dividend transactions worth approximately $1,200 to process through U.S. securities firms.

In total, between approximately January 2014 and September 2023, EFG processed 873 securities-related transactions totaling $30,409,488 through U.S. custodians or involving U.S. person counterparties, in apparent violation of § 515.201 of the Cuban Assets Control Regulations, 31 C.F.R. part 515 ("CACR"); § 598.202 of the Foreign Narcotics Kingpin Sanctions Regulations, 31 C.F.R. part 598 ("FNKSR"); or § 587.201 of the Russian Harmful Foreign Activities Sanctions Regulations, 31 C.F.R. part 587 ("RuHSR").

The statutory maximum civil monetary penalty applicable in this matter is $276,441,312. OFAC determined that EFG voluntarily self-disclosed the Apparent Violations and that the Apparent Violations constitute a non-egregious case. Accordingly, under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A, the base civil monetary penalty equals the sum of one-half of the transaction value for each apparent violation, which is $10,686,977.

The settlement amount of $3,740,442, of which $1,000,000 will be suspended pending satisfactory completion of certain compliance commitments, reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This case illustrates certain sanctions risks that financial institutions with global clientele, including foreign securities firms that hold omnibus accounts at U.S. firms, may face. Foreign financial institutions that maintain omnibus accounts at U.S. custodians or otherwise engage in securities transactions with U.S. persons should ensure risk-based controls are in place to prevent U.S. firms from inadvertently providing services to sanctioned parties or jurisdictions. Such violations may arise when U.S. firms, which lack direct insight into underlying sub-accounts due to omnibus account structures, process transactions or corporate actions on behalf of sanctioned parties or for the benefit of persons in comprehensively sanctioned jurisdictions.

To mitigate this risk, foreign financial institutions with U.S. omnibus accounts can screen their customers against OFAC's SDN List and conduct appropriate due diligence to identify customers or counterparties with a potential sanctions nexus. Routine screening of customer information, including names and locations, as well as ongoing risk-based due diligence, is particularly important in light of frequent updates to OFAC's sanctions programs and additions to the SDN List.

Upon identifying a client subject to sanctions, omnibus accountholders should impose appropriate restrictions and controls, both to prevent benefits from going to sanctioned persons and to prevent affected U.S. firms from processing transactions for the sanctioned persons. Such steps could include ensuring prompt communication with U.S. firms so that they can also impose controls, such as segregating and blocking affected securities or sub-accounts.

As communicated in FAQ 335, U.S. securities firms should also take steps to mitigate their risk. Best practices include: (1) making customers and counterparties aware of the firm's U.S. sanctions obligations; (2) conducting due diligence to identify higher-risk clients, including through the use of questionnaires and certifications; (3) imposing restrictions or heightened controls on high-risk clients; (4) gathering additional information on non-proprietary accounts; and (5) monitoring accounts and clients for suspicious activities.

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