First Bank SA & JC Flowers OFAC Settlement: $862.3K

In early 2019, First Bank's regulator, the National Bank of Romania, flagged a U.S. dollar transaction that First Bank had processed for a shipment of timber from Romania to Syria. As a result, First Bank commenced a five-year lookback in March 2019, the results of which Respondent voluntarily self-disclosed to OFAC. The apparent violations fell into three categories.

From March 2, 2016 to December 5, 2018, First Bank processed 34 outgoing payments totaling $991,246 through U.S. banks in which the end user of the underlying commercial transaction was in Iran and the payments were made on behalf of Iranian customers of First Bank. These transactions constituted an indirect exportation of financial services to Iran and caused U.S. financial institutions to export financial services to Iran, in apparent violation of §§ 560.203 and 560.204 of the Iranian Transactions and Sanctions Regulations, 31 CFR part 560 (ITSR).

From July 15, 2016 to December 6, 2018, First Bank processed 36 outgoing payments totaling $1,061,104 through U.S. banks in which the underlying trade finance documentation showed that the importers were located in Syria. These transactions constituted an indirect exportation of financial services to Syria and caused U.S. financial institutions to export financial services to Syria, in apparent violation of §§ 542.205 and 542.207 of the Syrian Sanctions Regulations, 31 CFR part 542 (SySR).

In June 2018, JC Flowers acquired a majority ownership interest in First Bank, making First Bank an entity majority-owned by a United States person and thus subject to the prohibitions of § 560.215 of the ITSR. Between October 17, 2018 and March 4, 2019, First Bank processed 28 Euro-denominated payments totaling $1,536,840 outside the U.S. financial system involving Iranian parties and interests where there was no applicable authorization or exemption, with actual knowledge or reason to know that the payments were for Iranian parties. These transactions constituted apparent violations of § 560.215 of the ITSR.

The apparent violations resulted from First Bank's lack of understanding of the scope of U.S. sanctions regulations applicable to financial institutions without a physical presence in the United States. In particular, the bank's training and procedures for monitoring potential sanctions-related activity did not address the risk that First Bank could be indirectly exporting financial services through the U.S. financial system to sanctioned parties or comprehensively sanctioned jurisdictions noted in underlying trade finance and shipping documents, or processing transactions that did not transit the United States but were processed while majority owned by a U.S. person.

The statutory maximum civil monetary penalty applicable in this matter is $31,159,872. OFAC determined that Respondent voluntarily self-disclosed the Apparent Violations and the Apparent Violations constitute a non-egregious case. Accordingly, under OFAC's Economic Sanctions Enforcement Guidelines, the base civil monetary penalty amount applicable in this matter is $1,742,056. The settlement amount of $862,318 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This action highlights the importance of (i) foreign financial institutions understanding the scope of U.S. sanctions regulations on transactions processed via the U.S. financial system or within the United States, and (ii) U.S. companies conducting sanctions-related due diligence both before and after acquisitions, and to monitor newly acquired subsidiaries for OFAC compliance.

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