JPMorgan Chase Bank OFAC Settlement: $88.3M (2011)

The settlement covers two sets of apparent violations: those OFAC determined were egregious and those it determined were not egregious.

The egregious apparent violations span three programs. JPMC processed 1,711 wire transfers totaling approximately $178.5 million between December 12, 2005, and March 31, 2006, involving Cuban persons in apparent violation of the CACR. In November 2005, another U.S. financial institution alerted JPMC that it might be processing wire transfers involving a Cuban national through one of its correspondent accounts. JPMC investigated and confirmed that transfers in which Cuba or a Cuban national had an interest were being processed through the correspondent account, but nevertheless failed to take adequate steps to prevent further transfers. JPMC did not voluntarily self-disclose these apparent violations to OFAC, and considerable economic benefit was conferred to sanctioned persons. The base penalty for this set of apparent violations was $111,215,000.

On December 22, 2009, in apparent violation of the WMDPSR, JPMC made a trade loan valued at approximately $2.9 million to the bank issuer of a letter of credit in which the underlying transaction involved a vessel that had been identified as blocked pursuant to the WMDPSR due to its affiliation with the Islamic Republic of Iran Shipping Lines ("IRISL"). Although JPMC supervisors and managers determined that this trade loan was likely an apparent violation and in late December 2009 decided to submit a voluntary self-disclosure to OFAC, JPMC did not mail its voluntary self-disclosure until March 2010, three days prior to the date on which JPMC received repayment for the loan without OFAC guidance or authorization. JPMC also failed to respond promptly and completely to an OFAC administrative subpoena seeking information on this transaction. OFAC determined that JPMC made a voluntary self-disclosure of this apparent violation. The base penalty was $2,941,838.

The apparent violation of the RPPR occurred between November 8, 2010, and March 1, 2011. On October 13, 2010, OFAC issued JPMC an administrative subpoena pursuant to section 501.602 of the RPPR directing JPMC to provide certain specified documents related to a specific wire transfer referencing "Khartoum." JPMC compliance management failed to produce several responsive documents in JPMC's possession and repeatedly stated that JPMC had no additional responsive documents. OFAC ultimately provided JPMC with a list of responsive documents that OFAC had reason to believe were in JPMC's possession based on communications with a third-party financial institution, prompting JPMC to correct its prior statements and produce more than 20 responsive documents. JPMC did not voluntarily self-disclose this apparent violation. The base penalty was $250,000.

The non-egregious apparent violations include: (1) failure to appropriately block or reject nine wire transfers between April 27, 2006, and November 28, 2008, totaling $609,308, in apparent violation of the ITR, GTSR, SSR, FLRCTSR, WMDPSR, and Executive Order 13382 — JPMC voluntarily self-disclosed five of these; (2) advising and confirming a $2,707,432 letter of credit on April 24, 2009, involving a vessel blocked due to its IRISL affiliation, and a $79,308 letter of credit on January 29, 2008, involving goods destined for Sudan, both apparent violations of the WMDPSR and SSR, which JPMC voluntarily self-disclosed; and (3) a May 24, 2006 transfer of 32,000 ounces of gold bullion valued at approximately $20,560,000 to the benefit of a bank in Iran, in apparent violation of the ITR, which JPMC did not voluntarily self-disclose.

OFAC determined that the CACR, WMDPSR (trade loan), and RPPR apparent violations were egregious because of reckless acts or omissions by JPMC. OFAC found that JPMC is a very large, commercially sophisticated financial institution and that JPMC managers and supervisors acted with knowledge of the conduct constituting the apparent violations and recklessly failed to exercise a minimal degree of caution or care with respect to JPMC's U.S. sanctions obligations.

VSD status varied across violations. JPMC did not voluntarily self-disclose the CACR apparent violations or the RPPR apparent violation. For the WMDPSR trade loan, OFAC determined that JPMC made a voluntary self-disclosure, though the disclosure was not mailed until March 2010 — three days before JPMC received repayment for the loan without OFAC guidance or authorization. Among the non-egregious violations, JPMC voluntarily self-disclosed five of the nine wire transfer apparent violations and both letter-of-credit apparent violations; it did not self-disclose the ITR gold bullion transfer.

Base penalties for the egregious violations were $111,215,000 for the CACR apparent violations, $2,941,838 for the WMDPSR trade loan, and $250,000 for the RPPR apparent violation. OFAC mitigated the total potential penalty to a settlement of $88,300,000 based on JPMC's substantial cooperation — including conducting a historical transaction review at OFAC's request and entering into tolling agreements with OFAC — the fact that OFAC had not issued a Penalty Notice or Finding of Violation against JPMC in the five years preceding the transactions at issue, and JPMC's agreement to settle.

Several compliance risk points emerge from the specific conduct described. When another financial institution alerted JPMC in November 2005 that it might be processing transfers involving a Cuban national, JPMC investigated and confirmed the issue — but still failed to take adequate steps to prevent further transfers, resulting in 1,711 additional wire transfers totaling approximately $178.5 million. Awareness of a potential violation, investigation, and confirmation of that violation did not translate into remediation, and this pattern was central to the egregious determination.

On voluntary self-disclosure, the WMDPSR trade loan illustrates the risk of delay: JPMC's supervisors decided to file a VSD in late December 2009 but did not mail it until March 2010, three days before JPMC received repayment without OFAC guidance or authorization. OFAC credited the VSD but treated the surrounding conduct as a negative factor.

Non-compliance with an OFAC administrative subpoena constituted a separate apparent violation under the RPPR. JPMC compliance management repeatedly stated that JPMC possessed no additional responsive documents when those documents were in fact in JPMC's possession; OFAC identified the documents through communications with a third-party financial institution before JPMC corrected its statements and produced more than 20 responsive documents. This conduct was assessed separately from the underlying sanctions violations.

On the mitigation side, OFAC credited JPMC's substantial cooperation, including conducting a historical transaction review at OFAC's request, entering into tolling agreements, and agreeing to settle, in reducing the settlement amount to $88,300,000.

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