Nasdaq, Inc. OFAC Settlement: $4M (2023)

In February 2008, Nasdaq acquired OMX AB, a Swedish financial company that owned and operated the ASE, which after the acquisition was renamed Nasdaq OMX Armenia OJSC. The renamed company continued operating trading platforms that, pursuant to Armenian law, provided Armenian banks access to overnight liquidity loans (referred to as "credit resources") and foreign exchange. In operating these platforms, Nasdaq OMX Armenia matched counterparties based on their bids and offers and provided settlement information to the Central Bank of Armenia based on participants' net obligations. No financial transactions between market participants occurred on these platforms; instead, transactions took place between the relevant Armenian financial institutions using accounts at the Central Bank. Nasdaq OMX Armenia charged participating banks, including Mellat Armenia, monthly participation fees, terminal fees, and per-trade transaction fees.

Mellat Armenia, the OFAC-designated Armenian subsidiary of Iran's state-owned Bank Mellat, was among the 35 ASE member financial institutions and regularly participated in the credit resource and foreign exchange markets. Nasdaq OMX Armenia's web page identified Mellat Armenia as a market participant and listed its trading name, address, and contact information, and Nasdaq OMX Armenia's monthly fee assessments required analyses of the trades in which Mellat Armenia had participated.

In July 2012, a Nasdaq risk assessment questionnaire noted that Mellat Armenia was a participant on the ASE and that it was owned by Bank Mellat, an Iranian state-owned entity. Nasdaq took no action in response. In 2013, an additional questionnaire identifying Mellat Armenia as a market participant was forwarded to Nasdaq compliance and legal personnel in the United States; these personnel did not appear to sufficiently understand the implications, and Nasdaq OMX Armenia continued to provide credit resource and foreign exchange services until 2014.

Nasdaq OMX Armenia became subject to the ITSR effective December 26, 2012, but neither Nasdaq nor Nasdaq OMX Armenia took steps to update or apply its sanctions compliance policies with respect to Mellat Armenia. As a result, Nasdaq OMX Armenia engaged in 151 apparent violations of 31 C.F.R. § 560.215 between December 28, 2012, and September 3, 2014, with a total face value of $227,915,023. Under 31 C.F.R. § 560.701(a)(4), Nasdaq is liable for the apparent violations of its former foreign subsidiary. Nasdaq OMX Armenia earned approximately $16,000 in commissions and fees from processing the transactions at issue.

The statutory maximum civil monetary penalty applicable in this matter is $458,503,738. OFAC determined that Nasdaq self-disclosed the Apparent Violations and that they 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, capped at a maximum base amount of $178,290 per violation, resulting in a base civil monetary penalty of $16,163,691. The settlement amount of $4,040,923 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This case demonstrates the importance of businesses implementing and employing sanctions compliance programs that are commensurate with the scope and geographic touchpoints of their business operations. Mergers and acquisitions, particularly across borders, present acute potential sanctions risks. Consistent with the Framework for OFAC Compliance Commitments, compliance functions should be integrated into the merger, acquisition, and integration process to enable proliferation of compliance standards to newly acquired businesses, including adequate compliance training, resources, and culture. In this case, basic screening of the 35 ASE members as part of the due diligence of the newly acquired business would have revealed Mellat Armenia's participation.

Routine sanctions risk assessments for multinational entities can evaluate whether non-U.S. subsidiaries are aware of any applicable OFAC sanctions compliance obligations and enable entities to update their sanctions compliance programs to reflect changes to sanctions regulations. Assessments can then be used to craft sanctions compliance policies and procedures commensurate with the particular sanctions risks each subsidiary faces.

A well-designed and -implemented compliance program will also allow U.S. persons to remediate deficiencies in a timely manner to prevent additional violations. In this case, Nasdaq became aware of Mellat Armenia's participation in the ASE in 2012, but continued processing transactions on its behalf until 2014.

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