Swedbank Latvia AS OFAC Settlement: $3.4M (2023)

Prior to Russia's 2014 invasion of the Crimea region of Ukraine, Swedbank Latvia had onboarded a shipping industry client in Crimea (the "Client" or "SPC Owner") that owned three special purpose companies ("SPCs"), each with an account at Swedbank Latvia. Between February 5, 2015 and October 14, 2016, the Client initiated 386 transactions totaling $3,312,120 through accounts belonging to the SPCs that were processed through U.S. correspondent banks.

Around March 2016, the SPC Owner attempted to send payments related to his business from an IP address in Crimea using Swedbank Latvia's e-banking platform to a U.S. correspondent bank, which rejected the payments citing a potential connection to Crimea and alerted Swedbank Latvia. Swedbank Latvia requested additional information from the correspondent bank and from the SPC Owner. The SPC Owner falsely assured Swedbank Latvia that none of the transactions involved Crimea. Based on this representation, a relationship manager at Swedbank Latvia re-routed the rejected payments to a different U.S. correspondent bank, which ultimately processed the transactions.

Swedbank Latvia had reason to know that the Client's assurances were incorrect. When onboarding the Client and the SPCs, Swedbank Latvia obtained Know Your Customer ("KYC") data — including addresses, telephone numbers, and a customer questionnaire — clearly indicating that the Client and the SPCs had a physical presence in Crimea. Although Swedbank Latvia collected and stored customer IP data, it did not integrate this IP data into its sanctions screening processes; if screened, the IP data would have indicated that the Client was present in Crimea at the time of the apparent violations.

This conduct resulted in 386 apparent violations of Section 6(a) of Executive Order 13685 of December 19, 2014, specifically the export of financial services to Crimea in violation of E.O. 13685(1)(a)(iii). In 2016 and 2017, Swedbank Latvia offboarded the Client and the SPCs during a lookback review.

The statutory maximum civil monetary penalty applicable in this matter is $112,322,552. OFAC determined that Swedbank Latvia did not voluntarily self-disclose the apparent violations, as a third party was required to and did notify OFAC first. OFAC also determined 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 applicable in this matter equals the sum of the applicable schedule amount for each violation, totaling $6,238,000. The settlement amount of $3,430,900 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This case demonstrates the importance of implementing and maintaining effective, risk-based sanctions compliance controls, especially for sophisticated financial institutions operating in proximity to high-risk regions. Such controls should account for changes to applicable sanctions and incorporate all relevant available information to conduct responsive and regular screening, including ensuring that KYC information (such as passports, phone numbers, nationalities, and addresses) and IP data are appropriately integrated into sanctions screening protocols.

This case also illustrates the importance of undertaking reasonable efforts to investigate red flags. Ignoring or failing to heed such warnings can cause apparent violations to multiply quickly. Rather than dismissing such concerns and relying on unsubstantiated assurances, financial institutions and other persons made aware of such issues should diligently work to identify risks that may exist. Here, the bank's own KYC information supported the concerns of its correspondent bank, yet it went ignored. Instituting effective protocols to address such situations can help mitigate the risk of providing services to entities and individuals located in comprehensively sanctioned jurisdictions.

This matter further underscores the importance of remaining vigilant against efforts by persons in Crimea, as well as in Russia and other high-risk areas, to evade sanctions and elude compliance controls. In July 2015, OFAC published an advisory on the "Obfuscation of Critical Information in Financial and Trade Transactions Involving the Crimea Region of Ukraine," which discussed evasive practices used to circumvent or evade OFAC's sanctions, including "the omission or obfuscation of references to Crimea and locations within Crimea in documentation underlying transactions involving U.S. persons or the United States."

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