BNA INSIGHTS: The Perilous Sanctions Regime: Understanding ING Bank’s $619 Million Settlement with the Office of Foreign Assets Control
By Zachary S. Brez and Michael S. Casey, Ropes & Gray, New York and Washington, D.C.
On June 12, 2012, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced that ING Bank N.V. (“ING Bank”) had agreed to pay $619 million to resolve its civil and criminal liability in connection with conduct that potentially violated a host of sanctions regulations promulgated pursuant to the Trading with the Enemy Act (50 U.S.C. §1) and the International Emergency Economic Powers Act (50 U.S.C. § 1701), as well as New York state laws.
The ING Bank settlement is the latest in a series of high profile agreements that OFAC has reached with major financial institutions to settle allegations of sanctions violations. As stated above, the ING Bank settlement is the largest settlement to date, but in the previous three years, JPMorgan, Barclays, and Credit Suisse agreed to pay $88 million, $176 million, and $536 million, respectively, to settle claims that they violated OFAC’s sanctions regulations. These settlements are representative of OFAC’s increasingly aggressive approach to investigating individuals and entities for committing violations of the sanctions regulations.
In light of the increased enforcement environment, companies engaging in international business should be aware of the scope of the sanctions regulations and implement compliance programs to reduce the likelihood that they will engage in prohibited conduct. ING Bank’s actions that gave rise to the settlement are a cautionary tale of the liability a company may face if it does not take sufficient steps to comply with the sanctions regime. In this article, we will explain the conduct at issue in the ING Bank case, and will then discuss some of the lessons that companies can learn to reduce their potential OFAC liability.
II. ING Bank Factual Summary
OFAC first became aware of problematic conduct by ING Bank in 2004 when an unaffiliated U.S. bank disclosed to the agency suspicious activity by ING Bank related to a letter of credit involving an Iranian bank. Settlement Agreement between U.S. Dep’t of Treasury’s Office of Foreign Assets Control and ING Bank, N.V. (“OFAC Settlement Agreement”) ¶ 13 (2012). In the transaction at issue, Bank Tejerat issued a letter of credit on behalf of Iran Air to finance the purchase of a U.S.-origin aircraft engine from a Romanian trading company. Factual Statement ¶¶ 63-64, United States v. ING Bank, N.V., No. 12cr00136 (D.D.C. June 12, 2012) (ECF No. 2-2). The Romanian trading company contacted ING Bank’s Wholesale Banking branch in Romania (“ING Romania”) and inquired about transferring the letter of credit to the trading company’s “USA Partner.” Id. To ensure that the letter of credit could be transferred to a U.S. supplier and would not be blocked by a U.S. financial institution, ING Romania and Bank Tejerat removed all references to Iran in the letter of credit. Id. ¶ 64. Despite these alterations, an unaffiliated U.S. bank identified a discrepancy in the letter of credit and eventually discovered that Bank Tejerat issued the letter of credit. OFAC Settlement Agreement ¶ 13. After learning this information, the unaffiliated U.S. bank notified OFAC of ING Romania’s potential violation of the sanctions violations. Id.
Following this incident, ING Bank initiated a comprehensive internal investigation to analyze whether the company had violated OFAC sanctions regulations. Id. ¶ 68. As part of the investigation, ING Bank reviewed millions of documents and conducted 775 interviews. Id. The investigation illustrated that ING Bank engaged in four major categories of violations, as well as additional minor violations, between 2002 and 2007:
• “Stripping” References to Sanctioned Countries: ING Bank had an ownership interest in two banks in Cuba: Netherlands Caribbean Bank N.V. (“NCB”) and ING Bank’s representative office in Havana (“ING Havana”). Factual Statement ¶¶ 17-19. NCB “held U.S. dollar bank accounts, and issued U.S. dollar loans and letters of credit for commercial clients.” Id. ¶ 18. ING Havana “provided trade and commodity finance to Cuban ministries and international clients.” Id. ¶ 19. ING Bank’s Curacao branch (“ING Curacao”) processed U.S. dollar payments for both NCB and ING Havana. OFAC Settlement Agreement ¶ 4. Senior management at ING Curacao instructed employees “to avoid Cuba references in payments instructions” so that unaffiliated U.S. financial institutions would not block transactions that involved those offices. Id. As a result, ING Curacao personnel “stripped” references to Cuba on payment instructions and utilized “coded references” to refer to Cuba-related information. Id. ¶ 5. Furthermore, the Curacao branch utilized payment methods designed to disguise the fact that Cuban parties were involved with the transactions. Id. ¶ 6. Similarly, NCB expressly instructed customers making U.S. dollar payments to their NCB accounts not to reference Cuba. Id. ¶ 4. At one point an ING Bank employee raised concerns about these practices to ING Group’s Legal Department. Id. ¶ 7. In response, an attorney in the Legal Department responded that “we have been dealing with Cuba … for a lot of years now and I’m pretty sure that we know what we are doing in avoiding any fines … . So don’t worry and direct any future concerns to me so that we can discuss before stirring up the whole business.” Id.
• Improper Traveler Check Endorsement Services: ING Bank’s Wholesale Banking branch in France (“ING France”) assisted Cuban banks with transactions involving travelers checks denominated in U.S. dollars. OFAC Settlement Agreement ¶ 8. More specifically, ING France agreed to endorse traveler’s checks sent from a Cuban Bank using an ING France endorsement stamp. Id. ING France’s endorsement of the travelers checks made it appear as though there was no Cuban involvement in the transactions. Id. Later, ING France created an endorsement stamp for a Cuban bank that allowed the Cuban Bank to endorse traveler’s checks such that it appeared that ING France endorsed the checks. Id. ING France subsequently created a similar endorsement stamp for another Cuban Bank. Id.
• Cover Payments To Remove References To OFAC-Sanctioned Countries: ING Bank’s Wholesale Banking branch in Belgium (“ING Belgium”) used “cover payments” for various clients to “ensure that there was no reference to OFAC-sanctioned countries in payment messages sent to the United States.” OFAC Settlement Agreement ¶ 9. Senior employees in ING Belgium were familiar with this practice, which the branch office had engaged in for approximately 40 years. Id.
• Use Of Shell Companies To Disguise The Involvement Of Sanctioned Parties: ING Bank’s Trade and Commodity Finance department in Rotterdam (“TCF Rotterdam”) used shell companies to assist Specially Designated Nationals obtain U.S. dollar trade financing and allow them complete various transactions through the U.S. financial system. Factual Statement ¶ 34. TCF Rotterdam use of shell companies was designed to disguise the involvement of the sanctioned entities in U.S. dollar transactions, and to prevent U.S. entities from blocking the transactions. OFAC Settlement Agreement ¶ 10…