Long story short: UBS had a customer subject to anti-terrorism sanctions under Executive Order 13224. That customer had different securities held in UBS custody accounts around the world, including the US. UBS completed transactions against the US account holdings but, because they considered the accounts internal (between UBS accounts), they didn't screen the customer name and didn't catch the customer as being sanctioned.
The base penalty for the violations was $3,778,000, which were non-egregious. However, even though UBS found these violations and reported them, OFAC did not consider them to be voluntarily self-reported. Why? Because the violations were similar to ones that OFAC had dinged UBS for in the past – so, for not properly learning the lesson from last time, they didn't get the benefit of the doubt.
Here are OFAC's aggravating factors considered in determining the final penalty:
- UBS acted withreckless disregard for U.S. sanctions requirements by failing to implement adequate controls toprevent the apparent violations from occurring despite receiving numerous warning signs that itsconduct could lead to violations of U.S. sanctions laws;
- Multiple business lines and personnelwithin UBS, including supervisory and management staff within the bank’s Compliancedepartment, had actual knowledge of the conduct that led to the apparent violations;
- UBSprocessed 222 transactions for or on behalf of the Client and conferred economic benefit to aSpecially Designated Global Terrorist, thereby resulting in harm to the GTSR and its associatedpolicy objectives in the amount of $2,466,195.01 (the total value of the transactions processed toor through the United States);
- UBS is a large and commercially sophisticated internationalfinancial institution; and
- Although multiple personnel within UBS’s Compliance department wereaware of the Client’s OFAC designation, including the most senior-level manager at UBSSwitzerland responsible for sanctions compliance, the bank failed to implement any steps or measures to prevent UBS from processing transactions for the Client to or through the UnitedStates.
and the mitigating factors:
- UBS had not received a penalty notice orFinding of Violation from OFAC in the five years preceding the earliest date of the transactionsgiving rise to the apparent violations;
- UBS has a global sanctions policy in place that requires thebank to comply with the sanctions programs administered by OFAC;
- UBS took remedial actionin response to the apparent violations, including by conducting a thorough internal investigationregarding the apparent violations; and
- UBS substantially cooperated with OFAC’s investigationby submitting detailed and organized information, responding thoroughly and promptly toOFAC’s requests for information, and executing a statute of limitations tolling agreement and anextension to that agreement.
Interesting note here:
In March 2008, UBS instructed a U.S. custodian to research a potential non-sanctions relatedtrading restriction on two stock certificates of a company that the U.S. custodian held on UBS’sbehalf for a separate entity (the “Entity”). While investigating UBS’s request, the U.S. custodianwas advised by the company that the Entity was associated with the Client, and identified theClient as an individual on OFAC’s List of Specially Designated Nationals and Blocked Persons.The U.S. custodian subsequently obtained documentation from the company showing a linkbetween the Client and the Entity and shared the information with UBS in or around July 2008.The U.S. custodian subsequently blocked the shares and filed a report of blocked property withOFAC.
Is that identification of an “association” between a non-sanctioned entity and a sanctioned one going to be the new standard? Mr. Watchlist would consider this to be a warning shot across the bow of all large, sophisticated firms – perhaps the OFAC 50% Rule was just the first battle in a longer campaign raising the standards of care for all, without OFAC needing to explicitly identify people that they want to sanction.
Links:
Posted with BlogsyFiled under: Enforcement Actions, OFAC Updates, Terrorism
