The Importance of Effective Sanctions Screening - Swedbank Latvia is fined $3.4 million for US sanctions violations relating to a shipping client
Market Insight 2023年7月5日 2023年7月5日
亚太地区, 北美洲, 英国和欧洲
In a recent move to settle violations of sanctions on Crimea, Swedbank Latvia AS (Swedbank Latvia) has agreed to pay the US Treasury Department’s Office of Foreign Assets Control (OFAC) US$3,430,900 for 386 transactions made to Swedbank Latvia on an e-banking platform between 2015 and 2016 in apparent violation of Section 6(a) of Executive Order 13685 of December 19, 2014, “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine” (E.O. 13685).
Russia’s invasion of the Crimea region of Ukraine in 2014 sparked many governments to introduce a variety of sanctions regimes, most of which are still in place today. Further wide-ranging sanctions are still being introduced, and in view of the current environment, this 2014 sanctions case serves as a salutary lesson on the need to proceed with extreme caution to avoid breaching sanctions regimes.
In this case, and prior to the 2014 invasion, Swedbank Latvia onboarded a Crimea-based shipping industry client (the Client) who owned three special purpose companies (SPCs).
When onboarding the Client, Swedbank Latvia obtained the necessary KYC information which clearly suggested that the Client had a presence in Crimea. It is also interesting to note that whilst Swedbank Latvia had the Client’s IP information, this was not integrated into their sanctions screening process.
Each SPC had a separate account with Swedbank Latvia, and, in March 2016, the Client initiated payments to the US through the Swedbank Latvia’s e-banking platform using an IP address which was located in Crimea.
In its press release on the matter, Swedbank Latvia stated that these payments consisted of salary payments and vessel operation payments for a vessel whose owner and operator were situated in Crimea.
The US bank rejected the payments on the basis of their connection to Crimea, which led Swedbank Latvia to seek assurances and additional information for the US correspondent bank as well as the Client.
Whilst Swedbank Latvia did not obtain any information from the US correspondent bank, the Client assured the bank that none of the transactions involved Crimea.
Despite having KYC information to suggest otherwise, Swedbank Latvia used those representations as the basis for the decision to re-route the rejected payments to a different US bank, which cleared the transactions and resulted in 386 apparent violations of Section 6(a) of E.O. 13685 for the export of financial services to Crimea.
Under OFAC’s Economic Sanctions Enforcement Guidelines, the civil monetary penalty applicable to this case was US$6,238,000, which was the sum of the applicable amount for each violation. In coming to this figure, OFAC took into account the fact that Swedbank Latvia had failed to voluntarily self-disclose these violations but concluded that this was a non-egregious case.
In determining the final settlement amount of US$3,430,900, OFAC took into account certain factors which aggravated its violations such as Swedbank Latvia’s lack of due caution when it preferred the Client’s assurances over the adverse KYC information.
Equally, however, the fact that Swedbank Latvia cooperated with the investigating authorities by conducting an extensive lookback, and the significant remedial action in response to the Apparent Violations acted as mitigating factors in reaching the final settlement amount.
The number of sanctions issued by the US, as well as the UK and the EU, continue to grow, and this case acts as a timely reminder of the importance of self-reporting as well as implementing effective compliance and governance controls within sophisticated financial institutions.
Institutions will no longer be able to get away with outdated KYC policies and screenings, and, instead, should aim to put in place effective, up-to-date sanctions screening policies and procedures to enable them to spot red flags at the beginning of a transaction, not 386 violations later.
Clients are reminded that circumvention of sanctions is an offence, and that this remains the current focus of the EU, UK, and US sanctions enforcement authorities.