Trade Finance: OFAC clamping down on Sudanese sanction breaches

The Office of Foreign Asset Control (OFAC) has issued a fine of $4 million to the British Arab Commercial Bank (BACB) regarding violation of Sudanese sanctions.

BACB operated a number of US dollar accounts on behalf of Sudanese financial houses between 2010 to 2014. These payments were processed through a bulk funding agreement totalling $190 million.

There are two important factors to note within the BACB enforcement action:

• The scope and extent to which banks and financial institutions are liable to a potential OFAC action
• The actual financial penalty, originally set at $229 million, was reduced after an intervention by BACB's local regulator in the United Kingdom

BACB has no offices, business or presence in the United States but still received an OFAC enforcement action. The reason stated for the action was that 'the process to fund its USD nostro account, did involve transactions processed to or through US financial institutions in apparent violation of US economic sanctions.'

This case highlights the impact OFAC regulations can have even on banks and institutions that have a minimal US business operation. It is a timely reminder that OFAC's jurisdiction extends to those who trade or make payments in USD, maintain a business presence in the United States or operate within the global supply chain with US patented goods, software or services.

The other interesting aspect to the enforcement action is the 98% decrease in the original penalty from $228 million to $4 million. OFAC state that it 'determined that the Bank's operating capacity was such that it would face disproportionate impact if required to pay the proposed penalty.' The United Kingdom Prudential Regulation Authority stepped in and successfully lobbied on BACB's behalf for the reduction.

The leniency shown by OFAC is surprising as past enforcement actions have not always taken into consideration the ability of the company to pay its fine. The example of ZTE Telecommunications in 2017, ordered to pay a $1 billion fine that had the potential to put the company out of business, does not appear to have been offered the same terms as BACB. On the other hand, there are a few mitigating factors for BACB; its willingness to co-operate with the OFAC action and a number of remedial measures put in place by the bank to prevent any further sanctions breach. This was not how ZTE responded to its enforcement action at the time.

Equally, some conditions remain the same. BACB must commit to regular reviews of its sanctions compliance program by the US regulator, an internal review of its 'Know Your Customer' procedures and processes, reorganising its executive structures and strengthening its compliance teams in general.

The BACB case is a stark warning that breaking economic sanctions can lead to severe consequences for a bank's core business activity. Whilst the original enforcement fine was reduced this is not a common occurrence and is unlikely to repeat itself in future OFAC actions. Finally, banks and financial institutions need to review their sanctions compliance program for exposure to the US banking system and ensure that they have covered, as the bare minimum, the main recommendations from the Framework for Compliance Commitments.

Posted 24 September 2019 by Byron McKinney, Product Management Director, Maritime, Trade & Supply Chain, S&P Global Market Intelligence