First Bank SA, a financial institution located in Romania, and its US parent company, JC Flowers & Co., have resolved an OFAC investigation into the companies’ responsibility for commercial transactions involving Iran and Syria, settling their potential civil liability for these apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR) and the Syrian Sanctions Regulations (SySR), 31 CFR part 560 and 31 CFR part 542 respectively. The transactions occurred between March 2016 and December 2018.
As described in the enforcement release, in early 2019 the National Bank of Romania, which regulates First Bank, raised concerns regarding a US dollar transaction processed by First Bank involving timber shipped from Romania to Syria, precipitating an internal investigation by the bank into the preceding five years’ transactions. Upon the conclusion of this investigation, First Bank and JC Flowers voluntarily self-disclosed to OFAC three categories of apparent violations. The first involved 34 outgoing payments valued at nearly $1 million that constituted the indirect exportation of financial services to Iran involving US financial institutions, in apparent violation of §§ 560.203 and 560.204 of the ITSR. The second category involved 36 US-processed outgoing payments worth more than $1 million for importers located in Syria – apparent violations of §§ 542.205 and 542.207 of the SySR. The third category of apparent violations occurred in 2018 after JC Flowers acquired a majority ownership interest in First Bank, when the bank processed 28 Euro-denominated payments totaling $1,536,840, with actual knowledge or reason to know that the payments were destined for Iranian parties. Although these transactions were processed outside of the US financial system, JC Flowers’ majority ownership of First Bank brought the transactions within the purview of ITSR § 560.215, and constituted apparent violations thereof.
According to OFAC, these apparent violations resulted from the bank’s deficient understanding of the applicability of some US sanctions regulations to financial institutions without a physical presence in the United States, and a failure of the bank’s procedures for monitoring activity that could potentially implicate US sanctions.
Whereas OFAC determined the maximum civil monetary penalty to be $31,159,872, in light of the companies’ self-disclosure and the non-egregious nature of the apparent violations, the settlement amount is $862,318. In particular, OFAC took into consideration the companies’ clean record during the preceding five years, their cooperation with the investigation, and remedial measures undertaken since discovery of the apparent violations. These measures include an updated sanctions screening tool, the termination of relationships with customers involved in the transactions at issue, enhanced diligence, supplemental sanctions training for First Bank employees, enhanced procedures to highlight the applicability of US sanctions regulations to transactions processed by the bank, and a two-fold increase in the bank’s sanctions compliance staff.
First Bank and JC Flowers have agreed, as part of their settlement with OFAC, to continue to implement these enhanced compliance measures.