On March 14, 2024, the U.S. Treasury’s Office of Foreign Assets Control announced a settlement with EFG International AG, a private banking group headquartered in Switzerland. The settlement resolves EFG’s potential civil liability for apparent sanctions violations, and requires the company to pay $3,740,442.
According to OFAC, several of EFG’s 40 global subsidiaries purchased and sold securities on behalf of foreign clients through omnibus accounts with U.S. custodians. Most of these transactions were performed in the name of EFG rather than the names of the underlying clients, causing U.S. market participants to process transactions on behalf of sanctioned persons. As alleged by OFAC, between 2014 and 2018 EFG subsidiaries in the Bahamas, Cayman Islands, Luxembourg, Monaco, and Switzerland processed 727 transactions worth $29,939,701 through U.S. market participants, on behalf of Cuban residents or persons whose beneficial owners were Cuban, in violation of the Cuban Assets Control Regulations.
OFAC also found that, for four years following OFAC’s designation in 2014 of a Chinese client of EFG’s Singapore branch as a Specially Designated Narcotics Trafficking Kingpin, EFG failed to inform U.S. securities firms, which processed 141 securities transactions with the omnibus account that held the sanctioned clients sub-account.
The settlement also covers potential civil liability for apparent violations, in 2023, by EFG’s Swiss subsidiary, for transactions involving the account of a client designated pursuant to Executive Order 14024.
OFAC credited EFG with voluntary self-disclosure of the apparent violations, and determined that they constituted a non-egregious case. OFAC deemed as aggravating factors EFG’s failure to properly screen and timely notify U.S. custodians of positions held by blocked persons in EFG omnibus accounts, EFG’s knowledge or reason to know that it held securities for blocked persons in omnibus accounts at U.S. custodians or counterparties, and the economic benefit conferred on Cuba, a comprehensively sanctioned jurisdiction.
There were, in OFAC’s assessment, important mitigating factors as well: EFG’s internal restriction of the accounts to certain blocked clients, the company’s penalty-free record for the previous five years, substantial cooperation during OFAC’s investigation – including the provision of well-organized and timely responses to OFAC’s requests for information – and the remedial actions taken by EFG in response to the violations. The remedial measures included the institution of a risk-control framework to identify high-risk countries, the imposition of internal restrictions requiring notification to affected parties, and annual sanctions risk assessments.
Taking these factors into consideration, OFAC agreed to a settlement amount far less than the statutory maximum of $276,441,312.
In the enforcement release describing the settlement, OFAC pointed out that the case illustrates certain sanctions risks that financial institutions with global clientele may encounter – specifically those that maintain omnibus accounts with U.S. custodians. OFAC recommended that such institutions implement risk-based controls that account for their lack of direct insight into underlying sub-accounts, conduct routine screening and ongoing due diligence, and that they promptly impose appropriate restrictions and controls when these measures identify a client that is subject to sanctions.