The U.S. Department of the Treasury’s Office of Foreign Assets Control on May 28 issued a “Finding of Violation” to State Street Bank and Trust for violations of the Iranian Transactions and Sanctions Regulations. There is no monetary penalty associated with a Finding of Violation.
Between Jan. 1, 2012, and Sept. 1, 2015, State Street Bank and Trust (SSBT) acted as trustee for a customer’s employee retirement plan. In this capacity, SSBT processed at least 45 pension payments totaling $11,365.44 to a plan participant who was a U.S. citizen with a U.S. bank account, but who was a resident in Iran, according to OFAC.
“SSBT appears to have known that it was sending payments to account at the request of or for the benefit of a person in Iran, not only because its internal system indicated the beneficiary’s address was located in Tehran, Iran, but also because the bank’s sanctions screening software produced an alert on each of the 45 payments due to the Iranian address,” OFAC said.
“SSBT’s personnel overseeing the beneficiary payments, the Retiree Services Staff (RSS), were part of the SSBT business unit that had the business relationship with the retirement plan and utilized their own sanctions screening filter instead of SSBT’s centralized sanctions screening system,” OFAC said.
“Furthermore, the routine escalation procedures for the RSS staff dictated that they refer possible sanctions list matches to SSBT compliance personnel aligned with the line of business (i.e., compliance individuals who were not sanctions specialists), rather than SSBT’s central sanctions compliance unit staff who have specialized sanctions expertise,” OFAC said. “Accordingly, it was the business-aligned compliance personnel who were responsible for manually reviewing potential matches and approving the processing of the payments.”
After learning of and reporting to OFAC the deficiency in its OFAC Compliance Program, SSBT in 2015 “modified its process to ensure that all RSS payments are now screened by its central screening platform, eliminating disparities in the initial review process, and that alerts with a sanctions nexus are handled through its central alert dispositioning process, which includes escalation to SSBT’s central sanctions compliance unit for potential true hits,” the Treasury Department said.
OFAC has determined that the conduct constitutes violations of the prohibition against “the exportation, re-exportation, sale, or supply of services… performed on behalf of a person in Iran” as set forth in sections 560.204 and 560.410 of the Iranian Transactions and Sanctions Regulations.
OFAC said a Finding of Violation is appropriate given that SSBT:
- Processed transactions on behalf of an individual in Iran after being alerted to the Iran connection, and thus SSBT reasonably should have been put on notice that the conduct constituted a violation of U.S. law;
- Had actual knowledge that it was processing transactions on behalf of an individual who was a resident in Iran, as SSBT stopped, escalated, reviewed, and approved every one of the 45 distribution payments, each of which contained an explicit reference to Iran;
- Caused harm to the sanctions program objectives and the integrity of the ITSR by performing a service on behalf of an individual in Iran;
- Is a large and commercially sophisticated financial institution;
- Had escalation and review procedures for sanctions-related alerts that nonetheless failed to lead to correct decisions on 45 occasions; and
- Had compliance screening issues that continued for a year after the Federal Reserve Bank of Boston notified the bank of a related issue pertaining to inadequate escalation procedures.
In addition, OFAC said it considered the following when issuing a Finding of Violation, rather than a civil monetary penalty:
- No SSBT managers or supervisors appear to have been aware of the conduct that led to the violations;
- SSBT’s screening filter did appropriately identify and alert staff to the nexus to a sanctioned jurisdiction;
- The payments at issue may not have actually been transferred to Iran, though they were made on behalf of a person in Iran;
- SSBT took remedial action in response to the violations and enhanced its escalation procedures as they pertain to sanctions-related alerts;
- There is a possibility that the funds transfers could have become licensed; and
SSBT cooperated with OFAC by voluntarily self-disclosing the violations and entering into a tolling agreement with extensions.