Société Générale has been slapped with a $1.34 billion criminal penalty for conspiring to violate the Trading with the Enemy Act and the Cuban Asset Control Regulations, representing the second largest penalty ever imposed on a financial institution for violations of U.S. economic sanctions.

Specifically, Société Générale faces criminal charges for its role in processing billions of dollars of U.S. dollar transactions using the U.S. financial system in connection with credit facilities involving Cuba. The case has been assigned to U.S District Judge Kevin Castel.

Société Générale agreed to accept responsibility for its conduct by stipulating to the accuracy of an extensive Statement of Facts, pay penalties totaling $1.34 billion to federal and state prosecutors and regulators, refrain from all future criminal conduct, and implement remedial measures as required by its regulators, including by enhancing its compliance programs and internal controls.

“Other banks should take heed: Enforcement of U.S. sanctions laws is, and will continue to be, a top priority of this Office and our partner agencies,” U.S. Attorney Geoffrey Berman said in a statement.

Assuming the company’s continued compliance with the agreement, the government has agreed to defer prosecution for a period of three years, after which time the government will seek to dismiss the charges.

Cooperation details

The government said that it entered into this resolution due, in part, to Société Générale’s acceptance and acknowledgement of responsibility under the laws of the United States for its conduct, as exhibited by its undertaking of a thorough internal investigation; collecting and producing voluminous evidence located in other countries to the full extent permitted under applicable laws and regulations; and its enhancement of its compliance program and sanctions-related internal controls both before and after it became the subject of a U.S. law enforcement investigation.

“These factors and SG’s willingness to enter into the commitments set forth in the agreement, along with all other relevant factors and considerations, collectively weighed in favor of deferral of prosecution and outweighed in this particular case SG’s failure to self-report all of its violations of United States sanctions laws in a timely manner,” the Department of Justice stated.

Case details

According to the documents filed Nov. 19 in Manhattan federal court, from approximately 2004 through 2010, Société Générale, in violation of U.S. sanctions laws, operated 21 credit facilities that provided significant money flow to Cuban banks, entities controlled by Cuba, and Cuban and foreign corporations for business conducted in Cuba. Those facilities (the “Cuban Credit Facilities”) involved substantial U.S.-cleared payments through U.S. financial institutions, in violation of TWEA and the Cuban Regulations.

In total, during this period, Société Générale engaged in more than 2,500 sanctions-violating transactions through U.S. financial institutions, causing those U.S. financial institutions to process close to $13 billion in transactions that otherwise should have been rejected, blocked, or stopped for investigation pursuant to regulations promulgated by OFAC. Most of these transactions and most of the total value involved a U.S. dollar credit facility designed to finance oil transactions between a Dutch commodities trading firm and a Cuban corporation with a state monopoly on the production and refining of crude oil in Cuba.

According to court documents, Société Générale avoided detection, in part, by making inaccurate or incomplete notations on payment messages that accompanied these sanctions-violating transactions. The department that managed many of the Cuban Credit Facilities engaged in a deliberate practice of concealing the Cuban nexus of U.S. dollar payments that were made in connection with those facilities.

For example, Société Générale routed approximately 500 U.S. dollar-denominated payments through a Spanish bank to disguise the fact that the transactions violated U.S. sanctions. Employees were instructed to omit any references to Cuba or Cuban entities from the messages that accompanied the fund transfers.

Compliance raises red flags

Fears expressed by compliance were ignored. In late 2004, Société Générale began to reconsider its Cuba business in light of U.S. enforcement actions and began to shift away from U.S. dollar transactions involving Cuba to avoid U.S. scrutiny and possible penalties. In a December 2004 e-mail, a senior leader of the company’s global group compliance department expressed concern to a top executive in the group responsible for liaising with SG’s regulators that (1) “any discovery of breach” regarding Cuba “attracts the most stringent punishment,” and (2) U.S. authorities, including “criminal authorities,” were focusing on U.S. dollar payments that had been sent through U.S. banks.

Several days later, the same senior leader of group compliance, after being alerted to a U.S. dollar transaction between SG Canada and an exporter of goods to Cuba in connection with which “[n]o reference to Cuba is made to [the Canadian bank],” e-mailed several members of SG’s senior management, noting that “we have lived with the OFAC list for some time and have developed various methods of avoiding it,” and asked whether “given the new regulatory scrutiny in the US on USD payments do we remain satisfied with those methods?”

In mid- to late December 2004, due to these concerns, Société Générale’s top management determined that U.S. dollar transactions in connection with the Cuban Credit Facilities should be eliminated as quickly as possible, but still permitted continued U.S. dollar transactions in the interim. Despite the decision in 2004 to wind down U.S. dollar transactions for the Cuban Credit Facilities, as well as the bank’s overall Cuban exposure, Société Générale continued to engage in such transactions for almost six more years, until October 2010.

The conduct continued despite the ongoing awareness of SG’s group compliance and despite awareness by the participants of ongoing U.S. sanctions enforcement actions. In October 2010, as the last of the Cuban Credit Facilities was being replaced with a non-U.S. dollar facility at the insistence of a senior leader of SG’s Group Sanctions Compliance function, SG sent payment instructions directing that the final $600,000 arrangement fee be paid in U.S. dollars, but “not to mention any reference to [Cuban Corporation] within the references of this settlement.” From 2005 to 2010, SG conducted a total of 1,921 U.S. dollar transactions that violated TWEA and the Cuban Regulations, with a total value of approximately $10.3 billion.

Failure to disclose wrongdoing

Despite the awareness of both senior management and group compliance that the company had engaged in this unlawful conduct, Société Générale did not disclose its conduct to OFAC or any other U.S. regulator or law enforcement agency until well after the commencement of the government’s investigation, court documents state.

According to the Department of Justice, this investigation was triggered by the blocking by other U.S. financial institutions, in March 2012, of two transactions that Société Générale processed on behalf of a Sudanese sanctioned entity, and a subsequent February 2013 voluntary disclosure by SG regarding $22.8 million in transactions with the Sudanese entity and a small number of transactions with other sanctioned entities that violated U.S. sanctions. The bank did not, however, disclose the existence of the Cuban Credit Facilities at that time, but rather did so only in October 2014, after Société Générale performed a detailed forensic analysis based on the scope of investigation required by the government and the other investigating agencies.