1 00118601 Emerging themes 2019 A4 AW v31 combined - Page 70



SUPERVISION
If a non-US financial institution
engages in conduct that causes
a US person to violate the
sanctions … the non-US financial
institution can itself violate the
sanctions, exposing the non-US
financial institution to liability.
Non-US financial institutions have good reason to avoid
engaging in conduct that violates US sanctions. If a
non-US financial institution engages in conduct that
causes a US person to violate sanctions (for example,
if a non-US financial institution causes a US financial
institution to process a transaction involving a
sanctioned person), the non-US financial institution
can itself violate the sanctions, exposing the non-US
financial institution to liability.
In the past five years, over 25 financial services industry
firms have entered into settlement agreements with
the US Treasury Department’s Office of Foreign Assets
Control (OFAC), while several others have been the
subject of published notices regarding their activities
having violated the regulations. While details of the
violations vary, a number of the violations described in
the settlements involved the processing of transactions
(whether directly or indirectly) through US financial
institutions that involved countries, entities or individuals
that were targets of US sanctions programmes. State
agencies such as the New York State Department of
Financial Services have brought enforcement actions
against a number of non-US financial institutions based
on violations of US sanctions.
The toll of these cases extends beyond the significant
penalties imposed; the highest settlement against a
financial institution in the past five years totalled more
than $963 million. Financial institutions must also
generally expend significant resources in connection
with investigating and addressing violations, including
implementing improved compliance measures. And, of
course, there are potential reputational costs based if
identified as having violated US law.
In addition to the risk of violating the sanctions, non-US
financial institutions must address risks associated with
secondary sanctions. US secondary sanctions may
be imposed on non-US persons when they engage
in certain specified activities that, while outside of
US jurisdiction, are contrary to US sanctions policy.
The secondary sanctions do not make specific conduct
illegal. Rather, the secondary sanctions identify conduct
that is contrary to US foreign policy and identify
ramifications of engaging in such conduct. For instance,
a non-US financial institution found to have engaged
in conduct specified in one of the secondary sanctions
provisions could itself be designated as a Specially
Designated National (SDN), such that all of its property
and interests in property within the US, or in the
possession or control of US persons wherever located,
would be blocked. Such blocking would also apply
to the property and interests in property of any other
entity(ies) owned 50% or more by the designated party,
to the extent such property or interests in property come
within the US or the possession or control of US persons.
Essentially, the financial institution and its subsidiaries
would be cut off from the US financial market. Other
sanctions that may be imposed against a financial
institution include the imposition of restrictions on
opening or maintaining US correspondent or “payable
through” accounts, or denial of entry into the US
for corporate officers of the sanctioned entity.
In addition to civil penalties, the US government can
impose criminal liability on entities and individuals
who wilfully violate US sanctions. As recently as 2018,
criminal penalties have been levied on bank executives
on the basis of their having conspired to evade
US sanctions.
MEGAN BARNHILL
Partner,
Washington DC
70/

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