OFAC fines EFG $3,740,442 for CUBA/CHINESE/RUSSIAN sanctions breaches

• EFG International AG, a global private banking group based in Switzerland with approximately 40 global subsidiaries (collectively “EFG”), has agreed to pay $3,740,442 to settle its potential civil liability for apparent violations of multiple sanctions programs administered by OFAC.
• Between 2014 and 2018, EFG caused U.S. securities firms to process.
• 727 securities-related transactions totalling $29,939,701 on behalf of customers in Cuba,
• 141 securities-related transactions totalling $468,615 for an individual blocked under the Kingpin Act [China]
• in 2023,
• five dividend payments, with a combined value of $1,200, for U.S. custodied securities of a person blocked under Executive Order 14024 of OFAC’s Russia sanctions program.
• The settlement amount reflects OFAC’s determination that EFG’s apparent violations were voluntarily self-disclosed and not egregious and reflects EFG’s significant remedial measures.

Description of the Apparent Violations

• EFG’s subsidiaries and affiliates in various countries provide a range of financial services, including banking, investment, asset management, and securities brokering, to institutional customers and individuals worldwide. As further described below, EFG subsidiaries in several countries purchased and sold securities for foreign clients.
• These transactions were conducted through and held in omnibus accounts with U.S. custodians and other U.S. market participants, including an EFG U.S. subsidiary. Because trades and other corporate actions completed through these omnibus accounts were generally made in the name of EFG and not its underlying clients, these U.S. market participants were unaware that they were ultimately processing securities transactions on behalf of persons sanctioned by OFAC.

Cuba Transactions Between January 2014 and July 2018,

• EFG subsidiaries located in the Bahamas, Cayman Islands, Luxembourg, Monaco, and Switzerland processed 727 securities-related transactions and funds transfers totalling $29,939,701 through omnibus accounts at U.S. custodians or otherwise involving U.S. market participants, including EFG Miami, on behalf of clients who resided in Cuba or whose beneficial owners were Cuban nationals.
• EFG’s clients included a Panamanian company beneficially owned by a person located in Cuba, two private investment firms domiciled in the British Virgin Islands and Panama whose ultimate beneficial owner was another Cuban national and resident, and individuals who EFG had reason to know resided in Cuba based on residency cards they provided to their respective EFG subsidiaries.
• For 404 of these transactions executed on behalf of a family that included Cuban residents, EFG involved EFG Miami in a brokerage capacity. The securities transactions involved the purchase, sale, or redemption of securities positions that EFG had acquired for the clients, as well as corporate actions such as interest payments or dividend distributions.

Chinese national that OFAC later designated in 2014 as a Specially Designated Narcotics Trafficking Kingpin (“SDNTK”).

• Kingpin Act-Designated Individual In 2009, EFG’s Singapore branch (“EFG Singapore”) opened an investment account for a Chinese national that OFAC later designated in 2014 as a Specially Designated Narcotics Trafficking Kingpin (“SDNTK”).
• Upon the designation, as per its policy, EFG Singapore imposed an internal restriction on the account to prevent the processing of any payments to or from the client’s account and restricted trading in the account.
• However, for more than four years, EFG Singapore did not notify its U.S. custodian or other U.S. securities firms transacting with the omnibus account that held the client’s sub-account.
• This omission caused the U.S. firms to process 141 securities transactions—nearly all of which were corporate actions such as interest payments and dividend distributions associated with the designated client’s securities in the account—totaling $468,615. Upon discovering this failure in 2018, EFG Singapore implemented additional controls and informed the involved U.S. securities firms of the underlying SDNTK interest.

RUSSIA = “Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation”

• Designated Russian Individual In 2023, OFAC designated a client of EFG’s Swiss subsidiary pursuant to Executive Order 14024, “Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation” of April 15, 2021.
• Following the designation, EFG imposed an internal restriction on the client’s account and notified U.S. custodians about securities positions that they held on behalf of the recently OFAC-designated client.
• Due to an error, however, EFG’s notification to the custodians overlooked three securities positions that the client, prior to his designation, pledged to EFG Switzerland under a securities lending agreement and that were under EFG’s name rather than the client’s. EFG discovered that this lapse caused at least five dividend transactions, worth approximately $1,200, to process through U.S. securities firms.

THE FINE

• As a result of the conduct described above, between approximately January 2014 and September 2023, EFG processed 873 securities-related transactions—totaling $30,409,488—through U.S. custodians or involving U.S. person counterparties, in apparent violation of § 515.201 of
• the Cuban Assets Control Regulations,  
• the Foreign Narcotics Kingpin Sanctions Regulations,
• the Russian Harmful Foreign Activities Sanctions Regulations,

Compliance Considerations

• This case illustrates certain sanctions risks that financial institutions with global clientele, including foreign securities firms who hold omnibus accounts at U.S. firms, may face.
• As illustrated by and this case previous OFAC settlements , foreign financial institutions that maintain omnibus accounts at U.S. custodians or otherwise engage in securities transactions with U.S. persons should ensure risk-based controls are in place to prevent U.S. firms from inadvertently providing services to sanctioned parties or jurisdictions.
• Such violations may arise when U.S. firms, which lack direct insight into underlying sub-accounts due to omnibus account structures, process transactions or corporate actions on behalf of sanctioned parties or for the benefit of persons in comprehensively sanctioned jurisdictions.
• To mitigate this risk, foreign financial institutions with U.S. omnibus accounts can screen their customers against OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”) and otherwise conduct appropriate due diligence to identify customers or counterparties with a potential sanction’s nexus.
• Routine screening of customer information, including names and locations, as well as ongoing risk-based due diligence, is particularly important in light of frequent updates to OFAC’s sanctions programs and additions to OFAC’s SDN List.
• Upon identifying a client subject to sanctions, omnibus accountholders should impose appropriate restrictions and controls, both to prevent benefits from going to sanctioned persons and to prevent affected U.S. firms, including U.S. custodians, from processing transactions for the sanctioned persons.
• Such steps could include ensuring prompt communication with the U.S. firms so that they can also impose controls, such as segregating and blocking affected securities or sub-accounts, as appropriate.

Source

• https://ofac.treasury.gov/media/932766/download?inline