One might have felt that some of the fines recently dished out by the UK’s FSA (FSA slaps JP Morgan with biggest fine ever, UBS fined for dodgy dealing) were on the harsh side but they were nothing more than a clips round the ear compared with this week’s judgement meted out to Barclays by US authorities (Federal Reserve Board press release, Department of Justice press release). Barclays has to stump up a total of $298 million, split 50/50 between “the United States and to the New York County District Attorney’s Office”
The fine (or “forfeiture” in the parlance of the US Department of Justice) is “in connection with violations of the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA)…The violations relate to transactions Barclays illegally conducted on behalf of customers from Cuba, Iran, Sudan and other countries sanctioned in programs administered by the Office of Foreign Assets Control (OFAC).” The violations took place between 1995 and 2006.
“According to court documents, Barclays followed instructions, principally from banks in Cuba, Iran, Libya, Sudan and Burma, not to mention their names in U.S. dollar payment messages sent to Barclays’ branch in New York and to other financial institutions located in the United States. Barclays routed US dollar payments through an internal Barclays account to hide the payments’ connection to OFAC-sanctioned entities and amended and reformatted the US dollar payment messages to remove information identifying the sanctioned entities. Barclays also deliberately used a less transparent method of payment messages, known as cover payments, as another way of hiding the sanctioned entities identifying information.”
However, all the apparent violations were disclosed by Barclays itself; that, and the fact of Barclays’ cooperation with OFAC throughout the investigation, prevented the ‘forfeiture’ being an even greater amount. The Department of Justice itself appears to believe that the fine is substantial: “This is the first settlement of this magnitude where OFAC determined that all of the apparent violations were voluntarily self-disclosed.”
In a practically identical case in January 2009, the then Lloyds TSB paid an even larger fine of $350 million to the authorities to conclude an investigation regarding dollar payments facilitated by the bank on behalf of institutions in Iran, Libya, and Sudan between 1995 and 2007.
It is strange that in neither case were individuals named or prosecuted. Both cases featured systematic circumvention of established payment protocols and, even more fundamentally, flouting of compliance procedures.
As you might realise, I never was a fan of the jobsworth box-tickers in compliance. But it strikes me that a good compliance operation can save a bank very serious money these days.
