AMMAN — On Monday, the United States Office of Foreign Assets Control (OFAC) of the Department of Treasury concluded its first settlement of 2021. Union des Banques Arabes et Francaises (UBAF), a French-Arab bank, agreed to an $8.6 million penalty for “apparent violations of Syria-related sanctions program.”
UBAF works across Europe, the Middle East and Africa. Its shareholders include Credit Agricole (47% of shares), one of the largest banks in Europe, as well as Dutch and Arab partners. Credit Agricole settled a previous penalty with OFAC in 2015 following apparent violations of US sanctions on Sudan. In 2016, OFAC also investigated some of UBAF’s bank transfers pertaining to oil sales by Iran, Libya and Syria. The outcome of the investigation is yet to be declared.
The latest case, which occurred shortly after the significant expansion of the US sanctions regime through the “Caesar Act,” illustrates the risks faced by mainstream financial institutions dealing with Syria.
Between August 2011 and April 2013, UBAF allegedly engaged in 127 transactions contravening two unilateral US sanctions, namely Executive Order 13382 and Executive Order 13582.
Drafted in 2005 at the height of the US “War on Terror,” Executive Order 13382 targets entities deemed to contribute to the proliferation of weapons of mass destruction. Two Syrian banks were added by OFAC to the list of entities sanctioned under this order in August 2011. Meanwhile, Executive Order 13582 was signed on August 18, 2011, in the first year of the Syrian conflict. The order froze all assets and funds owned by the Government of Syria in the United States and prohibited a variety of transactions related to Syria.
For nearly two years afterward, UBAF allegedly continued providing financial services to sanctioned Syrian entities. The bulk of the violations consists of 114 internal transfers. Money was transferred from UBAF accounts belonging to sanctioned clients to unsanctioned UBAF accounts that were used to make transactions of matching amounts through US banks.
OFAC found that UBAF’s management was aware of this conduct and of the sanctions but allegedly did not believe to be in violation of them, as it was avoiding direct interactions between the sanctioned entities and US banks.
In total, UBAF processed approximately $2 billion on behalf of sanctioned entities, making it liable to a maximum penalty of $4 billion, although by applying the enforcement guidelines, a settlement of $8.6 million was eventually reached.
Penalties may go much higher. “If the business also violates the US Trading with the Enemy Act, it can be penalized up to $65,000 per violation. If the business contravenes the Economic Powers Act, the fine may go up to $250,000 per violation,” Dr. Martin Navias, from the Centre of Defense Studies at King’s College London, told Syria Direct.
One outcome of sanctions is to incentivize risk-minimizing behavior from all organizations. This aims to complicate and ideally freeze the financial life of sanctioned entities.
To that end, OFAC enforces sanctions based on Economic Sanctions Enforcement Guidelines that can work towards minimizing the liability of financial institutions. In UBAF’s case, “the settlement amount reflects OFAC’s determination that UBAF’s Apparent Violations were non-egregious and voluntarily self-disclosed,” according to the settlement document released by OFAC.
Frequently, sanctions are breached out of negligence rather than malevolence. This includes, for instance, failure to identify a sanctioned client and poor oversight. “Firms should be careful and take all steps they can to comply with US sanctions policy. If they identify a problem, they should immediately stop the action, take legal advice and seek some type of arrangement with OFAC that can act to reduce the penalty,” Dr. Navias advised.
Precedent also indicates that a degree of leniency can be granted if there is reasonable ground to justify an incomplete understanding of the sanctions due to their recent nature. In UBAF’s case, the breaches occurred in the two years following the sanctions. In a settlement on December 28, 2020 with a Saudi bank that violated Syria-related sanctions, OFAC similarly lowered the penalty considering that “most of the apparent violations occurred shortly after the imposition of relevant prohibitions.”
The US sanctions regime was significantly expanded in 2020 with the introduction of the “Caesar Act.” Their impact is likely to be fully understood only in the long term, as “these cases can be complex and time-consuming and it is possible for some to take many years to resolve,” according to Navias.
Most importantly, all organizations dealing financially in high-risk contexts should demonstrate the existence of a compliance system – internal measures in place to minimize the risk of sanctioned entities abusing the financial system – and their willingness to strengthen it.
Financial institutions, international companies and INGOs have to navigate a growing array of sanctions. Smaller entities are most at risk and have to dedicate increasing resources to legal and compliance services. For many, the safest option is to cut ties with high-risk contexts, as UBAF did by “exiting business with Syria in all currencies.”