OFAC Fines Swiss Banking Company for Alleged US Sanctions Violations

The agency said EFG subsidiaries in several countries traded securities through various investment accounts on behalf of foreign clients subject to U.S. sanctions. But because those accounts were “generally made in the name of EFG” and not its clients, American market participants “were unaware that they were ultimately processing securities transactions on behalf of persons sanctioned by OFAC," the agency said in an enforcement release.

Some of those transactions violated the Cuban Assets Control Regulations, OFAC said. Between January 2014 and July 2018, EFG subsidiaries in the Bahamas, Cayman Islands, Luxembourg, Monaco and Switzerland processed more than 700 securities-related transactions and funds transfers, worth nearly $30 million, on behalf of clients in Cuba or for clients whose “beneficial owners” were Cuban nationals. OFAC said those clients included a Cuban-owned Panamanian company, two Cuban-owned private investment firms domiciled in the British Virgin Islands and Panama, and multiple people who EFG “had reason to know resided in Cuba based on residency cards they provided.”

OFAC also said EFG violated the Foreign Narcotics Kingpin Sanctions Regulations after its Singapore branch in 2009 opened an investment account for a Chinese national that was sanctioned in 2014 as a Specially Designated Narcotics Trafficking Kingpin. Although EFG Singapore restricted the account after the person was sanctioned, the subsidiary didn’t “notify its U.S. custodian or other U.S. securities firms" for more than four years that they were "transacting with the omnibus account that held” the Chinese national’s sub-account.

The agency said this caused U.S. firms to process 141 securities transactions worth $468,615 for the sanctioned person. After “discovering this failure” in 2018, the Singapore subsidiary “implemented additional controls and informed the involved U.S. securities firms of the underlying" sanctions issue, OFAC said.

The other set of violations involved a person designated under executive order 14024, which authorized certain sanctions involving Russia. OFAC said it sanctioned the person -- who was a client of EFG’s Swiss subsidiary -- in 2023, and EFG restricted the account and notified “U.S. custodians about securities positions that they held on behalf of the recently OFAC-designated client.” But “due to an error,” OFAC said EFG’s notification “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 later discovered that this “lapse” led to at least five dividend transactions, OFAC said. They were worth about $1,200 and were processed through U.S. securities firms.

In total, OFAC said EFG processed 873 transactions worth more than $30 million that violated U.S. sanctions programs. The agency could have imposed a maximum civil penalty of about $276 million, but it decided on a lesser amount because the case was “non-egregious” and EFG voluntarily disclosed the alleged violations. OFAC said it will suspend $1 million of its $3,740,442 fine against ESG as long as the banking group completes “certain compliance commitments.”

OFAC also pointed to several mitigating factors that led to the lower fine, including that EFG restricted the accounts of sanctioned users each time it discovered them, had not received a penalty notice in the previous five years and “substantially cooperated” with the agency’s investigation.

It also improved its compliance procedures by putting in place new “internal restrictions” to stop credits and debits to sanctioned-client accounts, and introduced a requirement that customers who “present heightened sanctions risk” first need “compliance-function approval.” EFG also began requiring its subsidiaries to notify U.S. parties in writing “of securities positions that EFG holds in its omnibus accounts on behalf of” sanctioned clients, created a new “risk-control framework to identify high-risk countries and apply enhanced due diligence to clients with exposure,” and started annual sanctions risk assessments.

The agency also pointed to several aggravating factors, including that EFG “failed to exercise due caution or care by” not notifying U.S. parties about accounts with ties to sanctioned people. OFAC also said EFG “knew or had reason to know” that the transactions violated sanctions, and that its transactions involving Cuba helped in “conferring economic benefit to a comprehensively sanctioned jurisdiction.”

The case highlights sanctions risks faced by financial institutions with “global clientele,” OFAC said, especially foreign securities firms that have omnibus accounts at U.S. firms. Foreign firms should screen their customers against OFAC’s Specially Designated Nationals and Blocked Persons List, the agency said, “and otherwise conduct appropriate due diligence to identify customers or counterparties with a potential sanctions nexus.”

After discovering a sanctioned client, those firms “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,” OFAC said.

An EFG spokesperson noted that the company voluntarily disclosed the violations and that they involved "historic account relationships." The settlement "of USD 2.7 million, which is net of the portion suspended by OFAC, has been fully provided for and has no impact on EFG’s financial statement," the person said. "The settlement amount reflects OFAC’s determination that EFG’s conduct was non-egregious, voluntarily self-disclosed, and recognises EFG’s significant remedial actions.”