ANZ fined £5.75m for joining 'strip club'

Australia and New Zealand Banking Group (ANZ) has been fined $5,750,000 by the US Office of Foreign Assets Control (OFAC) to settle allegations it violated the OFAC sanctions regime.

The alleged violations include manipulating SWIFT payment messages to strip out information which would identify sanctioned entities, earning the bank a place among other sanction-bending institutions, known as the ‘strip club', according to Nicholas Hills, senior associate of international law firm, BakerPlatt Group.

ANZ is believed to have breached the Sudenese Sanctions Regulations and the Cuban Assets Control Regulations between 2004 and 2006 through trade finance and foreign currency exchange activities via US correspondent accounts, says Hills.

According to the settlement agreement, ANZ processed 16 letters of credit and reimbursement claims relating to trade with Sudan in the aggregate amount of $28,170,185 and15 financial transactions in which the government of Cuba or a Cuban national had an interest in $77,705,751.

It reveals this "provided substantial economic benefit to Sudan and Cuba, thereby undermining US national security, foreign policy and other objectives of the sanctions programs."

As well as paying the $5,750,000 penalty, ANZ has agreed to examine and revise its policies and procedures to ensure future compliance with OFAC regulations. The findings must be reported to OFAC before the end of 2010 and be reviewed by the Australian regulator.

The bank dodged a worse penalty as it engaged in "prompt and thorough remedial action upon discovering the alleged violations. Other members of the ‘strip club' escaped less lightly," says Hill.

Lloyds TSB was hit with the largest penalty to date earlier this year for alleged breaches of the OFAC sanctions regime in relation to Iran and Sudan. It signed a deferred prosecution agreement in January, paying $350,000,000 to the US Department of Justice and the New York County District Attorney's Office.

"Admission to the Strip Club does not come cheap. Along with the immediate financial penalty there are also the costs of review and remediation," says Hill.

It is estimated Lloyds TSB fill find its self out-of-pocket by over $500,000,000, he says.

"Added to this are the less quantifiable reputational damage and burden of knowing that OFAC will be watching even more closely going forward."

Hill says ANZ's quick-thinking remediation has helped to save it from Lloyds TSB's fate and the bank voluntarily disclosed further apparent violations which the OFAC was not aware of, which were brought to light by an internal review.

"Banks which confess to breaches, cooperate fully with OFAC and engage in a swift and genuine remedial response might just manage to avoid having to explain a half billion dollar bill to shareholders," says Hill.