OFAC Announces Settlement With JPMorgan Chase Bank N.A. For Multiple Violations

Aug 29, 2011   

On August 25, 2011, the Office of Foreign Assets Control (“OFAC”) of the United States Department of the Treasury announced that it had reached a settlement with JPMorgan Chase Bank, N.A. for alleged violations of multiple sanctions programs related to doing business with Cuba, Iran, Sudan, and Liberia as well as sanctions programs designed to prohibit the support of terrorism and the proliferation of weapons of mass destruction. As part of the settlement agreement, JPMorgan has agreed to remit $88,300,000 to OFAC. The settlement is the largest ever paid by a U.S. financial institution for sanctions violations. A copy of OFACs press release can be read here.

Of the numerous violations alleged to have been committed by JPMorgan, OFAC determined that three were “egregious.” The egregious violations included violations of the Cuban Assets Control Regulations, the Weapons of Mass Destruction Proliferators Sanctions Regulations, and the Reporting, Procedures, and Penalties Regulations. The Cuban Assets Control Regulations (“CACR”) generally prohibits U.S. banking institutions from accepting transfers of credits and funds of a Cuban nationals Cuban assets. See 31 C.F.R. § 515.201. (More information about the CACR can be found on OFACs website here.) OFAC alleged that between December 12, 2005 and March 31, 2006, JPMorgan processed 1,711 wire transfers of approximately $178.5 million for Cuban nationals in violation of the CACR. Additionally, OFAC alleged that JPMorgan was alerted by another financial institution of possible violations as early November 2005. OFAC alleged that JPMorgan investigated, found that the transfers were in fact in violation of the CACR and failed to self-report the violations to OFAC and take steps to prevent violations from recurring.

OFAC also alleged violations of the Weapons of Mass Destruction Proliferators Sanctions Regulations (“WMD Sanctions”). Under the WMD Sanctions program, all property and interests in property of persons and businesses who have been identified by regulation, that are in the United States, are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in. See 31 C.F.R. § 544.201. According to OFAC, JPMorgan violated the WMD Sanctions when it made a loan of $3 million to a bank that then used the borrowed funds to issue a line of credit to purchase a vessel affiliated with the Islamic Republic of Iran Shipping Lines, which is subject to WMD Sanctions and therefore blocked. OFAC found this violation to be egregious because, despite voluntarily self disclosing to OFAC, JPMorgan withheld its self-disclosure for over 3 months from the time it learned of the violation and received repayment of the loan after its self-disclosure without OFAC authorization.

The final “egregious” violation was a violation of the Reporting Procedures and Penalties Regulations (“RPPR”). The RPPR, found at 31 C.F.R. Part 501, establishes the standard reporting and recordkeeping requirements, as well as the procedures governing transactions pursuant to the various economic sanctions programs operated by OFAC. OFAC alleged that between November 8, 2010 and March 1, 2011, JPMorgan failed to produce numerous documents in its possession in response to an OFAC administrative subpoena and repeatedly asserted that no such documents were in its possession. However, OFAC investigations, which included communications with third-party financial institutions, revealed multiple responsive documents that were still in JPMorgans possession that had not been turned over. As a result of OFACs investigation, JPMorgan subsequently produced more than 20 additional responsive documents. Similar to its CACR violation, JPMorgan did not self disclose the violation to OFAC.

In determining that JPMorgans violations were egregious, OFAC determined as follows: “JPMorgan is a very large, commercially sophisticated financial institution, and [its] managers and supervisors acted with knowledge of the conduct constituting the apparent violations and recklessly failed to exercise a minimal degree of caution or care with respect to [its] U.S. sanctions obligations.”

The JPMorgan settlement provides an illustrative example of the multiple complex sanctions schemes with which financial institutions must comply. If you have questions pertaining to the numerous OFAC sanctions programs, or for questions on how to ensure that your business maintains regulatory compliance at both the state and federal levels please contact us at contact@fidjlaw.com.