U.S. to hold bankers responsible for sanctions violations

ST. LOUIS, March 22 (Thomson Reuters Accelus) - The U.S. Treasury Department plans to hold bankers personally responsible and subject them to fines when their banks help countries such as Iran evade economic sanctions.

The shift is in line with recently declared intentions also to hold individual bankers liable for failures to prevent laundering of drug money and other criminal proceeds, a Treasury spokesman told Reuters.

The shift, which has yet to result in any actual enforcement action, also comes amid mounting pressure to crack down on banks and bankers for a wide range of financial misdeeds, and end their perceived status as "too big to jail."

"Although sanctions enforcement cases involving financial institutions have typically concluded with civil penalties at the corporate level, individuals can and do face liability ... when they are personally responsible for sanctions violations, and Treasury's Office of Foreign Assets Control will take appropriate enforcement action in these circumstances," Treasury spokesman John Sullivan said this week.

The Treasury's Office of Foreign Assets Control (OFAC) is responsible for administering the U.S. sanctions regime and can fine parties that violate it. While the office has levied big financial penalties against banks - most recently Britain's HSBC and Standard Chartered , it has not exercised its authority to penalize individual bankers. The office lacks authority to directly pursue other penalties, such as jail time.

"There have been cases involving individuals that OFAC has brought, but not individuals who were explicitly employees of financial institutions acting on behalf of the financial institution," veteran OFAC official Dennis Wood said at an anti-money-laundering conference in Florida earlier this week.

In the future, where there is evidence suggesting specific bankers were "directing" sanctions-evading activity at an offending bank, OFAC will seek to hold those individuals responsible, Sullivan said. If warranted it will refer to the Justice Department for possible prosecution cases involving individual bankers, he said.

The new enforcement approach was ordered by David Cohen, Treasury's undersecretary for terrorism and financial intelligence, who assumed that post in June 2011. Cohen oversees both OFAC and Treasury's anti-money-laundering unit, the Financial Crimes Enforcement Network (FinCEN).

When asked why OFAC has not sought to impose financial penalties on individual bankers to date, Sullivan declined to comment.

Former Treasury officials said OFAC may have hesitated to target bankers because its jurisdiction over foreign banks is tenuous. The jurisdiction hinges on the clearance of U.S. dollar payments through New York, and OFAC's investigators rely heavily on the cooperation of foreign bankers.

But criticism from Congress over the lack of prosecutions by the Department of Justice in a recent money-laundering and sanctions case involving HSBC may have been part of the impetus behind Cohen's decision to instruct OFAC and FinCEN to start looking to use civil penalties against individuals.

"I strongly suspect that this change in policy is in reaction to public frustration that so few employees of financial institutions have been criminally prosecuted for their role in the recent financial crisis," said Peter Djinis, a former regulatory policy official at FinCEN who is now in private practice in Florida.

"It does not help that the Department of Justice has implied that some financial institutions are 'too big to jail.'"

U.S. Attorney General Eric Holder acknowledged at a Senate hearing this month that some financial institutions are so large that it becomes difficult to prosecute them because it would "have a negative impact on the national economy, perhaps even the world economy."


A number of British and European financial institutions have been targeted by OFAC, as well as federal and New York state prosecutors, for engaging in transactions that benefited Iran and other sanctioned countries. They have agreed to pay penalties totaling more than $2 billion.

U.S. authorities now know it was once a common practice among some foreign banks to hide the fact that sanctioned parties were involved in U.S. dollar payments cleared through New York. Such banks removed data identifying the prohibited parties from transaction messages, a practice that has come to be known as "stripping."

That practice is thought to be defunct, at least within large multinational banks, as a result of high-profile U.S. enforcement actions, sanctions experts say.

Since 2005, OFAC and its U.S. law enforcement partners have targeted HSBC, Standard Chartered Bank, ING Bank NV , Credit Suisse , Barclays , Lloyds TSB Bank and ABN AMRO for sanctions violations. Still, no individual bankers were held to account.

In December, HSBC agreed to pay a record $1.9 billion to resolve charges that it failed to detect the laundering of $881 million by Mexican and Colombian drug cartels and helped move roughly $430 million around the world in violation of U.S. sanctions against Iran and other countries.

The fact that no HSBC bankers were held to account, either criminally or civilly, contributed to the grilling of Treasury's Cohen and top bank regulatory officials during a Senate Banking Committee hearing earlier this month.

At that hearing, Cohen revealed he had instructed FinCEN to look more closely at existing civil powers that could be used to hold financial institutions' "partners, directors, officers and employees" responsible for lapses that allowed the laundering of crime proceeds. The move to include OFAC in the push is a follow-up to that.