TD Bank and Sanctions Violations
Sanctions enforcement continues to be a significant risk. With the focus on unraveling elaborate corporate ownership schemes, the risk of conducting business with sanctioned individuals or entities is increasing.
The Treasury Department’s Office of Foreign Asset Control has increased expectations regarding corporate compliance programs. In addition, OFAC encourages voluntary disclosures when violations occur, and has set out an elaborate scheme regarding transparency. On the criminal side, the Justice Department’s National Security Division focuses enforcement efforts against those serious violations that may have national security implications. The line between criminal and civil is fairly clear when it comes to circumventing sanctions prohibitions.
For the last few years, international banks have been the focus of enforcement efforts. In January of this year, TD Bank was required to pay a civil penalty of $516,105, earning just under a 50 percent discount from the base penalty, for conducting 167 transactions in violation of the Cuba and Iran sanctions programs. TD Bank voluntarily disclosed the violations to OFAC.
TD Bank, which is based in Montreal, Canada, issued a series of letters of credit to Canadian customers engaged in transactions with Iran and Cuba. The transactions, with the letters of credit, were processed through the United States’ financial system, thereby triggering United States jurisdiction. A Cuban company owned one Canadian customer, and TD Bank had knowledge of this relationship.
TD Bank also assisted a customer shipping company that transported oil and gas equipment to customers in the Middle East, and was listed as an agent of Specially Designated National located in Iran.
TD Bank also had 62 customers who were Cuban nationals residing in Canada.
TD Bank supervisory personnel knew or should have known of the continuing conduct with the exception of certain violations. OFAC cited TD Bank’s weak OFAC compliance program as contributing to the series of violations.
On the mitigating side of equation, OFAC cited the fact that TD Bank could have obtained a license to provide services to the Cuban nationals under a general license issued in 2011.
The focus of OFAC’s enforcement action centered on TDWIS, TD Bank’s securities trading subsidiary. Between 2007 and 2013, TDWIS, the subsidiary company opened trading accounts for 4 individuals subject to the Iran and Cuba sanctions, and processed almost four thousand transactions over the six-year period for these four customers. TDWIS processed securities trading transactions for Internaax, an international brokerage firm.
Internaax shared customer and trading information with TDWIS, which in turn processed the transactions through a United States broker-dealer. Both Internaax and TDWIS had sufficient identifying information to recognizer that the proposed transactions were barred under the Cuba and Iran sanctions programs.
TDWIS made little to no attempt to ensure that Internaax complied with OFAC restrictions. OFAC cited this fact in its enforcement order.
OFAC also cited this case to underscore that securities firms operating outside the United States understand and fully comply with sanctions regulations imposed on United States parent companies. Additionally, OFAC noted that online payment platforms have to be monitored to ensure compliance with OFAC sanctions.