OFAC Issues Notice of Violation Against Puerto Rico Bank But Imposes No Penalty for Sanctions Violations
The Department of Treasury’s Office of Foreign Assets Control (“OFAC”) issued a finding of violation (“FoV”) to Nodus International Bank, Inc. (“Nodus”), located in Puerto Rico, for violation of Venezuelan Sanctions. Nordus voluntarily disclosed three unauthorized transactions in which a Specially Designated National (“SDN”) had an interest. Nodus failed to maintain accurate records related to the handling of blocked property. OFAC determined that a FoV in lieu of a civil monetary penalty was appropriate.
Nodus maintained accounts for a SDN starting in 2017, including two time deposit accounts, a savings account, and an outstanding credit card balance. In addition, the SDN individual held an interest in certain securities that were issued by Nodus prior to the individual’s designation on the SDN List. Shortly after learning of the designation, Nodus’s Board of Directors decided to sever all ties with the blocked person, blocked his accounts, and submitted a Report of Blocked Property to OFAC (the “blocking report”) describing these blockings.
Nodus sought to redeem the blocked person’s securities and place the proceeds into a blocked account. Nodus understood that it needed a license from OFAC to deal in the blocked property. Nodus, however, processed the securities redemption without obtaining a license. The proceeds of the redemption were placed into a blocked account and not accessible to the blocked person.
Separately, as a result of human error, Nodus also allowed an automatic debit from one of the blocked person’s blocked accounts in order to credit the blocked credit card account. Nodus then wrote off the balance of the blocked credit card account. As a result of the foregoing, Nodus engaged in three transactions totaling $50,271.29 in violation of § 591.202 of the VSR, 31 C.F.R. part 591, failed to maintain full and accurate records related to the handling of the blocked accounts in violation of § 501.601 of the RPPR, 31 C.F.R. part 501, and failed to report the blocked accounts accurately in violation of § 501.603(b)(ii).
Under the Sanctions Enforcement Framework, OFAC noted that Nodus failed to exercise a minimal degree of caution or care when it (i) engaged in transactions involving blocked property without obtaining an OFAC license, even though senior managers at the bank were aware an OFAC license was needed; and (ii) failed to maintain relevant records associated with the bank’s handling of the blocked property, which may have impaired its ability to provide full and accurate information to OFAC.
OFAC noted the following mitigating factors: (i) Nodus is a small international financial institution and has not received a penalty notice or FoV from OFAC in the five years preceding the first violation noted herein; (ii) Nodus voluntarily self-disclosed the VSR violations; (iii) the sanctions harm was not significant.
Nodus took numerous remedial measures, including: (i) Nodus hired experts with experience in OFAC compliance to provide specialized training to all Nodus employees on OFAC sanctions, and an in-house lawyer in its Compliance Department to assist with the handling of all sanctions-related matters; (ii) Nodus updated its current practice to freeze and restrict blocked accounts with a specific label that alerts any Nodus employee accessing blocked accounts that such accounts are blocked for OFAC related reasons, and should contact the Compliance Department before taking any action with respect to the account.; (iii) Nodus’s software provider implemented user controls that require the Compliance Department’s approval for any action affecting a blocked account; and (iv) Nodus updated its recordkeeping procedures to ensure that it maintains appropriate records related to blocked property.
OFAC noted that the enforcement action highlights the importance of financial institutions’ properly maintaining blocked property and records, and filing accurate reporting to OFAC. Moreover, financial institutions should ensure that they receive all necessary licenses from OFAC before dealing in blocked property and clearly communicating OFAC requirements among an institution’s compliance and business lines.
OFAC explained that financial institutions should properly maintain blocked property and records, report such information accurately … and obtain a specific license … in order to deal in blocked property.” OFAC also stated that banks should make sure they receive “all necessary licenses” from OFAC before dealing in blocked property and clearly communicate OFAC’s sanctions requirements “among an institution’s compliance and business lines.”