Wells Fargo Pays OFAC $30 Million to Settle Sanctions Violations (Part I of II)
In our lifetime (however long or short), there is no way any company will ever match Wells Fargo for its record of misconduct, criminal and civil enforcement, and regulatory fines and penalties. No one, no way.
Wells Fargo added to its Grand Slam of Enforcement with its recent settlement of OFAC violations and paid $30 million to settle the matter.
Wells Fargo is a one-entity wrecking ball riddled with culture deficiencies and unable to put any positive foot forward. Anyone considering working there or assisting Wells Fargo should do so with eyes wide open and more importantly, the Monty Python mantra – Run Away!!! (Sorry, but any time I can make a reference to this scene, I have to do it).
Wells Fargo’s violations occurred during a seven-year period, 2008 to 2015, and stemmed from its acquisition of Wachovia Bank. Wells Fargo provided a foreign bank (part of predecessor Wachovia) with trade-finance software that Wachovia used to process trade financing transactions with U.S.-sanctioned entities and individuals. Wachovia customized the software and then used it to conduct transactions that it knew or should have known would involve sanctioned entities and individuals.
Wells Fargo acquired Wachovia during the financial crisis of 2008. It inherited Wachovia’s trade relationship, including with a European bank (“Bank A”). The trade insourcing platform included two versions – one where Wells Fargo (previously Wachovia) processed trade transactions on behalf of a customer (so-called “Comprehensive”) and one where it provided the software to the customer and the customer managed the transaction itself (so-called “Hosted”). The trade software operated on a platform called “Eximbills.” Wells Fargo provided both of these platforms to Bank A.
Wachovia and Bank A understood that Bank A had primary responsibility to process and manage Hosted transactions using a different system than Eximbills. In 2007, Bank A sought to switch to a different single system for all of its trade finance services, including those for sanctioned jurisdictions, entities and persons.
At the direction of a mid-level manager, Wachovia designed a customized version of Eximbills for Bank A to “host” all of Bank A’s trade finance activities, including screening and managing OFAC compliance issues. This transaction was completed by 2008. As part of the program, Bank A handled exclusively the processing of any transactions involving a sanction jurisdiction, entity or individual. Seven of the violations occurred during the process.
The 124 violations occurred, despite Bank A’s conduct of the transactions, with continued involvement of Wells Fargo’s technology infrastructure at its branch in Hong Kong and data facility in North Carolina. The total value of the illegal transactions was approximately $532 million. The 124 violations involved three separate OFAC Sanctions Programs: Iran, Sudan and Syria.
Tellingly, Wells Fargo did not stop the European bank’s illegal transactions despite concerns raised internally on several occasions following Wells fargo’s acquisition of Wachovia.
Wells Fargo voluntarily disclosed the conduct to OFAC.
Under OFAC’s Penalty Calculations, Wells Fargo demonstrated “reckless disregard” for U.S. sanctions requirements using its technology infrastructure that both it knew or should have known would included transactions with sanctioned jurisdictions, entities and individuals. Furthermore, OFAC found that Wells Fargo failed to exercise a minimal degree of caution or care in failing to identify and prevent such transactions for seven years after it acquired Wachovia, despite potential sanctions concerns (including specifically with respect to possible facilitation issues) raised internally at senior-management levels on multiple occasions.
Despite these overall findings, OFAC noted that aside from this part of Wells Fargo’s operations, the bank had a strong sanctions compliance program in other parts of its operations. Notwithstanding this fact, OFAC appeared incredulous that Wells Fargo would not have identified Wachovia’s specific trade financing and insourcing operations as a high-risk sanctions compliance activity. In this respect, OFAC noted that the Wachovia breakdown was not part of any systemic breakdown in OFAC compliance across the Wells Fargo organization.
OFAC cited Wells Fargo’s remedial efforts: Wells Fargo immediately suspended its relationship with Bank A once it concluded that its operations violated OFAC’s Sanctions Programs; and Wells Fargo assumed direct responsibility for Bank A’s operations and conducts screening of all transactions itself to ensure compliance.
In September 2018, Wells Fargo instituted a more robust risk management policy for new or revised product or service offerings. This policy seeks to identify and control any areas of risk, including sanctions-related risk, associated with new business initiatives prior to, during, and after implementation.
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