OFAC is getting ready for a big year.  While managing a comprehensive set of sanctions against the Russian Federation in response to its Invasion of Ukraine, OFAC has demonstrated its ability to maintain aggressive enforcement of existing sanctions programs.

The Justice Department and OFAC are forging a new enforcement partnership — and 2024 will be a precedent-setting year.  Stay tuned for more on this new enforcement dynamic.

In the meantime, OFAC announced its first enforcement action of 2024 against EFG International AG, a global private banking group based in Switzerland.  EFG agreed to pay $3.74 million for violations of multiple sanctions programs.

Between 2014 and 2018, EFG processed 727 securities-related transactions on behalf of customers in Cuba; 141 securities-related transactions for an individual blocked under the Kingpin Act, and five dividend payments for U.S.-located securities for a person blocked under OFAC’s Russia Sanctions program.  EFG voluntarily disclosed the violations and OFAC determined the violations were not egregious.  Further OFAC cited EFG’s significant remedial measures.

EFG’s subsidiaries in various countries purchased and sold securities on behalf of foreign clients.  These transactions were conducted through and held in accounts with U.S. custodians and other U.S. market participants, including an EFG U.S. subsidiary.

Between 2014 and 2018, EFG subsidiaries in the Bahamas, Cayman Islands, Luxembourg, Monaco and Switzerland conducted 727 securities transactions and fund transfers involving accounts at U.S. custodians or U.S. market participants on behalf of clients who resided in Cuba or were Cuban nationals. EFG’s clients included a Panama-based company owned by a person located in Cuba, two private investment firms whose beneficial owner was a Cuban national and residents were Cuban national.

In 2009, EFG’s Singapore branch opened an investment account for a Chinese national who was designated in 2014 as a Specially Designated Narcotics Trafficking Kinkpin.  While EFG Singapore placed restrictions on on the account in 2014, EFG Singapoire failed to notify its U.S. custodian or other U.S. Securities firms about the designation.  As a result, the U.S. firms processed 141 transactions prohibited by U.S. Sanctions.

in 2023, OFAC designated a client of EFG’s Swiss subsidiary under the Russia Sanctions program.  EFG imposed a restriction on the client’s account.  Due to a clerical error, EFG’s notification overlooked three securities positions and conducted three dividend payment transactions in violation of OFAC’s sanctions designation.

As part of the settlement of $3.74 million, OFAC suspended $1 million pending satisfactory completion of certain compliance commitments.

In reaching the settlement, OFAC determined that EFG failed to exercise due caution or care by failing to properly screen for and timely notify U.S. custodians and other U.S. parties about positions of blocked persons held in EFG omnibus accounts in the United States. Further, OFAC cited the fact that EFG at all times knew or had reason to know that it held securities on behalf of blocked persons in omnibus accounts at U.S. custodians or counterparties.

OFAC cited EFG’s “significant remedial actions,” including: (1) Implementing internal restrictions to prevent credits/debits to sanctioned-client accounts and requiring compliance-function approval for any account activity of customers who are not blocked but present heightened sanctions risk; (2) Requiring that all its subsidiaries notify U.S. custodians and other U.S. parties in writing of securities positions that EFG holds in its omnibus accounts on behalf of clients that have been designated by OFAC or are otherwise the subject of OFAC sanctions; (3) Instituting a risk-control framework to identify high-risk countries and apply enhanced due diligence to clients with exposure; and (4) Conducting annual sanctions risk assessments and instituting controls responsive to OFAC’s Framework for Compliance Commitments.

EFG substantially cooperated during OFAC’s investigation by conducting an internal investigation to identify exposure to clients under OFAC sanctions, providing well-organized and timely responses to OFAC’s requests for information, and entering into tolling agreements.

In summarizing the lessons learned from the enforcement action, OFAC underscored the risks faced by financial institutions with global clients, including foreign securities firms that maintain omnibus accounts at U.S. firms.  in this situation, U.S persons have to ensure that risk-based controls are in place, including visibility into underlying sub-accounts are identified or prevent otherwise illegal transactions.  To this end, foreign financial institutions with U.S. omnibus accounts need to screen their customers against OFAC’s SDN list and conduct appropriate due diligence to identify customers or counterparties with a potential sanctions nexus. Routine screening of customer information, including names and locations, as well as ongoing risk-based due diligence, is particularly important in light of frequent updates to OFAC’s sanctions programs and additions to OFAC’s SDN List.

OFAC also cited its FAQ 335 and the following best practices to be followed by securities firms: (1) making customers and counterparties aware of the firm’s U.S. sanctions obligations; (2) conducting due diligence to identify higher-risk clients, including through the use of questionnaires and certifications; (3) imposing restrictions or heightened controls on high- risk clients; (4) gathering additional information on non-proprietary accounts; and (5) monitoring accounts and clients for suspicious activities.