DA’s Office and Federal Partners Have Secured Close to $12 Billion in Settlements From 8 Banks Since 2009
Manhattan District Attorney Cyrus R. Vance, Jr., together with the U.S. Department of Justice (DOJ), today announced the resolution of a joint investigation into the criminal conduct of Commerzbank AG (Commerzbank), the second-largest bank in Germany, and the payment of $342 million in penalties and forfeiture to resolve the matter. In the Deferred Prosecution Agreement (DPA) and corresponding Factual Statement, Commerzbank admitted that it violated New York State law by falsifying the records of New York financial institutions.
Beginning in 2002, Commerzbank moved more than $250 million through the U.S. financial system primarily on behalf of Iranian and Sudanese customers in violation of U.S. sanctions by concealing the illegal nature of these transactions and deceiving U.S. banks into processing illegal wire payments. One of these customers was the Islamic Republic of Iran Shipping Lines (IRISL), the Iranian state-sponsored shipping company, which the Office of Foreign Assets Control of the United States Department of the Treasury (OFAC) designated as a Specially Designated National (SDN) pursuant to the Non-Proliferation of Weapons of Mass Destruction program (NPWMD) in September 2008.
In June 2011, the Manhattan District Attorney’s Office announced a 317-count indictment against IRISL, at the time one of the world’s largest shipping companies, and several of its agents and affiliates. The indictment charged that between September 2008, when IRISL was designated by OFAC, and January 2011, IRISL and its agents and affiliates engaged in a complex conspiracy to circumvent United States sanctions and gain illegal access to the U.S. financial system by systematically falsifying records and using front companies to move more than $60 million in illegal payments through New York banks. The current investigation uncovered that, simultaneously, between September 2008 and December 2008, IRISL and its agents and affiliates, aided by Commerzbank’s branch in Hamburg, Germany, illegally transmitted approximately $40 million through banks located in New York County after IRISL was designated as an SDN.
“We have sanctions in place to prevent rogue nations and terrorists from accessing the U.S. financial system,” said District Attorney Vance. “In order to have teeth, sanctions need to be enforced and Manhattan financial institutions need to be protected from being unwittingly used by bad actors. Over the course of eight settlements, my Office and our partners have sent a strong message of enforcement that has led to the transformation of compliance in this area.”
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division said: “Commerzbank concealed hundreds of millions of dollars in transactions prohibited by U.S. sanctions laws on behalf of Iranian and Sudanese businesses. Commerzbank committed these crimes even though managers inside the bank raised red flags about its sanctions-violating practices. Financial institutions must heed this message: banks that operate in the United States must comply with our laws, and banks that ignore the warnings of those charged with compliance will pay a very steep price.”
U.S. Attorney Ron C. Machen Jr. for the District of Columbia said: “Sanctions laws are designed to protect the national security of the United States and promote our foreign policy interests. Commerzbank undermined the integrity of our financial system and threatened our national security by hiding the business they were doing with entities in Iran and Sudan. The bank tried to skirt our laws by hiding its illegal business with Iranian banks from its own employees in the United States. Today’s resolution demonstrates that there will be consequences when global banks try to profit from the benefits of the U.S. financial system without respecting our laws.”
Chief Richard Weber of the Internal Revenue Service Criminal Investigation (IRS-CI) said: “Today’s deferred prosecution agreement is a significant milestone – on an international stage – that reaffirms our clear message to other global financial institutions. IRS-CI’s work in this investigation – as well as the prior sanction cases – has resulted in fundamental changes in the way banks operate worldwide. IRS-CI and our partners will continue to hold financial institutions accountable for international criminal violations.”
In addition to the $342 million settlement resolving the joint criminal investigation conducted by the Manhattan District Attorney’s Office and DOJ, Commerzbank also has agreed to resolve parallel regulatory inquiries arising out of the same pattern of conduct, in which the Board of Governors of the Federal Reserve System (Federal Reserve) and the New York State Department of Financial Services (DFS) imposed additional civil monetary penalties in the amounts of $66 million and $310 million, respectively. The total settlement amount of $718 million also includes a settlement of $260 million, reached with OFAC, with this amount being credited to the total penalties and forfeiture amount. Further, Commerzbank has agreed to simultaneously settle a BSA/AML matter with the federal government, the Federal Reserve, and DFS in the amount of $734 million.
Included in the $342 million criminal settlement amount is an unprecedented fine of approximately $80 million specifically addressing Commerzbank’s conduct with respect to its involvement in handling payments on behalf of IRISL after it was designated as an SDN by OFAC pursuant to the NPWMD program on September 10, 2008. Because Commerzbank processed approximately $40 million in illegal payments on behalf of IRISL after its designation as an SDN, Commerzbank has agreed to forfeiture and a criminal fine in the amount of three times the value of those transactions – approximately $120 million in total.
Pursuant to the DPAs with the Manhattan District Attorney’s Office and DOJ related to sanctions violations, Commerzbank has agreed, among other things, to adhere to best practices for international banking transparency, implement procedures and training designed to ensure U.S. sanctions compliance, and pay $342 million in penalties and forfeiture. Half of that amount, $171 million, will be paid to the Manhattan District Attorney’s Office and then distributed pursuant to New York State Law. The other half will be paid to the United States.
The U.S. government restricts certain countries – including Iran, Sudan, Cuba, Burma, as well as entities and individuals from those countries – from accessing the U.S. banking system. OFAC is charged with administering these economic sanctions against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy, or economy of the United States. Sanctioned financial institutions, countries, and individuals generally are prohibited from accessing the U.S. financial system.
Banks in Manhattan, which process most of the world’s U.S. dollar payments, use sophisticated computer systems commonly known as “OFAC filters” to prevent sanctioned entities, as well as terrorists, money launderers, and other criminals, from gaining access to the U.S. banking system. These OFAC filters act as the first line of defense to protect the U.S. financial system. Commerzbank helped its sanctioned clients, predominantly from Iran and Sudan, evade U.S. banks’ OFAC filters to illegally gain access to the U.S. financial system.
As detailed in the DPA and Factual Statement, beginning in or around January 2002 and continuing through 2008, Commerzbank systematically violated both New York State and U.S. laws by moving hundreds of millions of dollars illegally through banks in Manhattan primarily on behalf of Iranian and Sudanese clients subject to U.S. sanctions. Commerzbank committed this criminal conduct by, among other things: (1) sending payments through financial institutions located in New York on behalf of sanctioned clients without reference to the payments’ origin; (2) eliminating payment data that would have revealed the involvement of sanctioned entities; (3) directing IRISL, an Iranian client of Commerzbank since 2002, to transfer payments in the name of its subsidiary companies to mask IRISL’s involvement; (4) issuing checks to an Iranian client that showed only Commerzbank’s name, and not the name of the Iranian bank; and (5) using alternative payment methods to mask the involvement of sanctioned entities.
This conduct caused Commerzbank’s own U.S. branch in New York, as well as unaffiliated U.S. financial institutions, to process transactions that otherwise should have been rejected, blocked, or stopped for investigation pursuant to OFAC regulations. This conduct primarily occurred within Commerzbank locations in Germany, with the knowledge and approval of senior corporate managers and legal and compliance departments.
These prohibited U.S. dollar payment transactions violated New York State laws by causing false payment messages to be filed with entities located in Manhattan, thereby concealing the illegal nature of these transactions, deceiving U.S. banks into processing the illegal payments, and preventing them from filing required sanctions-related reports.
While today’s DPA was designed to impose a substantial punishment on Commerzbank and send a strong message of deterrence to other banks, important mitigating factors led to the agreement to defer prosecution. Those factors included the fact that Commerzbank cooperated throughout the investigation and devoted significant resources to both its internal investigation and the investigations conducted by the District Attorney’s Office and DOJ. Commerzbank also fully acknowledged and accepted responsibility for its conduct, and voluntarily undertook a series of remedial actions before entering into the DPA. Moreover, Commerzbank exited the sanctioned entity clearing business voluntarily before being contacted by the Manhattan District Attorney’s Office.
Prior Sanctions Cases
In June 2014, BNP Paribas Bank (BNPP) pleaded guilty in New York County to falsifying business records and conspiring to evade U.S. sanctions and paid a record $8.83 billion in criminal forfeiture and penalties. Since 2009, eight banks, including BNPP and Commerzbank, have forfeited in settlements approximately $12 billion for their illegal conduct, with half of the funds being paid to the City and State of New York. The Manhattan District Attorney’s Office previously has entered into Deferred Prosecution Agreements with the following financial institutions related to U.S. sanctions violations:
• HSBC Bank for $375 million in 2012
• Standard Chartered Bank for $327 million in 2012
• ING Bank for $619 million in 2012
• Barclays Bank for $298 million in 2010
• Credit Suisse AG for $536 million in 2009
• Lloyds TSB Bank for $350 million in 2009
The four-year investigation was conducted jointly with the National Security and Frauds Sections of the United States Attorney’s Office for the District of Columbia, the DOJ Asset Forfeiture and Money Laundering Section (AFMLS), the Federal Bureau of Investigation (FBI), and the United States Internal Revenue Service Criminal Investigation (IRS-CI). District Attorney Vance recognized the substantial contributions of the Federal Reserve Bank of New York and OFAC, which conducted their own investigations.
The Commerzbank case was investigated and prosecuted by Assistant District Attorneys Garrett Lynch and Elson Ho, Deputy Bureau Chief and Senior Investigative Counsel, respectively, of the Major Economic Crimes Bureau (MECB), under the supervision of Polly Greenberg, Chief of MECB, and David Szuchman, Chief of the Investigation Division. Trial Preparation Assistants Lewis McCorkle, Nicholas Werle, and Adam Wenick assisted in the investigation.
District Attorney Vance also thanked the following individuals for their assistance in the investigation: Trial Attorneys Sarah Devlin and Dylan Fallik, and Kendall Day, and Craig Timm, Acting Chief, and Deputy Chief, respectively, of the DOJ AFMLS; Assistant U.S. Attorneys Matthew Graves, Maia Miller, Ann H. Petalas, George Varghese, and Gregg Maisel, Chief of the National Security Section of the United States Attorney’s Office for the District of Columbia; Katherine Landy, Yoon Hi Greene, and Sean O’Malley of the Federal Reserve Bank of New York; Michael Dondarski of OFAC; Special Agent Matthew Komar of the FBI; and Special Agent John Matala of the IRS-CI.