Commerzbank AG, the second-largest bank in Germany, is the latest in a series of foreign banks to be fined hundreds of millions of dollars for violations of U.S. sanctions and anti-money laundering (AML) laws. Commerzbank and its New York branch have agreed to pay fines and forfeitures totaling $1.45 billion, including $259 million imposed by the Treasury Department (for sanctions violations), $300 million imposed by the Justice Department (for AML violations), $200 million imposed by the Federal Reserve System (for failure to have adequate compliance systems in place), and $610 million imposed by the New York Department of Financial Services (for falsifying records). The AML violations arose from Commerzbank’s role in securities fraud involving Olympus, the Japanese camera manufacturer.Commerzbank entered into deferred prosecution and settlement agreements with these agencies. As well as paying the fines, it has agreed to stop its illegal conduct and to implement various compliance measures.
According to the settlement agreement with the Treasury Department’s Office of Foreign Assets Control (OFAC), between 2005 and 2010 Commerzbank routed approximately $147 million in transactions violating U.S. sanctions laws through U.S. banks, including the Commerzbank branch in New York. The bulk of the transactions involved Iran, Sudan, and Iranian Specially Designated Nationals (“SDNs”), with smaller amounts involving Burma and Cuba. OFAC and the Department of Justice found that Commerzbank had deliberately taken a number of steps to hide the involvement of sanctioned parties in these transactions, including:
- Instructing employees not to include mentions of sanctioned countries in payment messages.
- Creating a special group to manually process all payment messages involving an Iranian party, so that all references to Iran could be removed.
- Instructing clients to use the phrase “non-ref” in the originator field of MT103 messages, so that the messages would be stopped by the bank’s sanctions filters and processed manually instead.
- Splitting MT103 messages from MT202 messages, so that U.S. banks would receive only an MT202 that did not provide the identity of the sanction party.
- Programming the bank’s payment processing system to replace the names of selected customers in the originator field of MT103 messages with Commerzbank’s BIC code.
- Setting up a checking account for Iran’s Bank Melli and issuing checks showing only the account number, but not Bank Melli’s name, which Bank Melli used to make payments to parties in the United States.
- Routing payments involving the Islamic Republic of Iran Shipping Lines (IRISL), both before and after it was designated as an SDN, through Special Purpose Entities (SPEs) that seemingly had no connection with IRISL, and creating new SPEs as older SPEs were added to other banks’ sanctions filters.
OFAC found that Commerzbank’s management was aware of many of these practices and, despite warnings from internal audits, internal compliance officials, outside legal counsel, and OFAC itself, did not take action to end them. OFAC stated that Commerzbank had not voluntarily disclosed these violations. The magnitude of the fines emphasizes the importance the United States places on its economic sanctions programs, and its readiness to impose substantial fines to enforce those laws.