EU Sanctions Authorities Start to Show Their Teeth
On 31 March 2020, the UK's Office of Financial Sanctions Implementation (OFSI) announced that the Economic Secretary to the Treasury had upheld the decision to impose two fines on Standard Chartered Bank for breaching EU financial sanctions on Sberbank and its former subsidiary Denizbank A.S.
Following the review the fines were reduced from a total of £31.5 million to a total £20.5 million but even the reduced fines still represent by far the highest penalty imposed by OFSI to date.
OFSI's decision in respect of Standard Chartered closely follows Dutch sanctions enforcement action in February 2020. Euroturbine and its Bahrain subsidiary were fined €600,000 and €4.25 million respectively for exporting gas turbine components to Iran via the Bahrain subsidiary in breach of EU and Dutch export controls.
Taken together, these enforcement cases reflect a trend towards greater enforcement by European sanctions authorities, mirroring the US approach, and reinforce the need for all commercial organisations to ensure that they comply in full with all applicable sanctions.
UK Enforcement against Standard Chartered Bank
The OFSI report states that Standard Chartered made a series of 102 loans to Denizbank A.S. between 2015 and 2018. At the time the loans were made, Denizbank A.S. was majority-owned by Sberbank. EU persons are, and were at the time of the loans, prohibited from making certain loans or credit available to Sberbank. The restrictions on Sberbank also applied to Denizbank due to its majority ownership by Sberbank.
According to the OFSI report, Standard Chartered was aware of these restrictions, but believed that its loans fell within an exemption in the EU regime, which permits loans or credit that finance the import/export of non-prohibited goods between the EU and any Third Country. In fact, 70 of the loans (with an estimated transaction value of over £266 million) lacked the necessary EU nexus, as the underlying trade did not involve the import or export of non-prohibited goods from the EU.
OFSI indicate that, on discovery of the mistake, Standard Chartered conducted an internal investigation and made a voluntary disclosure to OFSI. OFSI imposed penalties in respect of 21 loans, made between 7 April 2017 and 26 January 2018 with a combined value of £97.4 million.
As a result of Standard Chartered's voluntary disclosure the penalty amount was initially reduced by 30% from £45 million to £31.5 million in line with OFSI’s guidance on case assessment. Following Ministerial review, the fines were further reduced to £20.5 million (around 45% of the maximum penalty).
Dutch Enforcement against Euroturbine
On 7 February 2020 the Limburg court imposed penalties of €600,000 and €4 million on the Dutch company Euroturbine BV and its Bahrain-based subsidiary Euroturbine SPC for breaching EU and Dutch export controls on Iran. The penalties represent the value obtained by each entity as a result of their illegal transport of gas turbine components to Iran without an export licence.
The court found that Euroturbine BV structured the Iranian trades via its Bahrain subsidiary in an attempt to circumvent national and international export control legislation, with Euroturbine SPC acting as the crucial link for the delivery of the goods and receipt of payment in most instances.
On 18 February 2020 the Limburg court convicted Euroturbine BV and its subsidiary for exporting gas turbine parts to Iran without a license and imposed further fines of €500,000 and €350,000 respectively. It also imposed custodial sentences on two individuals.
While the above enforcement actions show that EU regulators can impose multi-million pound and Euro penalties, multi-million Dollar fines in respect of sanctions violations have long been standard fare in the US.
In 2019 alone, the US Office of Foreign Assets Control (OFAC) issued 26 penalties and settlements totalling US$1.3 billion.
Some of the most high-profile OFAC penalties in recent years are as follows:
|Date settlement announced||Entity||Nature of transaction||Settlement / fine|
|March 2017||ZTE||Telecoms||US$ 101 million|
|July 2017||CSE Global||Telecoms / financial||US$ 12 million|
|October 2018||JP Morgan Chase||Financial||US$ 5.2 million|
|November 2018||Société Générale||Financial||US$ 54 million|
|December 2018||Zoltek Companies Inc||Chemicals||US$ 7.7 million|
|January 2019||E.L.F.||Beauty products||US$ 0.9 million|
|February 2019||AppliChem GmbH||Chemicals||US$ 5.5 million|
|February 2019||AppliChem GmbH||Chemical reagents||US$ 5.5 million|
|March 2019||Stanley Black & Decker||Power tools and spare parts||US$ 1.8 million|
|August 2019||Paccar Inc||Vehicles||US$ 1.7 million|
|January 2020||Eagle Shipping International (USA) Ltd||Ship management||US$ 1.1 million|
The start of a trend?
By contrast to the position in the US, OFSI only obtained the power to issue fines for sanctions violations in April 2017. Since then, prior to the penalties imposed on Standard Chartered Bank, OFSI exercised this power on three occasions, as follows:
- Raphael Bank - £5,000 penalty for dealing with the funds of an Egyptian individual subject to EU asset freeze measures.
- Travelex UK - £10,000 penalty for dealing with the funds of an Egyptian individual subject to EU asset freeze measures.
- Telia Carrier UK Limited - £146,000 penalty for facilitating phone calls to an entity designated under the EU Syria sanctions regime.
In this context the £20.5 million penalty issued by the UK authorities to Standard Chartered Bank and the decision by the sanctions authorities to impose fines of €600,000 and €4.25 million on Euroturbine and its Bahrain subsidiary are highly significant and evidence that penalties and enforcement for sanctions breaches are increasing in Europe.
From a commercial standpoint, this trend brings the need for compliance into even sharper focus. Indeed, having a clear and comprehensive sanctions and compliance policy, which is effectively implemented, is key to minimising a business' exposure to sanctions related risks, as well as being a mitigating factor in any enforcement.
For more information about how your business can reduce its exposure, or on any of the issues discussed above, please contact the author of this briefing.
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