WASHINGTON — JPMorgan Chase & Co. has agreed to pay $88.3 million to settle charges related to apparent violations of economic sanctions dating back to 2005.
The settlement covers thousands of transactions, including wire transfers and loans, which were made in apparent violation of a handful of economic sanctions rules against Cuba, Iran, the Sudan and Liberia, Treasury announced in a press release Thursday.
This is the largest civil penalty against a U.S. bank for sanctions violations. In December 2009, Treasury's Office of Foreign Assets Control reached a $536 million settlement with Credit Suisse for sanctions violation, and a $217 million settlement with Lloyds TSB.
The most egregious violation involved more than 1,700 wire transfers, totaling approximately $178.5 million, involving Cuban nationals that were processed in apparent violation of the Cuban Assets Control Regulations. Even after the problem was called to the attention of senior management, "the bank failed to take adequate steps to prevent further transfers," Treasury said in the press release.
"JPMC did not voluntarily self-disclose these apparent violations" to Treasury, they said. "As a result of these apparent violations, considerable economic benefit was conferred to sanctioned persons."
The potential penalties for those violations total more $111 million, in addition to more than $3 million for other violations relating to a wire transfer to the Sudan, and a trade loan involving an Iranian shipping vessel.
But the Treasury's Office of Foreign Assets Control said it mitigated the total potential penalty based on the bank's willingness to settle, its "substantial cooperation," including conducting a historical transaction review, and the fact that it had not issued penalties or discovered similar violations in the five years preceding the transactions.
In a statement released Thursday afternoon, JPMorgan Chase said none of the allegations involved any intent to violate OFAC regulations.
"These rare incidents were unrelated and isolated from each other," the bank said. "The firm screens hundreds of millions of transaction and customer records per day and annual error rates are a tiny fraction of a percent. We are pleased to have resolved these matters and to move forward with enhancements to our global OFAC compliance program."
The earliest violations were actually brought to the bank's attention by another U.S. financial institution, the Treasury Department said.
In November 2005, that bank alerted JPMorgan that it might be processing wire transfers involving a Cuban national through one of its correspondent accounts. After the notification, JPMorgan conducted an investigation into the transfers it had processed through that account, and confirmed that Cuba or a Cuban national indeed had an interest in the funds being transferred.
The results of the investigation were reported to management and supervisory personnel, but the bank failed to take steps to prevent further violations, Treasury said.
According to the release, the bank processed 1,711 wire transfers between December 12, 2005, and March 31, 2006, involving Cuban nationals.
The settlement also covered charges of two egregious violations of sanctions against Iran and Sudan, along with a slew of less egregious violations.
On Dec. 22, 2009, the bank appeared to violate the Weapons of Mass Destruction Proliferators Sanctions Regulations when it made a trade loan in which the underlying transaction involved a vessel affiliated with the Islamic Republic of Iran Shipping Lines.
The ship was identified as blocked pursuant to the sanctions rule, and the bank's managers decided to disclose the violation to OFAC. But they waited to mail the disclosure until March 2010, three days before they received repayment of the $2.9 million loan, without guidance or authorization from OFAC, Treasury said.
OFAC alleges the bank also failed to respond promptly and completely to an administrative subpoena seeking information on the transaction. Although they determined that the bank ultimately did provide a voluntary disclosure, the potential penalty for the violation was nearly $3 million.
Treasury said the bank also failed to respond to a number of requests for documents related to a specific wire transfer referencing Khartoum, the capital of the Sudan.
OFAC issued an administrative subpoena to the bank pursuant to the Reporting, Procedures, and Penalties Regulations, asking for specific documentation relating to the transfer.
Treasury said JPMorgan's compliance managers failed to produce several documents in their possession, and repeatedly said that the bank had no additional responsive documents. But the bank later reversed itself and produced more than 20 documents after OFAC provided them with a list of multiple documents that it had reason to believe were in the bank's possession, based on communications with another financial institution.
The potential penalty for the violation was $250,000.
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