By: Brooke Driver
On January 23, OFAC announced that Luxembourg-based Clearstream Banking, S.A. has agreed to pay $151.9 Million for alleged violations of the Iranian Transactions and Sanctions Regulations. OFAC points out that the case is an example of the particular risks faced by intermediaries, custodians and other firms in the international security markets. Apparently Clearstream held an omnibus account at a New York bank, through which the Central Bank of Iran maintained a beneficial ownership interest in 26 corporate and sovereign bonds, with a nominal value of $2.8 billion. In connection to this account, Clearstream exported controlled security-related services to the Iranian bank. One of the main factors, surely, in OFAC’s decision to assign such a large fine was the fact that OFAC officials had previously confronted the Luxembourg bank concerning its relationship with the CBI, and, while the institution assured OFAC that it would cease business relations with the bank, it continued to work with the CBI, simply disguising its activities by utilizing a European bank as a custodian for the CBI’s securities entitlements.
Clearly, these violations were committed intentionally, a theory further supported by the fact that Treasury discovered evidence that at least one Clearstream supervisor and one senior executive of the institution possessed knowledge of the illegality of the institution’s actions. OFAC claims that it arrived at the large penalty due to the reckless and egregious nature of the case and the fact that Clearstream did not disclose its violations. However, OFAC greatly reduced the potential fine of $5.6 billion, as the institution has made substantial efforts to improve its compliance program. It’s hard to believe that anyone could be relieved by a nearly $152,000,000 debt, but in this case, I’m sure Clearstream’s officials are feeling just that.