Commerzbank order to pay $342m by DoJ

2015-03-12, 12:23 PMDA VANCE ANNOUNCES $342 MILLION SETTLEMENT WITH COMMERZBANK | The New York County District Attorney's Oce

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Press ReleasesDAs Office and Federal Partners Have Secured Close to $12 Billion in Settlements From 8 Banks Since2009

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 andforfeiture to resolve the matter. In the Deferred Prosecution Agreement (DPA) and corresponding FactualStatement, Commerzbank admitted that it violated New York State law by falsifying the records of NewYork financial institutions.

Beginning in 2002, Commerzbank moved more than $250 million through the U.S. financial systemprimarily on behalf of Iranian and Sudanese customers in violation of U.S. sanctions by concealing theillegal nature of these transactions and deceiving U.S. banks into processing illegal wire payments. One ofthese customers was the Islamic Republic of Iran Shipping Lines (IRISL), the Iranian state-sponsoredshipping company, which the Office of Foreign Assets Control of the United States Department of theTreasury (OFAC) designated as a Specially Designated National (SDN) pursuant to the Non-Proliferationof Weapons of Mass Destruction program (NPWMD) in September 2008.

In June 2011, the Manhattan District Attorneys Office announced a 317-count indictment against IRISL,at the time one of the worlds largest shipping companies, and several of its agents and affiliates. Theindictment charged that between September 2008, when IRISL was designated by OFAC, and January2011, IRISL and its agents and affiliates engaged in a complex conspiracy to circumvent United Statessanctions and gain illegal access to the U.S. financial system by systematically falsifying records and usingfront companies to move more than $60 million in illegal payments through New York banks. The currentinvestigation uncovered that, simultaneously, between September 2008 and December 2008, IRISL andits agents and affiliates, aided by Commerzbanks branch in Hamburg, Germany, illegally transmittedapproximately $40 million through banks located in New York County after IRISL was designated as anSDN.

We have sanctions in place to prevent rogue nations and terrorists from accessing the U.S. financialsystem, said District Attorney Vance. In order to have teeth, sanctions need to be enforced andManhattan financial institutions need to be protected from being unwittingly used by bad actors. Over thecourse 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 Departments Criminal Division said:Commerzbank concealed hundreds of millions of dollars in transactions prohibited by U.S. sanctionslaws on behalf of Iranian and Sudanese businesses. Commerzbank committed these crimes even thoughmanagers inside the bank raised red flags about its sanctions-violating practices. Financial institutionsmust heed this message: banks that operate in the United States must comply with our laws, and banksthat 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 protectthe national security of the United States and promote our foreign policy interests. Commerzbankundermined the integrity of our financial system and threatened our national security by hiding thebusiness they were doing with entities in Iran and Sudan. The bank tried to skirt our laws by hiding itsillegal business with Iranian banks from its own employees in the United States. Todays resolutiondemonstrates 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: Todaysdeferred prosecution agreement is a significant milestone on an international stage that reaffirms ourclear message to other global financial institutions. IRS-CIs work in this investigation as well as theprior sanction cases has resulted in fundamental changes in the way banks operate worldwide. IRS-CIand our partners will continue to hold financial institutions accountable for international criminalviolations.

In addition to the $342 settlement resolving the joint criminal investigation conducted by the ManhattanDistrict Attorneys Office and DOJ, Commerzbank also has agreed to resolve parallel regulatory inquiriesarising 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 additionalcivil monetary penalties in the amounts of $66 million and $310 million, respectively. The total settlementamount of $718 million also includes a settlement of $260 million, reached with OFAC, with this amountbeing credited to the total penalties and forfeiture amount. Further, Commerzbank has agreed tosimultaneously settle a BSA/AML matter with the federal government, the Federal Reserve, and DFS inthe amount of $734 million.

Included in the $342 criminal settlement amount is an unprecedented fine of approximately $80 millionspecifically addressing Commerzbanks 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 onSeptember 10, 2008. Because Commerzbank processed approximately $40 million in illegal payments onbehalf of IRISL after its designation as an SDN, Commerzbank has agreed to forfeiture and a criminal finein the amount of three times the value of those transactions approximately $120 million in total.Pursuant to the DPAs with the Manhattan District Attorneys Office and DOJ related to sanctionsviolations, Commerzbank has agreed, among other things, to adhere to best practices for internationalbanking 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 theManhattan District Attorneys Office and then distributed pursuant to New York State Law. The other halfwill be paid to the United States.

Background

The U.S. government restricts certain countries including Iran, Sudan, Cuba, Burma, as well as entitiesand individuals from those countries from accessing the U.S. banking system. OFAC is charged withadministering these economic sanctions against targeted foreign countries and regimes, terrorists,international narcotics traffickers, those engaged in activities related to the proliferation of weapons ofmass destruction, and other threats to the national security, foreign policy, or economy of the UnitedStates. Sanctioned financial institutions, countries, and individuals generally are prohibited fromaccessing the U.S. financial system.

Banks in Manhattan, which process most of the worlds U.S. dollar payments, use sophisticated computersystems commonly known as OFAC filters to prevent sanctioned entities, as well as terrorists, moneylaunderers, and other criminals, from gaining access to the U.S. banking system. These OFAC filters act asthe 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.

Commerzbanks Conduct

As detailed in the DPA and Factual Statement, beginning in or around January 2002 and continuingthrough 2008, Commerzbank systematically violated both New York State and U.S. laws by movinghundreds of millions of dollars illegally through banks in Manhattan primarily on behalf of Iranian andSudanese clients subject to U.S. sanctions. Commerzbank committed this criminal conduct by, amongother things: (1) sending payments through financial institutions located in New York on behalf ofsanctioned 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 ofCommerzbank since 2002, to transfer payments in the name of its subsidiary companies to mask IRISLsinvolvement; (4) issuing checks to an Iranian client that showed only Commerzbanks name, and not thename of the Iranian bank; and (5) using alternative payment methods to mask the involvement ofsanctioned entities.

This conduct caused Commerzbanks own U.S. branch in New York, as well as unaffiliated U.S. financialinstitutions, to process transactions that otherwise should have been rejected, blocked, or stopped forinvestigation pursuant to OFAC regulations. This conduct primarily occurred within Commerzbanklocations in Germany, with the knowledge and approval of senior corporate managers and legal andcompliance departments. These prohibited U.S. dollar payment transactions violated New York Statelaws by causing false payment messages to be filed with entities located in Manhattan, thereby concealingthe illegal nature of these transactions, deceiving U.S. banks into processing the illegal payments, andpreventing them from filing required sanctions-related reports.

While todays DPA was designed to impose a substantial punishment on Commerzbank and send a strongmessage of deterrence to other banks, important mitigating factors led to the agreement to deferprosecution. Those factors included the fact that Commerzbank cooperated throughout the investigationand devoted significant resources to both its internal investigation and the investigations conducted by theDistrict Attorneys Office and DOJ. Commerzbank also fully acknowledged and accepted responsibility forits 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 contactedby the Manhattan District Attorneys Office.

Prior Sanctions Cases

In June 2014, BNP Paribas Bank (BNPP) pleaded guilty in New York County to falsifying business recordsand 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 Attorneys Office previously has entered into Deferred Prosecution Agreementswith 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

Acknowledgements

The four-year investigation was conducted jointly with the National Security and Frauds Sections of theUnited States Attorneys Office for the District of Columbia, the DOJ Asset Forfeiture and MoneyLaundering Section (AFMLS), the Federal Bureau of Investigation (FBI), and the United States InternalRevenue Service Criminal Investigation (IRS-CI). District Attorney Vance recognized the substantialcontributions of the Federal Reserve Bank of New York and OFAC, which conducted their owninvestigations.

The Commerzbank case was investigated and prosecuted by Assistant District Attorneys Garrett Lynchand Elson Ho, Deputy Bureau Chief and Senior Investigative Counsel, respectively, of the Major EconomicCrimes 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, andAdam 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, andDeputy 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 UnitedStates Attorneys Office for the District of Columbia; Katherine Landy, Yoon Hi Greene, and Sean OMalleyof the Federal Reserve Bank of New York; Michael Dondarski of OFAC; Special Agent Matthew Komar ofthe FBI; and Special Agent John Matala of the IRS-CI.

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Commerzbank order to pay $342m by DoJ