Citigroup, HSBC, UBS Pay Fines Under U.S. Terror Sanctions

September 10, 2003, Bloomberg

Sept. 10 (Bloomberg) -- Citigroup Inc., HSBC Holdings Plc, and Deutsche Bank AG are among at least a dozen banks that have paid civil penalties under U.S. terror-related sanctions in recent months, almost two years after President George W. Bush declared war on terrorism. The total: more than $88,000.

"The president wants to stop funding for terrorism, but the banking community is not doing it," said Rachel Ehrenfeld, director of the New York-based American Center for Democracy and author of "Funding Evil: How Terrorism Is Financed and How to Stop It," published this month. "They know they can get away with it. At most they will get a very minor slap on the wrist."

Citigroup's penalty came under sanctions that target U.S.- designated terrorists such as al-Qaeda's Osama bin Laden and Hamas, according to records the Treasury Department began releasing in April. Citigroup, the world's biggest financial services provider, paid $2,925 for "dealing in property," the records show.

The U.S. instituted sanctions against Libya, Iran and Sudan in the late 1980s and 1990s for what it said was their support of terrorism. HSBC, the world's second-largest bank by market value, paid $1,944 under the Libya sanctions and $5,500 under the Iran sanctions for transferring money. Deutsche Bank, Europe's No. 2 bank by assets, paid $10,000 under the Sudan sanctions for funds transfer.

Terror Financing

UBS AG, Europe's biggest bank by assets, and San Francisco- based UnionBanCal Corp. paid fines under sanctions against Saddam Hussein's Iraq, which the U.S. says sponsored terror.

Two years after the Sept. 11 attacks on New York and Washington, the bank fines show how difficult it is to block terror financing. To banks that earn billions of dollars a year, the fines cause little economic pain because they're often the amount of the transaction, or less, say Ehrenfeld and Michael Tankersley, a staff attorney at Public Citizen, the consumer group in Washington founded by Ralph Nader.

"It raises all sorts of questions about the effectiveness of this deterrent," Tankersley said. Public Citizen is suing the Treasury Department to make the sanctions process more transparent. U.S. banks have opposed the suit.

Spokespeople for many of the banks -- including Wells Fargo & Co., Northern Trust Corp., UnionBanCal Corp. and Union Planters Corp. -- said in phone interviews and e-mails that the fines stemmed from employees accidentally allowing money transfers to companies, people or countries blocked by the U.S. In some cases, banks voluntarily disclosed the transfers to the Treasury Department after discovering the mistakes.

Human Error

Paying a fine doesn't necessarily mean a bank admitted violating the law, although all such payments are considered penalties, said Taylor Griffin, a Treasury spokesman.

Citi declined to spell out details of the transactions that triggered the sanction for prohibited dealing in property, which the Treasury defines generally as goods, checks, stocks, bonds and other items.

"Our systems detected these matters and we quickly reported them to the proper authorities," said Leah Johnson, Citigroup spokeswoman. "Citigroup is fully committed to the fight against terrorism and cooperates closely with the authorities in the U.S. and around the world to ensure that our institution is not used by others to finance terrorism."

At HSBC, "occasionally a transaction, such as these two, which occurred three years ago, may be released through inadvertent human error," said spokesman Adrian Russell.

Deutsche Bank spokesman Ted Meyer in New York said the bank declined to comment. UBS spokesman Paul Marrone in New York said the bank declined to comment.

The latest fines may mean the U.S. is doing a better job at enforcement, said Michael McDonald, a retired U.S. Internal Revenue Service special agent in Miami who advises banks on stopping illicit money. The Treasury "has taken a more serious look," he said.

Enforcing Sanctions

The deterrence isn't the money, but fear of government scrutiny, said McDonald, who declined to name his bank clients. "The big banks can't risk the wrath of regulators," he said.

Civil penalties under the Iran, Libya, Sudan and terrorism sanctions are capped at $11,000 per transaction, or the size of the transfer, whichever is lower, the Treasury's Griffin said.

"The fines are probably appropriate, and I think the financial institutions take very seriously their responsibility to enforce sanctions," Griffin said in a telephone interview. "The financial institutions should be congratulated. They're on the front lines."

The FBI estimates the Sept. 11, 2001, attacks, which killed more than 3,000 people, cost $175,000 to $250,000 to carry out.

The fines that banks have paid under the Libya, Iran and other terror-related sanctions programs are separate from the Treasury Department's direct targeting of money it says is linked to terrorism. In that effort, the U.S. and its allies have frozen more than $136 million in assets worldwide since the 2001 attacks, according to the Treasury.

Software Filter

Banks that have paid penalties under the terror-related sanctions say they've invested money and employee time to stay within the law.

To comply with the laws, banks use software that compares names on transactions to lists of people and companies barred from receiving funds. When computers pick up a suspect transaction, a bank employee checks if it's legal. Some sanctions violations occur because of errors by employees who screen the transfers.

That was the case in the funds transfer that led Wells Fargo to have to pay $5,500 under the Sudan sanctions.

"There was a manual review of the wire transfer and it was approved, in error," said Janis Smith, a spokeswoman for Wells Fargo, the fourth-largest U.S. bank, who declined to give the size of the transfer. She said it was a December 2000 commercial transaction involving Sudan.

Hamas, Bin Laden

The Treasury contacted the bank in December 2001 and proposed a fine of $11,000, which it cut in half after Wells Fargo proposed additional employee training and other measures, Smith said.

The U.S.'s terror-related sanctions predate the 2001 attacks. President Ronald Reagan imposed sanctions against Libya in 1986, citing what he said was Libya's use of terrorism. In 1987, Reagan implemented an embargo on Iran, again citing terrorism. President Bill Clinton placed Sudan under sanctions in 1997, partly for its alleged support of international terrorism.

In 1995, Clinton established sanctions that target "terrorists who threaten to disrupt the Middle East peace process," including Hamas. In 1998, he added other names, including bin Laden's. These are the sanctions under which Citigroup paid a penalty.

Bush added names of people and organizations designated as terrorists and strengthened terror sanctions with an executive order on Sept. 23, 2001, that prohibits transactions with people who support terrorism.

Resisting Disclosure

While all the sanctions carry criminal and civil punishments, the banks listed in the past five months have all paid civil penalties. The Treasury Department didn't disclose the amounts of the transfers involved.

The Treasury Department in April began disclosing sanctions, penalties and the companies that pay them in response to a Freedom of Information Act lawsuit by Public Citizen and Corporate Crime Reporter, a Washington-based newsletter. The newsletter is seeking to make public the workings of Treasury's Office of Foreign Assets Control and the fines it negotiates.

Banks opposed the Treasury's move to name companies that pay fines. The American Bankers Association, whose member banks hold almost all U.S. banking assets, argued during a public comment period on the new disclosures that the Office of Foreign Assets Control should only name the type of bank, saying whether it's a large bank, a community bank or a credit union.

`Mistaken Impression'

"Financial institutions process hundreds of thousands of transactions daily and even the most reliable OFAC programs or filters may miss a transaction," the bank group's senior counsel, John J. Byrne, wrote in the ABA's comments to the Treasury. "An announcement of a fine in those cases will leave the public with the mistaken impression that the entity charged has poor or negligent internal procedures."

FleetBoston Financial Corp., which this year paid a penalty under Iran sanctions for funds transfer, warned in its comments to the Treasury that naming the banks could attract unwanted business from people designated as blocked by sanctions.

"This information may be used by Specially Designated Nationals or other unsavory individuals to target financial institutions who appear vulnerable due to perceived lax or inadequate OFAC controls," Barbara E. Reidy, corporate OFAC officer at Fleet, the No. 7 U.S. bank, wrote in July 2002.

UnionBanCal, which has bank branches in California, Washington and Oregon, blamed human error for its penalties. In one, it paid $12,000 under Iran sanctions after a customer in California traveled to Iran and sent the bank 13 faxes requesting money transfers, said Sharon Woodson-Bryant, a spokeswoman for the company's Union Bank of California unit.

Iranian Letterhead

"The fax had an Iranian letterhead and fax number," she said. "The person receiving the fax failed to realize that transferring funds on instructions from someone physically in Iran was a violation."

Union Planters, Tennessee's biggest bank, paid $4,500 under Sudan sanctions after "an inadvertent transfer of funds originated by Union Planters to a beneficiary in Sudan," said spokesman Victor Rocha, who said it was human error. An intermediary bank caught the error and the money never made it to Sudan, he said.

Chicago-based Northern Trust blamed employees who misinterpreted the law for its $18,027 payment for funds transfers involving Sudan as well as Cuba and Yugoslavia, which are under separate sanctions, according to a statement issued by the bank's spokeswoman, Sue A. Rageas. "The settlement amount paid by Northern was considered a voluntary payment, not a penalty," said the statement, which refers to "alleged violations."

A computer program was to blame at Societe Generale SA, France's No. 3 bank, which paid $11,000 under Libya sanctions for funds transfer. "It was unintentional, due to a minor technical glitch in our OFAC filter," said spokesman Jim Galvin in New York. "It was corrected."

Here are the banks with fines announced starting in April:

Citigroup Inc. paid $2,925 under U.S. terrorism sanctions for "dealing in property," and $2,500 under Sudan sanctions for funds transfer.

Credit Lyonnais SA, a unit of Credit Agricole SA, paid $5,500 under Libya sanctions for funds transfer.

Deutsche Bank AG paid $10,000 under Sudan sanctions for funds transfers.

FleetBoston Financial Corp. paid a combined $41,050 under Iran and Cuba sanctions, with the Iran portion for funds transfer. Cuba sanctions don't involve terrorism.

HSBC Holdings Plc paid $1,944.45 under Libya sanctions and $5,500 under Iran sanctions for funds transfer.

National City Corp. paid $5,500 under Iran sanctions for maintenance of an account.

Northern Trust Corp. paid a combined $18,027 under Sudan, Cuba and Yugoslavia sanctions, for funds transfer. Cuba and Yugoslavia sanctions don't involve terrorism.

Sanpaolo IMI SpA's Banco di Napoli paid $2,300 under Libya sanctions for a funds transfer. The bank declined to comment.

Societe Generale SA, France's No. 3 bank, paid $11,000 under Libya sanctions for funds transfer.

UBS AG paid $14,750 under Iraq sanctions for a 2001 funds transfer.

Union Planters Corp. paid $4,500 under Sudan sanctions for funds transfer.

UnionBanCal Corp.'s Union Bank of California paid $12,000 under Iran sanctions for funds transfer and export, and $4,800 under Iraq sanctions for funds transfer.

Wells Fargo & Co. paid $5,500 under Sudan sanctions for funds transfer.

--Vernon Silver in Rome at (39) (06) 367-12217 or

[email protected] and George Stein in New York at (1) (212) 893-3934, with reporting by Jonathan Rosenthal in London, Steve Rhinds in Paris and Alina Trabattoni in Milan. Editors: Pozsgay, Swardson, Henry