February 18, 2016
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) recently announced that Barclays Bank Plc, based in the UK, has agreed to pay $2,485,890 to settle charges that it violated the Zimbabwe Sanctions Regulations. According to OFAC, between July 2008 and September 2013, Barclays processed 159 transactions to or through the U.S. on behalf of corporate customers of Barclays Bank of Zimbabwe Limited (BBZ) that were owned 50 percent or more by a person identified on the SDN List. The transactions totaled approximately $3,375,617.
Around 2005, Zimbabwean authorities put into effect various restrictions that hindered BBZ’s ability to implement effective compliance measures, including sanctions screenings. In response, Barclays’ headquarters in the UK began screening cross-border transactions involving BBZ, relying on BBZ’s electronic customer records and documentation to do so. However, the electronic system used by BBZ to input customer information had certain limitations that prevented it from capturing or screening beneficial ownership information. Barclays identified the shortcoming in 2007, but never implemented an effective work-around. Moreover, BBZ’s Know Your Customer procedures were apparently ambiguous and difficult to follow with respect to identifying related parties or beneficial owners of corporate customers. As a result, the bank failed to obtain information on the beneficial owners of a portion of its corporate customers and/or failed to upload the information to BBZ’s electronic customer system. This failure caused more than 150 transactions to be processed for or on behalf of blocked entities.
While Barclays had a compliance program in place during the time of the violations, the measures were inadequate to prevent the apparent violations from occurring or recurring, even after multiple warning signs. For example, in 2012, U.S. financial institutions blocked four funds transfers processed by Barclays’ New York branch on behalf of entities owned by Industrial Development Corporation of Zimbabwe (IDCZ), an SDN. Following the blocked transfers, Barclays NY conducted an internal investigation and discovered that BBZ’s customer was owned, indirectly, 50 percent or more by IDCZ. Nevertheless, the identifying information for the customer was not uploaded to Barclay’s sanctions screening filter, and Barclays subsequently processed three more transactions involving the same blocked person.
The recent settlement emphasizes the importance of implementing adequate controls to ensure compliance with OFAC sanctions programs and calls attention to the fact that companies must not only perform effective screenings for individuals or entities identified on the SDN List, but also for entities that are owned, directly or indirectly, by SDNs or other blocked persons.