Take note that U.S.-Cuba economic sanctions, well, they work. And to a tune of a $618 million civil penalty, it will continue to do so for some time to come. Last week European financial services giant ING agreed to pay the largest civil fine ever for alleged violation of U.S. economic sanctions. The case involved several countries, but the bulk of the transactions were to that tiny island just ninety miles from our shores, Cuba.
Not sure if it is the upcoming election season or ongoing investigations ripening, but there has been an uptick in high profile Cuba cases the last few years. Ericsson telecommunications was fined $1.75 million recently for allegedly shipping telecommunications equipment to Cuba through Panama. While UBS in 2007 paid an eye popping $100 million for illegal currency transfers to various countries including Cuba, Libya, and Iran. This ING case, however, takes the proverbial cake as far as egregiousness.
Law, Public Policy and Reputation Management
It is tough to tell from the Settlement Agreement, it seems as if this case was a run of the mill evasion operation. They were going to do business with Cuba, and other rogue nations, not matter what U.S. laws dictated. And while the $619 million penalty is precedent setting, there are many other lessons to be drawn from it such as the intersection of law, federal public policy, and reputation management.
As if ING did not have enough on its hands already, late last summer the company received a request for information from a Congressional Committee. On July 29, 2011, the Chairman of the House Foreign Affairs Committee, Miami’s Rep. Ileana Ros-Lehtinen (R-Fla.) sent a letter to the Chairman of the ING Group Executive Board expressing “deep concern” about ING’s alleged violation of U.S. economic sanctions laws on Iran and Cuba. She requested information about the case, asking whether such activities had ceased. In a second letter, the Committee requested similar information from Treasury Secretary Timothy Geithner.
This legal and political vortex can be unpleasant to a target company. While there is no question that they must respond to the Treasury Department’s requests (more on that later), dealing with a general request for information from Congress is, first and foremost, a political decision. It can be ignored but that, as in this case, would be unwise. A request for information can easily escalate and can become a public relations disaster or worse, a Congressional subpoena or a referral to the Justice Department.
To its credit, according to the Settlement Agreement ING voluntarily disclosed the alleged violations to the U.S. Government. And it is good they did because the violations are significant. For an organization that according to its website prides itself for “showing fair, honest and lawful behavior” and acting with “integrity,” this group of ING employees showed anything but that.
ING Lawyer: We’ve Been Evading U.S. Laws For years
The Settlement Agreement states that ING employees “used coded references” in financial transactions to avoid detection by U.S. banks of funds that originated in Cuba, Burma, Sudan, Iran, Libya. Among other things, ING personnel tinkered with SWIFT codes and “falsely stated” that they intended to make payment in other currencies because payments had to go through New York. They tried to “eliminate or camouflage” Cuba-origin transactions. One of the more damning pieces of evidence released by the government was this excerpt from an ING lawyer:
“… we have been dealing with Cuba … for a lot of years now and I’m pretty sure that we know what we are doing in avoiding any fines… So don’t worry and direct any future concerns to me so that we can discuss before stirring up the whole business…”
Not only did the company encourage its employees to obfuscate, but in the case of the Cuba transactions, bank officials assisted the Cubans to do the same. According to the settlement agreement, ING officials gave Cuban officials the green light to create a false endorsement stamp to make it seem as if checks had been processed in France when, all along, they originated and were processed in Havana. By the way, this had been going on since the late 1990s and involved at least $1.6 billion fraudulent transactions.
Nothing was left to chance. According to the Settlement Agreement, ING personnel “took care to ensure that there was no reference to OFAC-sanctioned countries in payment messages sent to the United States.” As if all this were not bad enough, ING was also doing business with at least two known Cuban Specially Designated Nationals (SDNs) Curef Metal Processing B.V. and Nickel Refining and Trading B.V.
SDNs are individuals or entities that the U.S. Government considers bad actors in the international arena. And SDN can be a drug trafficker, money launderer, a terrorist, or in the case of Cuba and Iran, all three, and more.
Anyhow, you get the picture. A lot of bad things happened and they were caught. Enter the U.S. Congress. Toward the end of the Settlement Agreement there is one disturbing annotation that could give rise to further Congressional scrutiny of the company.
The Government tips that while ING voluntarily disclosed the alleged violations, ING “did not consistently cooperate with OFAC with regard to explicit requests for information, however. The requested information was ultimately provided, but only after multiple submissions to OFAC of information that was heavily redacted” (emphasis added).
While the information provided must have been sufficient to settle the case, or presumably the Treasury and Justice Departments would not have done so, for a Congressional Committee charged with overseeing enforcement of laws and regulations, statements such as these can lead to a heightened scrutiny of target companies. This can spill over into additional inquiries of other companies in that same industry.
Cases such as these can take on a life of their own in official Washington. Companies can suffer reputation loss, an almost certainty in this case with the Congress, that will impact other issues that the company may have before one or many Congressional Committees. Besides the fines and penalties, a referral to the Justice Department for criminal prosecution can result in additional penalties including prison time. Finally, in addition to the forthcoming compliance work, they will also need mend fences with Congressional offices of interest. I think this will take a little longer.