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Cuba, OFAC, Fines and Extraterritoriality

Those of us who follow events going on in Cuba–as well as Cuba’s international relations – should discuss the extraterritorial power that the US Treasury Department has to impose huge financial fines on non US foreign financial institutions.

To my knowledge there has been little discussion as to the reasons that foreign financial institutions accept the extraterritorial powers of the United States on such matters. For example, the Bank of Scotland is not a small bank. Yet, since it provided the service to Cuba of exchanging old US dollars for new US dollars; the bank was given an extraterritorial fine of $100 million dollars and the bank agreed to pay it. [1]

How come?

What exactly compels foreign financial institutions to accept the extraterritorial power and reach of the US Treasury Department? This is all based on a FICTION. That is, it is assumed that funds [in US dollars] deposited in a foreign account are deemed to have been  deposited in a U.S. account. In other words, the US dollar has a quality of extraterritoriality where the sovereignty of the United States government and its laws have sway. The “fine” that is to be paid by the foreign bank–that is, the amount of funds that can be seized by US Treasury –  is limited by the value of the funds deposited into the account at the particular foreign bank. In other words, the foreign bank is just handing over Cuban capital to the US government.

Who are the people within the US Treasury Department involved in monitoring Cuba’s financial transactions abroad? Are these US employees closely connected with rightwing Cuban Americans? Is there a financial incentive/reward for disclosing such financial transactions to OFAC? Are US embassies around the globe given the task of monitoring Cuba’s financial transactions in each country? Is the NSA involved in monitoring such financial activities, as well?

Presently US law establishes that: “any “person subject to the jurisdiction of the United States “may not do business in Cuba or with Cuban nationals or businesses. “Persons subject to the jurisdiction of the United States” includes:

+ U.S. residents,

+ U.S. corporations and their U.S. or foreign subsidiaries,

+ any person or corporation, including foreign ones – operating within the United States and its territories.

Thus, a foreign corporation such as the Bank of Scotland who has a branch in the US, is held accountable for what any branch anywhere else in the world does.

The losses imposed on Cuba by OFAC already amount to over $1.5 trillion dollars.  There has been no compilation of the fines paid by foreign companies  to the US Treasury Department. However, the number of fines and the amounts of the fines have dramatically increased during democratic administrations.

12/11/13 – Royal Bank of Scotland = $100 million dollar fine

07/22/13 – American Express= $5.2 million

06/28/13 – Intensa SaoPaolo = $ 3 million

-American Steamship Owners Mutual Protection and indemnity Association= $348,000

2004

-Credit Suisse/- UBS= $140 million

– Dutch Bank ABN Amro= $500 million

It should be noted that states within the US have an incentive to get involved in this policy. Since, often, the fines are split between the US Treasury and the state where the proceedings take place.

On June 12, 2012 for example ING of the Netherlands agreed to forfeit $619 million dollars “to settle criminal charges”. ING, interestingly, was not charged with an actual violation but with “conspiring to violate US economic sanctions and with violating New York state laws by illegally moving billions of dollars through the US financial system on behalf of Cuban and Iranian entities.”

It is not unusual to collapse the charge against Cuba with some other country in the so-called “terrorist” list.

And IT SHOULD BE noted the following:

“The forfeited $619 million will be split evenly between the US Government and the State of New York ($309.5 million each). ING Bank waived indictment on a single charge of conspiracy to violate the Trading With the Enemy Act (TWEA), 50 U.S.C. App., § 1 et seq, and the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. §§ 1701-1706, and entered into separate Deferred Prosecution Agreements with the US Department of Justice (DoJ) and New the New York County District Attorney’s Office (DANY).”

“According to the OFAC civil penalty document, ING processed more than 20,000 wire transfers and other transactions in violation of Cuba sanctions from October 2002 to July 2007 totaling more than $1.65 billion. It processed 41 transactions between December 2003 and September 2007 in violation of sanctions against Myanmar that totaled $15.5 million.”

The ING statement was higly revealing at the time it was issued. It read:

ING Bank reaches agreement with US Authorities

Amsterdam, 12 June 2012

ING Bank announced today that it has entered into a Settlement Agreement with U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and Deferred Prosecution Agreements with the Department of Justice, the United States Attorney’s Office for the District of Columbia and the District Attorney of the County of New York (together the “U.S. Authorities”) in relation to the investigation by those agencies into compliance with U.S. economic sanctions and U.S. dollar payment practices until 2007.

Under the terms of the Deferred Prosecution Agreements, no further action will be taken against ING Bank if it meets the conditions set forth in the agreements. As part of the settlement, ING Bank has agreed to pay a total penalty of USD 619 million. As announced on 9 May 2012, ING Bank took a provision in the first quarter of 2012 to cover this issue.

ING Bank previously disclosed in its annual reports and other public filings that it was in discussions with authorities concerning compliance with OFAC requirements in relation to transactions executed by Commercial Banking. Since 2006, prior to receiving inquiries from the U.S. Authorities, ING initiated two extensive internal investigations. Much of the findings, which were voluntarily disclosed to OFAC, focused on conduct relating to transactions associated with ING Bank’s Cuban operations, as well as business with counterparties in other OFAC sanctioned countries.

The discussions with authorities on these issues did not involve ING’s Insurance and Investment Management operations, nor Retail Banking or ING Direct.

ING Bank has cooperated closely and constructively with regulators and other authorities throughout this process. The U.S. Authorities have recognized ING’s substantial cooperation in the resolution and ING’s efforts and commitment to continuously enhance compliance within the organisation.

“The violations that took place until 2007 are serious and unacceptable. The facts as compiled in the statement of the Department of Justice describe a very different ING than the company we’re all working so hard for today,” said Jan Hommen, CEO of ING Group. “Since starting the investigations in 2006, ING Bank has taken decisive actions to strengthen compliance throughout the organisation and heighten employee awareness of compliance risks. This continues to be a key priority in the interests of our customers, employees and other stakeholders, and serves to ensure we remain abreast of compliance risks in an increasingly complex financial services industry.”

ING Bank is fully committed to conducting its business with the highest levels of integrity, which includes strict compliance with all applicable laws, regulations and standards in each of the markets and jurisdictions in which it operates. ING Bank has taken various steps to strengthen global compliance risk management. The Bank:

Voluntarily terminated relationships with sanctioned banks and entities, including closing its representative office in Cuba in 2007 and liquidating the Netherlands Caribbean Bank, which was concluded in 2009.  Created a central team focused on preventing and detecting money laundering and terrorist financing and related policies and procedures.  Implemented enhanced compliance and risk management procedures on a global basis to improve the Compliance function and increased the number of compliance staff, which now has in excess of 400 full time ING employees dedicated to Compliance across our worldwide operations.  Enhanced its global compliance training programme as part of ING’s continuing focus on building a compliance-based culture. Amended key policies and guidelines and the international rollout of several programmes for education, awareness and monitoring of sanctions and compliance issues.  All enhancements that have been implemented in the past years are designed to meet or exceed current rules and regulations of law enforcement agencies and are aimed at preventing practices of this type from occurring in the future.

Press enquiries Carolien van der Giessen +31 20 576 6386
Carolien.van.der.Giessen@ing.com”

Investor enquiries ING Group Investor Relations +31 20 576 6396
Investor.relations@ing.com

ING PROFILE ING is a global financial institution of Dutch origin, offering banking, investments, life insurance and retirement services to meet the needs of a broad customer base. Going forward, we will concentrate on our position as an international retail, direct and commercial bank, while creating an optimal base for an independent future for our insurance and investment management operations.

Not a single foreign banking or financial institution has fought back the United States government’s “fines.” In fact, the Patriot Act – which is the overarching legal framework used against Cuba’s financial resources abroad – excludes judicial remedy. Thus, when it comes to the US dollar imperial extraterritoriality applies.

Notes.

[1] http://www.bloomberg.com/news/2013-12-11/rbs-to-pay-100-million-to-settle-u-s-sanctions-violation-probe.html

BIBLIOGRAPHY:

http://www.mayerbrown.com/files/Publication/bc828278-4516-41ea-bc07-5cbcf909be56/Presentation/PublicationAttachment/6746390a-c4f7-46fe-afb3-0a9b3cc7cccb/05_Lakatos_Bloechliger.pdf

and

http://www.omm.com/obama-administration-eases-some-of-the-restrictions-on-cuba-but-broad-and-long-standing-economic-sanctions-remain-in-place-04-15-2009/

and

http://www.steptoe.com/publications-newsletter-pdf.html/pdf/?item_id=585 tem_id=585

More articles by:

Nelson P. Valdes is Professor Emeritus at the University of New Mexico.

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