Terrorism Sanctions 2

Terrorism Sanctions Tag Banks With Fines

by Vernon Silver (Bloomberg News)

Arkansas Democrat-Gazette September 14, 2003

Citigroup, Inc., HSBC Holdings Plc, and Deutsche Bank AG are among at least a dozen banks that have paid civil penalties under U.S. terrorism-related sanctions in recent months, almost two years after President Bush declared war on terrorism.

The penalties exceeded $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."

Spokesmen for many of the banks--including Wells Fargo & Co., Northern Trust Corp., UnionBanCal Corp, and Union Planters Corp.--say the fines stemmed from employees accidentally allowing money transfers to companies, people or countries blocked by the United States. In some cases, banks voluntarily disclosed the transfers to the Treasury Department after discovering the mistakes.

Citigroup's penalty came under sanctions that target U.S.-designated terrorists such as al-Qaida'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. [President and Hillary Clinton were major shareholders at CITI, and Clinton's Treasury Secretary, Robert Rubin, was Vice-President at CITI. This also helps explain the lightness of the CITI fines. The Bush family, as well as the Rockefellers, are also heavily involved at CITI, yet another factor.--mcs]

The United States 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 $1944 under the Libya sanctions and $5500 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.

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 United States says sponsored terrorism. [The Bush family has for years been a major share- holder at Union Banking Company, even in the dark days of early World War II, when Union Bank was listed as a business partner of Axis "enemy alien" companies, with assets frozen for fronting for Nazi companies. This is not the first time in history, in short, when the Bushs and their banking company have been on the other side of a major U.S. war.--mcs]

Two years after the Sept. 11, 2001, attacks on New York and the Pentagon, the bank fines show how difficult it is to block terrorism financing. To banks that earn billions a year, the fines cause little economic pain because they're often the amount of the transaction or less, said Ehrenfeld and Michael Tankersley, a staff attorney at Public Citizen consumer group in Washington.

"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. [This, from financial institution that frequently feature the American flag as part of their logo.--mcs]

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 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 spokesman. "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 inadvertant 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.

Union Planters, Tennessee's biggest bank, paid $4500 under Sudan sanctions after "an inadvertant 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.

The fines might mean the United States 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.

The deterrence isn't the only 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 transfer, 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 2001 attacks, which killed about 3,000 people, cost $175,000 to $250,000 to carry out.

The fines that banks have paid under the Libya, Iran and other terrorism-related sanctions programs are separate from the Treasury Department's direct targeting of money it says is linked to terrorism. In that effort, the United States 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 terrorism-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 with 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 $5500 under the Sudan sanctions.

"There was a manual review of the wire transfer and it was approved, in error," said Janis Smith, a spokesman 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.

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 United States' terrorism-related sanctions predate the 2001 attacks. President 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. Former President 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 Osama 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 terrorism sanctions with an executive order on Sept. 23, 2001, that prohibits transactions with people who support terrorism.

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 the Treasury's Office of Foreign Assets Control and the fines it negotiates.

Information for this article was contributed by George Stein, Jonathan Rosenthal, Steven Rhinds and Alha s