* No enforcement actions yet taken
* Seeks to change banks' 'too big to jail' image
* 'Individuals can and do face liability' -Treasury
By Brett Wolf
ST. LOUIS, March 22 (Thomson Reuters Accelus) - The U.S.
Treasury Department plans to hold bankers personally responsible
and subject them to fines when their banks help countries such
as Iran evade economic sanctions.
The shift is in line with recently declared intentions also
to hold individual bankers liable for failures to prevent
laundering of drug money and other criminal proceeds, a Treasury
spokesman told Reuters.
The shift, which has yet to result in any actual enforcement
action, also comes amid mounting pressure to crack down on banks
and bankers for a wide range of financial misdeeds, and end
their perceived status as "too big to jail."
"Although sanctions enforcement cases involving financial
institutions have typically concluded with civil penalties at
the corporate level, individuals can and do face liability ...
when they are personally responsible for sanctions violations,
and Treasury's Office of Foreign Assets Control will take
appropriate enforcement action in these circumstances," Treasury
spokesman John Sullivan said this week.
The Treasury's Office of Foreign Assets Control (OFAC) is
responsible for administering the U.S. sanctions regime and can
fine parties that violate it. While the office has levied big
financial penalties against banks - most recently Britain's HSBC
and Standard Chartered, it has not
exercised its authority to penalize individual bankers. The
office lacks authority to directly pursue other penalties, such
as jail time.
"There have been cases involving individuals that OFAC has
brought, but not individuals who were explicitly employees of
financial institutions acting on behalf of the financial
institution," veteran OFAC official Dennis Wood said at an
anti-money-laundering conference in Florida earlier this week.
In the future, where there is evidence suggesting specific
bankers were "directing" sanctions-evading activity at an
offending bank, OFAC will seek to hold those individuals
responsible, Sullivan said. If warranted it will refer to the
Justice Department for possible prosecution cases involving
individual bankers, he said.
The new enforcement approach was ordered by David Cohen,
Treasury's undersecretary for terrorism and financial
intelligence, who assumed that post in June 2011. Cohen oversees
both OFAC and Treasury's anti-money-laundering unit, the
Financial Crimes Enforcement Network (FinCEN).
When asked why OFAC has not sought to impose financial
penalties on individual bankers to date, Sullivan declined to
Former Treasury officials said OFAC may have hesitated to
target bankers because its jurisdiction over foreign banks is
tenuous. The jurisdiction hinges on the clearance of U.S. dollar
payments through New York, and OFAC's investigators rely heavily
on the cooperation of foreign bankers.
But criticism from Congress over the lack of prosecutions by
the Department of Justice in a recent money-laundering and
sanctions case involving HSBC may have been part of the impetus
behind Cohen's decision to instruct OFAC and FinCEN to start
looking to use civil penalties against individuals.
"I strongly suspect that this change in policy is in
reaction to public frustration that so few employees of
financial institutions have been criminally prosecuted for their
role in the recent financial crisis," said Peter Djinis, a
former regulatory policy official at FinCEN who is now in
private practice in Florida.
"It does not help that the Department of Justice has implied
that some financial institutions are 'too big to jail.'"
U.S. Attorney General Eric Holder acknowledged at a Senate
hearing this month that some financial institutions are so large
that it becomes difficult to prosecute them because it would
"have a negative impact on the national economy, perhaps even
the world economy."
BIG PENALTIES FOR BANKS, NOT BANKERS
A number of British and European financial institutions have
been targeted by OFAC, as well as federal and New York state
prosecutors, for engaging in transactions that benefited Iran
and other sanctioned countries. They have agreed to pay
penalties totaling more than $2 billion.
U.S. authorities now know it was once a common practice
among some foreign banks to hide the fact that sanctioned
parties were involved in U.S. dollar payments cleared through
New York. Such banks removed data identifying the prohibited
parties from transaction messages, a practice that has come to
be known as "stripping."
That practice is thought to be defunct, at least within
large multinational banks, as a result of high-profile U.S.
enforcement actions, sanctions experts say.
Since 2005, OFAC and its U.S. law enforcement partners have
targeted HSBC, Standard Chartered Bank, ING Bank NV,
Credit Suisse, Barclays, Lloyds TSB Bank and
ABN AMRO for sanctions violations. Still, no individual bankers
were held to account.
In December, HSBC agreed to pay a record $1.9 billion to
resolve charges that it failed to detect the laundering of $881
million by Mexican and Colombian drug cartels and helped move
roughly $430 million around the world in violation of U.S.
sanctions against Iran and other countries.
The fact that no HSBC bankers were held to account, either
criminally or civilly, contributed to the grilling of Treasury's
Cohen and top bank regulatory officials during a Senate Banking
Committee hearing earlier this month.
At that hearing, Cohen revealed he had instructed FinCEN to
look more closely at existing civil powers that could be used to
hold financial institutions' "partners, directors, officers and
employees" responsible for lapses that allowed the laundering of
crime proceeds. The move to include OFAC in the push is a
follow-up to that.