Co-operative Fines Result in Large Settlements With Regulators

December 10, 2019

Regulatory authorities in North America and Europe appear to be having success reaching co-operative settlements with banks and other institutions who could face much larger penalties through the courts.

Still, the UK has seen its largest ever fine handed out this fall, tipping the scale at £44m.

On November 26, the Bank of England announced the record fine against the one of the world’s largest banks for filing incomplete and inaccurate regulatory information.

The Bank of England said the institution fell short of expected standards and that the problems were “serious and widespread” and meant the bank failed to provide an accurate picture of its financial position.

Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of the PRA said: “Accurate regulatory returns from firms are vital for the PRA in fulfilling our role. (The bank) failed to deliver accurate returns and failed to meet the standards of governance and oversight of regulatory reporting which we expect of a systemically important bank.”

Between June 2014 and December 2018, the firms’ UK regulatory reporting framework was not designed, implemented or operating effectively, the PRA said.

Discounted fines handed out

The bank agreed to the settlement and cooperated fully during the investigation, the statement said. As a result, the fine dropped by 30 per cent. Without this discount, the penalty would have been £62.7 million.

In some cases, the settlements are called something other than penalties.

For example, an electronics giant agreed in November to co-operatively pay $466,912 to settle what the Office of Foreign Assets Control (OFAC) called a “potential civil liability” for violations of the Foreign Narcotics Kingpin Sanctions Regulations (FNKSR).

The company violated § 598.203 of the FNKSR by dealing with SIS, d.o.o. (“SIS”), a Slovenian software company previously identified on OFAC’s List of Specially Designated Nationals and Blocked Persons as a significant foreign narcotics trafficker (SDNTK).

Software missed corporate suffix

The company at fault attributed the issue to its sanctions screening tool’s failure to match the upper case name “SIS DOO” in the electronic giant’s system with the lower case name “SIS d.o.o.” as written on the SDN List,” OFAC said in a release. The term “d.o.o.” is a standard corporate suffix in Slovenia identifying a limited liability company.

OFAC goes on to say that even though the address for SIS collected by the electronics company matched the address for SIS identified and published by OFAC, the company failed to identify SIS as an SDNTK for over two years after the designation.

In February 2015, OFAC designated SIS and Savo Stjepanovic, a director and majority owner of SIS, under the Foreign Narcotics Kingpin Designation Act, 21 U.S.C. §§ 1901-1908, and added them to the SDN List.

On the day of designation, the electronics company missed the match for Stjepanovic’s full name in its records since he was listed as an “account administrator” in its App Store developer account.

Company discovered errors two years later

After enhancing its sanctions screening tool and related processes, the electronics company finally identified SIS as a potential SDNTK in February 2017. The company’s finance department immediately suspended further payments associated with the SIS account. In total, over 54 months, the firm collected $1,152,868 from customers who downloaded SIS apps.

While the penalty is smaller than fines meted out to banks, various regulators are finding they are able to settle cases much more quickly with the help of the institution involved. In this case, the violations were reported by the company itself after they discovered the errors.

Alessa can help ensure your company is conducting proper sanctions and watch-list screening to avoid needless fines and allow you to remain fully compliant. Why not contact us today to discuss your needs.

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