JPMorgan Chasehas agreed to pay $88.3 million to settle potential civil liability for apparent violations of a wide range of U.S. sanctions, the U.S. Treasury department announced Thursday.
This will be the largest settlement ever paid for sanctions violations by a U.S. financial institution, according to Treasury officials.
The news was first reported by CNBC.
Among the sanctions apparently broken by JPMorgan are weapons of mass destruction proliferation rules as well as sanctions against Cuba, Iran, Sudan and the former Liberian regime of Charles Taylor.
Adam Szubin, Director of Treasury’s Office of Foreign Assets Control, told CNBC that some of JPMorgan’s activity involved “gross negligence or real recklessness.” Szubin said he was “surprised” to see a pattern of violations at a top-tier US financial institution such as JPMorgan.
The Treasury investigation dates back at least four years.
Several of the apparent violations are characterized by Treasury as “egregious,” including more than 1,000 apparent wire transfers involving a Cuban person, a $2.9 million loan in which the underlying transaction involved a vessel affiliated with the Islamic Republic of Iran Shipping Lines, and failure to produce documents responding to a subpoena about a wire transfer referencing the capital of Sudan.
A spokesperson for JPMorgan issued a statement Thursday, saying, "The civil settlement resolves a number of OFAC allegations dating back to 2005, none of which involved any intent to violate OFAC regulations.”
“These rare incidents were unrelated and isolated from each other,” the spokesperson said. “The firm screens hundreds of millions of transaction and customer records per day and annual error rates are a tiny fraction of a percent. We are pleased to have resolved these matters and to move forward with enhancements to our global OFAC compliance program.”
According to Treasury, JPMorgan processed 1,711 wire transfers totaling approximately $178.5 million between December 12, 2005, and March 31, 2006, involving Cuban persons in apparent violation of US sanctions. After a third party financial institution reported to JPMorgan management that they had flagged the transactions as potential sanctions violations, but Treasury says “the bank failed to take adequate steps to prevent further transfers,” and did not self-report to Treasury.
Treasury said that a considerable portion of the transfers happened after JPMorgan had been notified of the potential sanctions violation.
“The point of these flags being raised is for people to act on them and cease the conduct, and that didn’t happen here,” said a Treasury official.
In a second incident in December of 2009, Treasury said JPMorgan made a loan valued at approximately $2.9 million “to the bank issuer of a letter of credit in which the underlying transaction involved a vessel” affiliated with the Islamic Republic of Iran Shipping Lines. Treasury says that shipper has conducted a large number of weapons of mass destruction transfers in the past, and is blocked under the Weapons of Mass Destruction Proliferators Sanctions.
According to the Treasury official, JPMorgan “determined that this trade loan was likely an apparent violation” as early as late December of 2009. But they did not mail voluntary self disclosure to Treasury until March of 2010, three days before the loan was due to be repaid to JPMorgan.
“They sat on it for three months — in a three month loan,” the Treasury official said. “We received the disclosure one day before they were due to be repaid. It came into our mailroom, and of course we were not in a position to pounce on it, pick up the red phone and say, ‘you are not allowed to get repaid on this loan.’”
“I view their conduct as willful,” the official said. He added that Treasury has no indication that any actual weapons of mass destruction were shipped in the incident, and in fact views that as unlikely because such shipments are rare. The problem, the official said, is that the loan undermined the US government’s ability to put pressure on Iranian shipping.
In a third apparent violation, Treasury said that it issued a subpoena to JPMorgan for documents related to a specific wire transfer referencing “Khartoum,” the capital of Sudan. But JPMorgan “repeatedly stated” it had no additional responsive documents. However, after Treasury listed the specific documents it wanted based on a tip from a third party, JPMorgan eventually produced “more than 20 responsive documents.”
“Certainly, JPMorgan knows where Khartoum is,” the official said. “This is one of those that I, at least, find most troubling,” the official said, because it goes to the heart of the government’s ability to get documents by subpoena.
Treasury also revealed several other apparent sanctions violations by JPMorgan, which it deemed as less serious than the “egregious” activities.
Those include, Treasury says:
Apparent violations of the Iranian Transactions Regulations (ITR), Global Terrorism Sanctions Regulations (GTSR), Sudanese Sanctions Regulations (SSR), Former Liberian Regime of Charles Taylor Sanctions Regulations (FLRCTSR), Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR), and Executive Order 13382 arising out of its failure to appropriately block or reject nine wire transfers between April 27, 2006 and November 28, 2008, which totaled $609,308. JPMorgan, treasury says, voluntarily self-disclosed five of these apparent violations to Office of Foreign Asset Control (OFAC).
Apparent violations of the WMDPSR and SSR in which JPMorgan advised and confirmed a $2,707,432 letter of credit on April 24, 2009, in which the underlying transaction involved a vessel identified by OFAC as blocked due to its affiliation with Islamic Republic of Iran Shipping Lines (IRISL), and a $79,308 letter of credit on January 29, 2008, involving goods destined for Sudan. JPMorgan voluntarily self-disclosed these apparent violations to OFAC, Treasury said.
An apparent violation of the ITR consisting of a May 24, 2006 transfer of 32,000 ounces of gold bullion valued at approximately $20,560,000 to the benefit of a bank in Iran. JPMorgan did not voluntarily self-disclose this matter to OFAC.
The Treasury official said that much of the conduct at JPMorgan included the same officials in the bank’s counsel and compliance offices.
The official said Treasury has no evidence that JPMorgan CEO Jamie Dimon was aware of any of the activity.