C Commerzbank AG has agreed to pay US authorities $1.45 billion to resolve an investigation of its dealings with Iran and other sanctioned countries as well as a separate probe of its money laundering controls, Reuters reported on Thursday, citing US authorities.
The German lender is the latest big European bank to acknowledge moving funds through the US financial system for countries like Iran and Sudan.
Iran has been under unilateral sanctions by the US over the past few decades. The sanctions however intensified between 2010 and 2012 over a nuclear dispute. Iran is now negotiating with the US and five world powers to resolve the 12-year dispute over its nuclear energy program.
American authorities accused Germany’s second largest lender of knowingly moving money through the US financial system on behalf of blacklisted entities from at least 2002 and 2008, partly by stripping identifying information from incoming wires that would have helped flag the transactions.
Prosecutors also found the Frankfurt-based bank did not comply with US anti-money laundering laws that require detecting and reporting suspicious transactions in a probe stemming from an accounting scandal at Japan’s Olympus Corp.
According to the report, New York authorities agreed to defer criminal charges against the bank for three years, providing the lender abides by the terms of its agreements.
No individuals were charged, but New York’s banking regulator, the state Department of Financial Services, said five employees would resign or be fired as a result of the probes, including the former head of compliance for the bank’s New York branch.
A String of Prosecutions
Commerzbank is the latest in a series of big foreign banks that have been penalized for sanctions-related violations in recent years, forfeiting some $12 billion, according to Manhattan District Attorney Cyrus Vance, whose office initiated the probes some six years ago.
French bank BNP Paribas paid the bulk of that, forfeiting a record-breaking $8.9 billion last year. Other banks that have reached agreements include Amsterdam-based ING, British banks Standard Chartered Plc, Lloyds TSB Bank Plc, HSBC and Barclays, as well as Switzerland’s Credit Suisse AG.
Italy’s UniCredit, France’s Credit Agricole and Societe Generale, as well as Germany’s Deutsche Bank, are under investigation by US authorities for alleged sanctions-related violations, sources have told Reuters previously.
“Financial institutions must heed this message: banks that operate in the United States must comply with our laws, and banks that ignore the warnings of those charged with compliance will pay a very steep price,” US Assistant Attorney General Leslie Caldwell said in a statement.
Profits Down
Commerzbank saw its 2014 net profit plunge to 264 million euros from a previously reported 602 million euros after it booked additional charges to complete the settlement with US authorities.
Rising legal costs and investigations have threatened to stall a recovery plan that has seen Commerzbank emerge strong on an operating level from a state bailout.
Commerzbank had originally aimed to settle with US regulators and prosecutors by the end of 2014 over its dealings with Iran and other countries under US sanctions, in a deal previously expected to cost the bank about $650 million.
The bank disclosed on Feb. 12 that it had set aside 1.4 billion euros ($1.48 billion) for legal costs, related in part to the US probes. The settlement was in line with the amount Reuters first reported on March 5.
The bank said on Thursday it would book an additional one-off charge of 338 million euros ($358 million) to be reflected in its final annual financial statements for 2014.
The bank previously reported a net profit of 602 million euros for 2014, warning at that time, however, that it could revise that number should it settle with US officials.
“We take these violations very seriously and deeply regret the actions that led to today’s announcements,” Commerzbank Chief Executive Martin Blessing said in a statement. “We have made, and will continue to make, changes to our systems, training and personnel to address the deficiencies.”
Prosecutors say that beginning in 2002, Commerzbank concealed more than $250 million it moved through the US financial system, primarily on behalf of Iranian and Sudanese customers, in violation of US sanctions.
IRISL
Iran’s state-owned shipping line, designated for sanctions by the US in 2008 was one customer, according to the Manhattan district attorney.
The Islamic Republic of Iran Shipping Lanes and its various subsidiaries have been the subject of US and EU sanction, despite EU court rulings in favor of these companies.
Top EU courts have struck down sanctions on IRISL and its subsidiaries in multiple cases. The latest decision came from EU’s second highest court in January, when it annulled sanctions on 40 shipping companies, in January, according to Reuters. The court accepted the firms’ argument that since it had struck down sanctions against IRISL, the subsidiaries should also be delisted, the Wall Street Journal reported.
The court found that at the time the 40 companies were placed on the sanctions list, the EU had not given valid reasons for saying that IRISL was supporting Iran’s nuclear program.
It therefore annulled the sanctions against the companies but again gave the EU time either to appeal or to reinstate the sanctions using new legal grounds. The EU has placed IRISL back on its sanctions list, citing new legal grounds.
Olympus Scandal
The Olympus fraud is considered one of the biggest corporate scandals in Japan’s history. In 2011, the camera and medical equipment maker admitted to using improper accounting to conceal massive investment losses over more than a decade and restated years of financial results.
Prosecutors said Commerzbank allowed more than $1.6 billion in suspicious transactions connected to the Olympus fraud to flow through the New York office, violating the Bank Secrecy Act, the main US anti-money laundering law.
Authorities involved in the $1.45 billion deal include the Manhattan District Attorney, the New York state Department of Financial Services, the Federal Reserve, Treasury Department, and the US Department of Justice, with US Attorneys’ offices in New York and Washington DC.
