17 March 2015

Frankfurt-based bank Commerzbank has agreed to pay a penalty of USD1.45 billion to US authorities in exchange for non-prosecution for violating American economic sanctions and for banking violations.

Commerzbank’s violations occurred from at least 2002 to 2008, according to the New York Department of Financial Services (NYDFS). They are accused of servicing lucrative clients in Iran who were otherwise prevented from conducting US dollar transfers with Western institutions. These included state-controlled financial institutions.

To do this, NYDFS explains, a special unit in Commerzbank set up mechanisms for performing such transactions without their being detected. They removed information from the transactions that identified clients subject to US sanctions, a process called ‘wire-stripping’. Foreign branches of Commerzbank could thus transmit payment requests to its New York branch using non-transparent SWIFT payments messages that did not disclose the identity of the remitter or beneficiary. This was used to process some 60,000 clearing transactions in US dollars valued at more than USD253 billion, mostly for Iranian but also for Sudanese clients.

NYDFS also says ’employees sought to alter’ the bank’s transaction monitoring system so that it would create fewer ‘”red flag” alerts about potential misconduct’. Even when a transaction from a foreign branch did trigger an alert in New York, the compliance team based there did not have access to the customer information needed to investigate it, and had to request it from the foreign branch or from Frankfurt. According to NYDFS ‘[O]verseas personnel, however, often did not respond to those requests by New York staff for many months or sent inadequate or insufficient responses[…]On some occasions, because information from overseas offices was not provided, New York staff “cleared” or closed alerts based on its own perfunctory internet searches and searches of public source databases’.

As well as paying a large penalty, Commerzbank has also agreed to remove the employees who organised the system which allowed the violations to occur, including the head of anti-money laundering, fraud and sanctions compliance at its New York branch.

The bank also helped the Japanese firm Olympus conduct a ‘massive accounting fraud’ designed to conceal its huge losses from its auditors and investors. This fraud was perpetrated through special purpose vehicles, some of which were created by Commerzbank.

  • Commerzbank is the second international bank to be targeted by the recently-founded NYDFS. In August 2012 Standard Chartered Bank paid USD340 million in penalties, also in connection with failure to enforce financial sanctions against Iranian clients.


Source: The Society of Trust and Estate Practitioners