DOJ Catch Of The Week -- Commerzbank

By the C|C Whistleblower Lawyer Team

This week’s Department of Justice “catch of the week” goes to Commerzbank AG, the global financial institution headquartered in Frankfurt, Germany.  Yesterday, the corporate parent and its US branch agreed to forfeit $563 million and pay a $79 million fine for violations of the International Emergency Economic Powers Act (IEEPA) and the Bank Secrecy Act (BSA).  The bank has also entered into settlement agreements with the Treasury Department’s Office of Foreign Assets Control (OFAC), the Board of Governors of the Federal Reserve System, and the New York State Department of Financial Services for a combined regulatory payout of $1.45 billion.  See DOJ Press Release.

According to admissions contained in the deferred prosecution agreement into which the bank entered, Commerzbank admitted to Violating the IEEPA by knowingly and willfully moving $263 million through the U.S. financial system on behalf of Iranian and Sudanese entities subject to U.S. economic sanctions.  Commerzbank engaged in this criminal conduct using numerous schemes designed to conceal the true nature of the illicit transactions from U.S. regulators.  Commerzbank admitted that this conduct continued even though its senior management was warned that the bank’s practices for Iranian clients “raised concerns.”  In addition, Commerzbank admitted it provided Sudanese sanctioned entities with access to the US financial system by engaging in similar schemes to remove reference to Sudanese companies from the transaction records.

The bank further admitted to violating the BSA by failing to maintain adequate policies, procedures and practices to ensure its compliance with US law including its obligation to detect and report suspicious activity.  As a result of this failure, a multibillion-dollar securities fraud was operated through Commerzbank by Japanese camera and medical device maker Olympus.  It involved a massive accounting fraud by Olympus designed to conceal from its auditors and investors hundreds of millions of dollars in losses.  Commerzbank both loaned money to off-balance-sheet entities created by or for Olympus to perpetrate its fraud, and transacted more than $1.6 billion through Commerz New York in furtherance of the fraud.

In announcing the settlement, a chorus of high-ranking regulators spoke out on the seriousness of Commerzbank’s transgressions and the importance of taking strict action against this kind of financial misconduct.  According to Assistant Attorney General Leslie R. Caldwell of the DOJ’s Criminal Division, “Commerzbank concealed hundreds of millions of dollars in transactions prohibited by U.S. sanctions laws on behalf of Iranian and Sudanese businesses . . . even though managers inside the bank raised red flags about its sanctions-violating practices.  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 Attorney Ronald C. Machen Jr. of the District of Columbia echoed these strong words: “Commerzbank undermined the integrity of our financial system and threatened our national security by hiding the business they were doing with entities in Iran and Sudan.  The bank tried to skirt our laws by hiding its illegal business with Iranian banks from its own employees in the United States.  Today’s resolution demonstrates that there will be consequences when global banks try to profit from the benefits of the US financial system without respecting our laws.”

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