Intesa Sanpaolo Settles Enforcement Action for Alleged Violations of U.S. Embargo Against Cuba, Iran and Sudan

The World in U.S. Courts: Summer 2013 - Export Controls/Economic Sanctions | July.28.2013

On July 28, 2013, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) announced that the Italian bank Intesa Sanpaolo S.p.A. (“Intesa”) has paid $2,949,030 to the U.S. government to settle allegations that it violated U.S. regulations that impose embargoes on Cuba, Iran and Sudan. The claim appears to characterize the Italian Bank as a “U.S. person” for purposes of the embargo regulations because the transactions at issue were in U.S. dollars and involved correspondent bank accounts in the U.S.

Allegations and Settlement

The United States maintains broad embargoes on most business and financial interaction with Cuba, Iran and Sudan. The embargoes are embodied principally in regulations administered by OFAC. The regulations forbid, among other things, supply of services to these nations and dealings involving their governments. In general, OFAC embargo prohibitions apply to “U.S. persons” – citizens and residents of the United States, legal entities that are organized under U.S. law, and other persons in the United States. The Cuba embargo also applies to U.S.-owned or controlled non-U.S. entities.

OFAC alleged that Intesa violated the embargo regulations by processing transactions that terminated in the United States or with U.S. persons for Irasco S.r.l., an Italian company that is owned or controlled by the Iranian government. OFAC also alleged that Intesa processed around 120 transactions that involved Cuba or Sudan.

The OFAC announcement is not clear about the specific embargo prohibitions that Intesa is alleged to have violated. Past practice suggests, however, that OFAC likely contended that the bank’s funds transfers contravened prohibitions on providing services to the embargoed countries and prohibitions on dealings with the countries’ governments and “blocked” (blacklisted) persons in those countries.

Analysis

The Intesa matter is the latest in a series of U.S. enforcement actions against European banks for alleged violations of U.S. embargo requirements that have generally focused on dollar-denominated transactions involving embargoed countries and persons and the European banks’ reliance on U.S. correspondent accounts for currency conversions.

Questions remain about the validity of U.S. government theories that Intesa’s and the other European banks’ activities fall within the scope of U.S. embargo regulations. In particular, characterizing the European banks as “U.S. persons” within the meaning of embargo regulations appears exceedingly aggressive. OFAC’s theory appears to be that the banks are acting in the United States, and are U.S. persons on this basis, when they process transactions through the U.S. banking system. This theory may be vulnerable to court scrutiny but, so far, none of the respondents has chosen to litigate embargo charges.

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