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Germany's Second Largest Bank Must Pay $1.45 Billion for Violating Sanctions on Iran and Sudan

The announcement to fine Commerzbank for hiding transactions comes as US diplomats appear to be nearing a deal to remove some of the sanctions on Iran.

by Samuel Oakford
Mar 13 2015, 12:55pm

Photo by Wolfram Steinberg/AP

German banking giant Commerzbank must pay $1.45 billion to resolve a litany of US criminal and civil charges, including allegations that it violated American sanctions on Iran and Sudan by facilitating and hiding financial transactions in the two countries.

The penalties, announced on Thursday, also addressed accusations that Commerzbank abetted accounting fraud at the Japanese electronics company Olympus. The charges culminated years of investigation into the bank involving multiple agencies, including the FBI and the US Justice and Treasury Departments.

In agreeing to pay up, Commerzbank avoided pleading guilty and instead was able to reach a deferred prosecution agreement with the Justice Department — a condition that could be lifted if it is found to have carried out violations in the future. The company also said it would fire several employees involved in the allegations.

Commerzbank, the second largest bank in Germany, is the latest in a string of financial institutions targeted by the Obama administration for money laundering and sanctions violations. Last year, French bank BNP Paribas paid a record $9 billion as part of a deal which saw it plead guilty to breaking sanctions against Iran, Cuba, and Sudan, where it was known among US authorities as "the central bank" for the government in Khartoum. European banks Credit Suisse, Barclays, and Lloyds have also paid hundreds of millions of dollars in settlements for similar offenses under Obama's watch.

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Commerzbank was accused of removing information identifying Iranian and Sudanese entities from some 60,000 dollar clearing transactions between 2002 and 2008 worth more than $253 billion. Both countries are subject to US sanctions that forbid banks from handling such transactions.

Among the evidence against the bank was an email from one employee urging staff to cover their trails when dealing with Iranian money.

"If for whatever reason CB [Commerzbank] New York inquires why our turnover has increase[d] so dramatically, under no circumstances may anyone mention that there is a connection to the clearing of Iranian banks !!!!!!!!!!!!!," they wrote.

"When there was profit to be made, Commerzbank turned a blind eye to its anti-money laundering compliance responsibilities," New York State superintendent of financial services Benjamin M. Lawsky said in a statement. Lawsky added that when the compliance section of the bank in the US did inquire about the dubious transactions, bankers in Germany often dragged their feet in an apparent effort to cover up the transgressions. New York State will collect a $610 million share of the settlement.

Among the agreements announced on Thursday, the Department of Treasury said it would receive a $258 million fine tied to Commerzbank's violations of sanctions regimes. In a statement, the department's Office of Foreign Assets Control said the bank's illegal practices included "deleting or omitting references to Iranian financial institutions and replacing the original bank information" with its own. 

Employees routinely routed Iranian payments to a processing section that required them to be handled manually, "rather than routine, automated processing," allowing them to cover their tracks, according to the Treasury Department. Commerzbank was also cited by the department for violating sanctions on Cuba and Myanmar

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Western sanctions targeting Tehran for its nuclear program have seriously impacted the Iranian economy, making it difficult for companies to maintain supply lines and carry out international business.

Negotiators from the US and Iran are believed to be close to reaching a deal that would involve Iran weakening its capacity to assemble a nuclear bomb in exchange for lifting at least some of the sanctions. Corollary talks among the five permanent members of the United Nations Security Council — as well as Iran and Germany — to lift UN sanctions are also reportedly underway.

This week, a group of 47 Republican senators sent an open letter to Iranian authorities reminding them of what they called the technical impermanence of any deal with the Obama administration. Democrats excoriated the text, which they claimed helped Iran more than it did the US.

Michael Singh, managing director at the Washington Institute for Near East Policy, said that the Commerzbank fine was a reminder for Tehran of what awaits if an agreement isn't reached.

"It's very important that this sort of enforcement action is still going on despite the nuclear negotiations being in an advanced stage," Singh told VICE News. "It's a credit to the Obama administration they are doing these kinds of things and not letting go."

But even if an agreement is brokered, it remains unclear, after years of evading either Iran itself or the enforcement of Western sanctions, that companies will immediately return to doing business with Tehran.

Follow Samuel Oakford on Twitter: @samueloakford