Non-US banks [and other firms] risk US secondary sanctions violations.

Secondary sanctions have emerged as a critical tool to increase the effectiveness and reach of U.S. primary sanctions programs. These sanctions target normal arms-length commercial activity that does not involve a U.S. nexus and may be legal in the jurisdictions of the transacting parties.

The U.S. government first significantly used secondary sanctions against Iran in 2010. Since then, both the executive branch and Congress have demonstrated an increased willingness to extend secondary sanctions to persons in other jurisdictions, including China, Russia, North Korea, and Syria.

Here are a few case studies of non-US firms that have BEEN fined for secondary sanctions violations include:

1. BNP Paribas: In 2014, French bank BNP Paribas settled its potential liability for apparent violations of US sanctions regulations with US federal and state government agencies for a combined US$8.9 billion
• https://group.bnpparibas/en/press-release/bnp-paribas-announces-comprehensive-settlement-review-usd-transactions-authorities
• https://home.treasury.gov/news/press-releases/jl2447
2. Standard Chartered Bank (SCB): In April 2019, the London-based Standard Chartered Bank was ordered by the US and UK authorities to pay US$1.1bn due to poor money-laundering controls and for significant violations of US sanctions laws and regulations against Iran
• https://ofac.treasury.gov/media/26286/download?inline
3. British American Tobacco Plc (BAT): BAT, a tobacco and cigarette manufacturer headquartered in London, UK, agreed to pay US$508,612,492 to settle its potential civil liability for apparent violations of OFAC’s sanctions against the Democratic People’s Republic of Korea (DPRK) and proliferation of weapons of mass destruction
• https://ofac.treasury.gov/media/931666/download?inline
4. Cynergy Bank Limited: The Court of Appeal ruled in Lamesa Investments Limited v Cynergy Bank Limited [2020] EWCA Civ 821 that US secondary sanctions fell within the definition of a “mandatory provision of law” that operated as a carve-out permitting non-payment of sums due under a facility agreement
• https://www.fieldfisher.com/en/insights/us-extra-territorial-sanctions-can-be-a-mandatory
5. Bank of Dandong: In June of 2017, FinCEN had ruled that the Bank of Dandong was violating section 311 of the US Patriot Act by laundering money for the Chinese trade conglomerate firm Dandong Hongxiang Industrial Development (DHID), which, in turn, had run a money laundering scheme for the North Korean government
1. https://www.fincen.gov/sites/default/files/federal_register_notices/2017-11-02/Bank%20of%20Dandong%20311%20Final%20Rule.pdf
2. https://www.fincen.gov/sites/default/files/federal_register_notices/2017-06-29/NPRM_311Dandong_0.pdf
3. Bank of Dandong (Section 311 Action). On June 29, 2017, FinCEN found that Chinese-based Bank of Dandong was a financial institution of “primary money laundering concern” under Section 311 of the USA PATRIOT Act, and initiated rulemaking to cut off the Bank of Dandong’s correspondent banking relationships with the United States.[68] On November 2, 2017, FinCEN finalized this rulemaking by imposing a prohibition on U.S. financial institutions from opening or maintaining correspondent accounts for, or on behalf of, Bank of Dandong.[69]
4. The Bank of Dandong was allegedly involved in laundering money on behalf of North Korea and the Chinese trading firm Dandong Hongxiang Industrial Development (“DHID”).[70] DHID and four of its employees were previously indicted by DOJ on charges of conspiring to use front companies to facilitate U.S. dollar transactions in violation of U.S. sanctions.[71]
5. The 311 action against Bank of Dandong can be viewed as a warning to larger Chinese financial institutions.[72] At a September 12, 2017 hearing before the House Foreign Affairs Committee, Assistant Secretary of the Treasury for Terrorist Financing Marshall S. Billingslea testified that it “was the Treasury Department’s first action in over a decade that targeted a non-North Korean bank for facilitating North Korean financial activity . . . . Financial institutions in China, or elsewhere, that continue to process transactions on behalf of North Korea should take heed.”[73]