Most settlements of this era give counts. The Barclays settlement agreement also reproduces what staff wrote at the time.
How it surfaced
On 22 May 2006 Barclays voluntarily told the New York Federal Reserve, the New York State Banking Department, OFAC and the UK’s Financial Services Authority that its New York branch had processed apparent violations of the Sudan and Cuba rules, and that it was investigating “apparent deficiencies in its filtering mechanism” at its payment processing centre in Poole. Information from Barclays’ review, carried out with Deloitte and Sullivan & Cromwell, revealed “a systemic pattern of conduct” involving Burma, Cuba, Iran and Sudan.
The practices
The agreement says that for years up to 2006 Barclays “purposefully used” SWIFT messages “in a manner intended to obscure the identities of OFAC-sanctioned countries and persons” and removed information that showed a sanctioned interest. Three mechanisms are named:
- Standing instructions from 1987. At least from the mid-1980s, partly at the request of correspondent clients in sanctioned countries, Barclays circulated special settlement instructions. In 1987, for example, Bank Melli Iran asked it to pay dollars to Bank Melli’s London branch by quoting only an account number at Midland Bank, without Melli’s name, and to send the full details in a separate message. The head office put such instructions in an internal list of correspondents, which by the late 1990s directed staff to use cover payments omitting the sanctioned party’s name.
- A filter, and a way round it. Barclays installed a filter at Poole to catch sanctioned parties. A fax template told the originating unit when a payment was stopped as an “OFAC ITEM”, explaining that “Payments to U.S.A. must NOT contain the word listed below”, and the unit then decided whether to re-input the message without the offending text. A senior Poole manager described amending messages as “a ‘common practice’ in the Bank”.
- A sundry account. A supervisor sometimes had operators route payments for sanctioned persons through a Barclays sundry account, so field 52, the ordering institution, showed Barclays.
What staff said
The agreement records warnings that were not acted on. In 2001 the Compliance Director for Business Banking wrote that for Iran and Libya the published procedures “include directions to make transfers in US dollars which circumvent constraints and breach OFAC sanctions,” that those for Iraq and Cuba “would nevertheless constitute a ‘work around’”, and that “substantial reputational damage” could follow if they became public. Another employee wrote that payment cover was routed “via MT202 to New York naming only the account holding bank”. A July 2004 assessment said “Cover payments are an issue for this project as they are effectively a way of by passing sanctions”. The then-Chief Operating Officer conceded that Barclays had not developed a clear sanctions policy for every business in every country until the beginning of 2006.
What OFAC counted
Between 2002 and 2006 Barclays processed 1,175 Sudan transfers and trade-finance transactions worth about $105.4 million, 61 Cuba transfers worth $6.7 million, 46 Burma transfers worth about $491,000, and three Iran transfers worth about $60,000. The settlement was $176 million, satisfied by a greater payment to US federal, state or county officials. Barclays also agreed to two annual reviews of its dollar payments by an independent consultant acceptable to its US and UK supervisors, and OFAC released it from civil liability for the disclosed conduct once those obligations were met.
What the record shows
- The warnings were written down. Compliance staff named the practice, the risk and the consequence years before the self-disclosure. See correspondent banking abuse.
- Sudan dominates again. 94 per cent of the value counted was Sudanese. See the Sudan page.