Add six banks based in Russia to the growing list of bad actors the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) designated as off limits for U.S. companies and individuals. The government's action forced Visa Inc. and MasterCard Worldwide to disconnect the designated banks from the international card networks, according to published reports.
The six banks in question are Genbank, Krayinvestbank, Upper Volga Bank, Sevastopol Marine Bank, Inresbank, and Mosoblbank. The Treasury Department described the OFAC designation as stemming from economic sanctions imposed in 2015 on Russia following its annexation of Crimea from the Ukraine.
"It is critical that Russia takes the steps necessary to comply with its obligations under the Minsk Agreements and to ensure a peaceful settlement of the conflict in Ukraine," said John E. Smith, Acting OFAC Director, in disclosing the latest designations.
According to a post in Russia Beyond the Headlines, an online English-language news digest, the six banks were informed in late December 2015 that their credit and debit cards would no longer have access to the MasterCard and Visa international card networks. The digest went on to note, however, that cards issued by the banks continue to work domestically, since all domestic payments clear through Russia's National Payment Card System.
This latest OFAC action, although limited in scope, illustrates the challenge banks and payment companies face in striving to not run afoul of government sanctions, said Eric Thomson, co-founder of KYC SiteScan, an automated due-diligence solution. Not only must these companies keep tabs on individuals who originate and those who receive payments, but they also must know which banks the transactions move through. And they must perform such vetting in as close to real-time as possible. "I think this is going to become table stakes for any payment that is legitimate," Thomson said.
OFAC is an arm of the Treasury Department that administers and enforces economic and trade sanctions against individuals, countries and regimes deemed to be engaged in terrorism, international drug trafficking, the proliferation of weapons of mass destruction and other threats. Many, but not all of the sanctions are based on mandates handed down by the United Nations and other international bodies in which the U.S. participates.
Several banks and payment companies have run afoul of OFAC. In 2015, for example, OFAC revealed that PayPal Inc. had facilitated hundreds of transactions in violation of sanctions against Iran, Cuba and the Sudan.
"For several years up to and including 2013, PayPal failed to employ adequate screening technology and procedures to identify the potential involvement of U.S. sanctions targets in transactions that PayPal processed. As a result of this failure, PayPal did not screen in-process transactions in order to reject or block prohibited transactions pursuant to applicable U.S. economic sanctions program requirements," OFAC said in a statement.
PayPal paid $7,658,300 to settle its potential civil liability over those violations, OFAC noted. OFAC also took PayPal to task for processing 136 transactions totaling $7,091.77 between 2009 and 2013 to and from PayPal accounts registered to individuals on OFAC's blocked persons list. "PayPal's automated interdiction filter did not initially identify the account holder as a potential match," OFAC stated. And when it did, risk officers ignored initial warnings.
OFAC said that it took 15 enforcement actions against individuals and businesses for sanctions violations in 2015, and it collected $599,705,997 in fines and settlements.
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