UniCredit’s German Unit Pleads Guilty in U.S. Sanctions Case

15 Apr 2019

UniCredit’s German Unit Pleads Guilty in U.S. Sanctions Case

(Bloomberg) -- A German unit of the Italian bank UniCredit SpA pleaded guilty to U.S. charges that it allowed Iranian customers to conduct transactions in violation of sanctions.

As part of its settlement with several U.S. regulators, the bank will pay $1.3 billion and its Austrian unit will enter into a deferred-prosecution agreement. The bank’s German unit, HypoVereinsbank, will also enter a guilty plea in Manhattan to a state-level charge of violating books-and-records requirements.

The penalty is several hundred million dollars more than people familiar with the matter had expected. It’s also among the largest ever related to U.S. sanctions laws. On April 9, Standard Chartered (LON:STAN) Plc agreed to pay more than $1 billion to resolve a long-running investigation into its handling of transactions related to Iran.

Over a decade beginning in 2002, the German bank moved at least $393 million through the U.S. financial system on behalf of sanctioned entities, the U.S. Justice Department said. The Austrian unit of UniCredit also conspired to circumvent U.S. restrictions on Iranians, prosecutors said.

The bank handled billions of dollars in illegal and non-transparent transactions to clients in sanctioned countries including Cuba, Iran, Libya, Myanmar and Sudan, according to New York’s Department of Financial Services, which fined UniCredit $405 million as part of the settlement. The U.S. attorney’s office in Washington, the Treasury Department, the New York branch of the Federal Reserve Bank and the New York district attorney’s office also took part in the settlement.

The lender set aside 741 million euros ($838 million) in provisions and charges, including funds to settle the allegations, in the third quarter. The bank had also set aside some money for the matter earlier but declined to provide a total.

The settlement amount is covered fully by those set-asides, UniCredit said Monday in a written statement. The bank’s first-quarter earnings will be boosted by about 300 million euros after the penalty funds are released, the bank said. Its common equity tier 1 ratio, a key measure of financial strength, will improve by 8.5 basis points, it said.

UniCredit says it has implemented a “remediation and enhancement plan to strengthen its policies, procedures, supports and controls to ensure full compliance with applicable economic sanctions and internal control requirements,” it said. The bank said it would also further develop methods to prevent and detect illegal activity.

According the New York regulator, UniCredit implemented automated transaction filtering software, known as the “embargo tool,” in 2004 as part of its efforts to flag transactions that might run afoul of the U.S. Treasury’s Office of Foreign Assets Control.

The bank’s core compliance team came up with an instructional guide designed to help the bank’s employees work around the embargo tool -- by submitting payment orders in an “OFAC-neutral” manner that wouldn’t trigger any red flags, according to the New York regulator.

“UniCredit prioritized profit over compliance and security by deliberately engaging in billions of dollars of transactions with clients from sanctioned nations, including Iran, Libya and Cuba, and then working to cover their tracks to avoid detection,” said Linda Lacewell, the acting superintendent of the New York regulator.

UniCredit Chief Executive Officer Jean Pierre Mustier inherited the case when he took the helm in July 2016. HypoVereinsbank, the German unit, was subpoenaed in March 2011 by the New York district attorney’s office over transactions with certain Iranian entities.

UniCredit, Italy’s biggest bank, is one of several European financial institutions settling similar cases. Fifteen European banks have together paid more than $19.5 billion for violating U.S. sanctions against various countries. BNP Paribas (PA:BNPP) SA’s $8.97 billion penalty in 2014 was the largest individual fine.

The settlement is the second for an Italian bank. Intesa Sanpaolo (MI:ISP) SpA, the country’s second-biggest lender, agreed to pay $235 million in Dec. 2016 to resolve a New York regulator’s allegations that it flouted money-laundering controls for a decade.

(An earlier version of this article was corrected to remove a reference to the bank’s provisioning.)

(Adds guilty plea with Justice Department.)

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