In 2018, the Canadian-based financial institution, Scotiabank, entered into a deferred prosecution agreement (DPA) with the United States Department of Justice (DOJ) over allegations of illegal transactions with sanctioned countries. The DPA allowed Scotiabank to avoid criminal charges by agreeing to pay a $127.4 million penalty and implementing changes to its compliance program.
The DOJ had alleged that Scotiabank processed thousands of transactions with customers in Iran, Sudan, and other sanctioned countries between 2007 and 2014. The bank was accused of violating the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA). The DOJ also claimed that Scotiabank failed to implement adequate policies and procedures to prevent such transactions from occurring.
In agreeing to the DPA, Scotiabank acknowledged responsibility for its conduct and agreed to cooperate with the DOJ’s ongoing investigation. The bank also agreed to implement measures to improve its compliance program, including the appointment of a chief anti-money laundering officer and the adoption of enhanced due diligence measures for high-risk customers.
The DPA is a common tool used by the DOJ to resolve criminal investigations against corporations. It allows the government to defer or suspend criminal charges against a company in exchange for certain conditions, such as payment of a fine, cooperation with ongoing investigations, and implementation of remedial measures. DPAs are often seen as a way to encourage self-reporting and cooperation by corporations, while also holding them accountable for their misconduct.
For Scotiabank, the DPA allowed the bank to avoid the reputational damage and financial costs associated with a criminal conviction. However, it also required the bank to make significant changes to its compliance program and demonstrate ongoing compliance with U.S. sanctions laws. Failure to comply with the terms of the DPA could result in criminal charges being reinstated against the bank.
Overall, the Scotiabank DPA serves as a reminder that financial institutions must ensure that they have adequate measures in place to prevent illegal transactions from occurring. The consequences of violating U.S. sanctions laws can be severe, including criminal charges and substantial fines. By taking steps to strengthen their compliance programs and cooperating with regulatory authorities, financial institutions can help mitigate the risk of sanctions violations and ensure that they are operating in compliance with applicable laws and regulations.
