State Street Bank to Pay $7.5 Million Fine for Sanctions Violations by Subsidiary

State Street Bank & Trust Co. has agreed to pay a $7.5 million fine to settle allegations from the Treasury Department’s Office of Foreign Assets Control (OFAC) that a subsidiary breached sanctions against Russia. According to OFAC’s enforcement release, Charles River Systems, a Massachusetts-based software firm specializing in products for trading information communication, allegedly continued business relationships with Russian banks Sberbank and VTB Bank despite their 2014 sanctions following Russia's illegal annexation of Crimea.

In a press release on Friday, the agency described the apparent violations as egregious and noted that they were not voluntarily self-disclosed.

From 2008 to 2022, Charles River “sold continuous access to a proprietary ‘point-to-point’ communications network (the “FIX Network”) that allowed customers to privately exchange trade information with their brokers.” Following its 2018 merger with State Street, Charles River was aware that at least one U.S. financial institution processing its SSI invoices was scrutinizing and delaying payments due to potential U.S. sanctions violations, OFAC detailed.

OFAC revealed that a sanctioned SSI customer requested Charles River to redate invoices to appear more recent. Between 2016 and 2020, Charles River redated one invoice six times and, overall, redated 38 invoices, as noted in the settlement agreement.

OFAC criticized Charles River for maintaining minimal compliance procedures prior to its 2018 acquisition by State Street, despite being a mid-sized company providing finance-related technology services to clients in over 30 countries. Charles River staff “engaged in a pattern of disregarding the sanctions implications of payment rejections during this time period, despite receiving general sanctions-related payment guidance from the company’s U.S. financial institution.”

State Street, following an internal investigation, discovered additional violations and submitted documentation about these to OFAC. The bank also entered into tolling agreements with OFAC for some of the violations. By February 2022, State Street had terminated all relationships with SSI entities under U.S. sanctions that were formerly clients of Charles River. Additionally, State Street expanded its compliance team by 25 percent, introduced onboarding prohibitions for all sanctioned entities, increased training for Charles River staff, and enhanced monitoring of sanctions issues.

OFAC emphasized the importance of sanctions compliance programs to include controls for examining clients and activities that may be subject to "less-than-blocking" sectoral sanctions, including debt- and equity-related limitations, in addition to the standard prohibitions.

State Street did not immediately respond to a request for comment.

By fLEXI tEAM