Société Générale: Cuba Disappeared From the Payment Messages

The Societe Generale sanctions BSA 2018 settlement included a $325 million New York penalty for sanctions-related transaction processing and a separate Bank Secrecy Act order. Under its criminal deferred prosecution agreement, Société Générale accepted responsibility for moving dollar payments through U.S. banks while hiding the Cuban connection. The bank instructed employees to leave Cuba out of payment messages. Inside the bank, the information was there. The U.S. banks clearing the payments lost the information their sanctions screening needed.

The Justice Department’s November 19, 2018 announcement described a conspiracy to violate the Trading with the Enemy Act and the Cuban sanctions regulations. The bank accepted an extensive statement of facts under the deferred prosecution agreement. Those admissions explain how a credit business involving Cuba kept using the U.S. financial system, even after senior management decided the dollar transactions should stop.

Cuban Credit Facilities Moved Dollars Through U.S. Banks

Under the criminal agreement, Société Générale admitted operating 21 credit facilities from approximately 2004 through 2010 that moved money to Cuban banks, entities controlled by Cuba, and Cuban and foreign corporations doing business in Cuba. These facilities involved payments cleared through U.S. financial institutions.

The bank engaged in more than 2,500 sanctions-violating transactions, causing U.S. institutions to process close to $13 billion that should have been rejected, blocked or stopped for investigation. Most of the transactions, and most of the value, came from a dollar credit facility financing oil trades between a Dutch commodities firm and a Cuban corporation with a state monopoly on producing and refining crude oil.

The people managing the credit facilities knew the business being financed. A payment message sent onward could omit the Cuban connection even though the underlying credit arrangement depended on it. The transaction had a purpose inside the bank and a description outside it, and the two could be compared.

The admitted conduct shows why the information traveling with the money mattered: the U.S. banks were processing payments for business whose Cuban connection Société Générale concealed.

What Are Examples of Sanctions Evasion?

Société Générale’s criminal admissions provide concrete examples of sanctions evasion: incomplete or inaccurate payment messages, instructions to remove references to Cuba, and routing through an intermediary bank to disguise the prohibited business. The department managing many of the Cuban credit facilities deliberately concealed the Cuban connection in dollar payments.

The Justice Department described approximately 500 dollar payments routed through a Spanish bank to disguise the sanctions violations. Employees received instructions to omit references to Cuba or Cuban entities from the messages accompanying the transfers. The extra bank changed the route. The missing information changed what the banks along that route could see.

For someone in payment operations, that instruction is a concrete decision to examine. We would connect the credit facility and the parties it financed to the outgoing message and the routing instruction. A message that leaves out Cuba means something different when an internal instruction expressly says to leave it out.

The Justice Department described the same practice in Credit Suisse’s criminal deferred prosecution agreement. The bank admitted a scheme to strip payment information involving sanctioned customers, including training Iranian clients to format messages to avoid U.S. screening. The parallel is the deliberate preparation of information for another bank’s controls. An insider who knows how a message was prepared may understand the concealment better than someone who sees only the final transfer.

Compliance Knew How the Payments Got Through

Société Générale’s admissions show that senior compliance staff knew about the methods used to conceal the Cuban connection. In December 2004, a senior Group Compliance leader warned an executive responsible for relations with regulators about U.S. scrutiny of dollar payments sent through U.S. banks.

Several days later, after learning about a transaction involving an exporter to Cuba in which the Cuban connection had been omitted, the same compliance leader emailed senior management. The Justice Department reproduced this passage from the email:

The official asked whether management remained satisfied with those methods given the new U.S. scrutiny. The bank’s own compliance discussion described experience in avoiding the sanctions list. That is a revealing way to discuss a control the bank was supposed to respect.

The admitted account continues with a management decision in mid- to late-December to eliminate dollar transactions connected to the Cuban facilities as quickly as possible. Management nevertheless allowed dollar transactions to continue in the meantime. They continued until October 2010, almost six more years, with Group Compliance aware of the conduct.

Even the final fee followed the pattern. As the last Cuban credit facility was being replaced with a facility in another currency at a senior sanctions compliance leader’s insistence, the bank directed payment of the final $600,000 arrangement fee in dollars. Its instruction included these words:

The instruction to end the dollar business and the instruction for its final fee tell the story together. The bank was leaving the arrangement while still concealing whom the last dollar payment concerned.

Blocked Sudan Payments Exposed a Wider Problem

The Justice Department’s account of the criminal case says the investigation began with payments involving Sudan. Other U.S. financial institutions blocked two transactions Société Générale processed for a sanctioned Sudanese entity in March 2012.

The bank disclosed the Sudan business first and the Cuban credit facilities only later, in October 2014.

The Cuban facilities had their own credit arrangements, payment practices and internal warnings. An insider may know about business beyond the transactions that first drew attention. We examine how the particular conduct you know fits the bank’s wider activity.

Separate Penalties for Sanctions and Bank Secrecy Act Failures

New York’s Department of Financial Services issued separate sanctions and Bank Secrecy Act orders covering Société Générale S.A. and its New York branch. The sanctions consent order concerned sanctions-related transaction processing. The Bank Secrecy Act consent order, dated November 19, 2018, imposed a separate $95 million civil penalty for deficiencies in the bank’s anti-money laundering program.

The New York orders address different problems: the processing of prohibited transactions and the institution’s anti-money laundering program. For a bank employee, that distinction changes the focus. A payment instruction can reveal the concealment in a particular transfer. A program review can reveal how the bank organizes the controls meant to catch or prevent it.

Sanctions and Anti-Money Laundering Controls Overlap

The Wharton Initiative on Financial Policy and Regulation’s paper Anti-Money Laundering: Opportunities for Improvement explains that anti-money laundering and sanctions work often use the same compliance infrastructure:

Société Générale’s admitted payment practices make the importance of that shared infrastructure concrete. The department managing the facilities knew the Cuban business. Group Compliance knew about the dollar transactions. Management discussed ending them. Yet outgoing messages continued to conceal the connection. The information existed within the institution, and the decisions about using or withholding it were part of the conduct.

For an insider, the useful comparison is between the bank’s stated controls and the instructions people actually followed. We look at how compliance concerns reached management, what management authorized, and what payment operations did afterward. Training material, testing results and escalation records may help explain those decisions alongside the underlying business records.

The Information a Bank Insider Can Connect

An insider may be able to connect the commercial relationship, the payment and the decision to conceal it. A credit employee may know the borrower or the trade being financed. A payment operations employee may know which references were removed. Someone in compliance or management may know who received the warning and why the business continued.

Those perspectives meet in the Société Générale admissions: the credit facilities identified the Cuban business, the messages obscured it, and the internal emails showed awareness. Our work with a whistleblower connects the part they know to the wider conduct and the people responsible for the decisions. The final fee instruction is a particularly clear example of how a short operational message can carry the point.

The Financial Crimes Enforcement Network’s whistleblower program covers Bank Secrecy Act and sanctions information. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We assess which program fits the conduct you know and work with you on the case it can support.

You Know What the Payment Message Left Out

If you know who the payments served, what the messages omitted or which warnings management received, talk with our whistleblower experts about the business behind the transfers. We build the case with you and bring in anti-money laundering and sanctions whistleblower lawyers who understand bank payment operations and internal controls. We stay beside you as your knowledge becomes a case the government can pursue.