US reaches settlement with Clearstream to give Iran access to US

The U.S. Department of Treasury announced here Thursday a USD 152 million agreement with Clearstream Banking of Luxembourg, to settle its potential civil liability for "apparent violations surrounding Clearstream's use of its omnibus account with a U.S. financial institution as a conduit to hold securities on behalf of the Central Bank of Iran (CBI)." The Treasury's Office of Foreign Assets Control (OFAC) Director Adam Szubin said in a statement that "Clearstream provided the Government of Iran with substantial and unauthorized access to the U.S. financial system." "Today's action should serve as a clear alert to firms operating in the securities industry that they need to be vigilant with respect to dealings with sanctioned parties, and that omnibus and custody accounts require scrutiny to ensure compliance with relevant sanctions laws," Szubin stressed. The Treasury indicated that from at least December 2007 through June 2008, Clearstream held an account at a U.S. financial institution in New York through which the CBI maintained a beneficial ownership interest in 26 securities, with a nominal value of USD 2.813 billion, and exported certain associated securities-related services to the CBI. It added that Clearstream, as intermediary, served as the channel through which the CBI held interests in these securities and transferred those interests at a later date, thereby exporting custody and related services from the United States to the CBI in apparent violation of the Iranian Transactions and Sanctions Regulations (ITSR). Following meetings with OFAC officials in late 2007 and early 2008, in which Clearstream conveyed its decision to terminate its business with Iranian clients, Clearstream transferred the above-mentioned securities entitlements free-of-payment (FOP) from the CBI's account at Clearstream to a European bank's newly-opened custody account at Clearstream. It noted that "this new custody account allowed the CBI to continue holding its interests in the securities through Clearstream's omnibus account in the United States." It added that Clearstream's "exportation of services from the United States to the CBI then continued after the securities entitlements were moved to the European bank's custody account." "The activity in question highlights the need for vigilance in the securities industry, where vehicles such as omnibus accounts, as well as the intermediated nature of the securities custody industry itself, can serve to obscure the beneficial ownership interests of sanctioned parties," the Treasury said. OFAC encourages firms operating as securities intermediaries and custodians "to implement measures to mitigate the risk of indirectly providing custody-related services to parties subject to U.S. sanctions, or dealing in property owned by parties subject to U.S. sanctions." Under the settlement agreement, Clearstream is "required to maintain policies and procedures that prohibit, and are designed to prevent the recurrence of, similar conduct in the future."