BNZ made payment for 'oil' from Iran breaching its own sanctions policy

Bank of New Zealand processed a payment "identified to be for oil originating from Iran" breaching its own Economic and Trade Sanctions Policy.

The US$-denominated payment in 2017 has been revealed in NAB/BNZ files leaked by a whistleblower, which also showed in early 2018 a second payment involving Iran was processed by BNZ, which a top BNZ executive described as a "huge operational risk".

While the bank chose not to report the 2017 payment, which did not reach its intended destination, it was not the only time the Bank of New Zealand (BNZ) had breached its own sanctions policies.

The leaked National Australia Bank (NAB) Group Chief Risk Officer reports, which outline risks the bank and its New Zealand subsidiary BNZ faces, first mention an Iran oil payment in a report dated September 2017.

Under compliance risk "highlights" the report states "three new Sanctions policy breaches in BNZ were identified".

"One involves a BNZ payment rejected by a US correspondent bank, identified to be for oil originating from Iran."

The internal BNZ documents show the bank avoided falling foul of US authorities over the payment after it was not reported as required under US sanction laws.

"The correspondent bank who makes the reporting decision did not report this to the Office of Foreign Assets Control," it said.

"It is unclear why this did not occur."

At the time, the US had imposed unilateral sanctions on Iran, and could take action against banks which breached them.

New Zealand had lifted its sanctions against Iran in February 2016, after the United Nations Security Council lifted international sanctions against Iran, which had once been New Zealand's fifth-largest trading partner.

But BNZ's own "Economic and Trade Sanctions Policy" was not to facilitate payments for Iranian oil.

A number of international banks, and a Chinese company ZTE, have been hit with fines for breaching US sanctions to countries including Iran.

In April this year British bank Standard Chartered agreed to pay more than US$1.1 billion (NZ$1.7b) to US and UK regulators for sanctions breaches to nations including Iran, and for poor money laundering controls.

The bank's executives, who repeatedly raised Iranian payments in internal documents leaked by a whistleblower concerned about banks' internal compliance issues, did not expect to be punished by Australian or New Zealand regulators for the breach.

"There is no regulatory impact to BNZ," NAB concluded.

BNZ spokesman Michael Burgess downplayed the Iranian oil payment.

"No payment for Iranian oil has occurred and BNZ has not breached any US sanctions," he said.

"The flagged payment we believe you're referring to was investigated. It was less than $US5000 and for industrial lubricant and stopped before it reached its intended destination."

Further investigation showed the payment was a farmer attempting to buy lubricant for farm machinery, he said.

"International payments are flagged for a variety of reasons from time to time and there were potential issues with where this payment was headed and where the product was from.

"NAB and BNZ have a comprehensive sanctions screening process for all international transactions, which is regularly reviewed to maintain compliance with all changes to international sanctions requirements."

Then an internal risk report in March 2018 also noted a payment to Iran being processed, and explained why the bank didn't report it to the relevant US authorities.

"One Economic and Trade Sanctions (E&TS) Policy Breach was due to a US payment involving Iran (indirectly) being processed by BNZ and the USD clearer."

The Group Chief Risk Officer report said NAB had no statutory obligation to disclose the Iran payment to the US Treasury's Office of Foreign Assets Control which administers and enforces US sanctions, but BNZ would disclose to the USD payment clearer, "subject to internal legal review".

And in June of 2018 the chairwoman of BNZ's Board Risk Committee Prudence Flacks said the bank had a "huge" operational risk event earlier in the year, but NAB spokesman Mark Alexander believed this to refer to an attempted payment to related to a New Zealander trying to purchase a holiday to Iran via a UK travel company.

The document outlining Flacks' comment goes on to say, "AA note - this incident relates to a contravention of NAB Group's Economic and Trade Sanctions policy where a payment that involved Iran was processed - it was mentioned in February 2018 BNZ Chief Risk Officer report."

He said before the £6000 (NZ$11,000) payment had been finalised by the beneficiary bank in the UK, it was identified that the payment to the UK travel group was for a tour in Iran. This was subsequently investigated.

"As a result, BNZ requested the beneficiary bank cancel the payment and return the funds. The funds were returned." He said BNZ did not breach any laws or international sanctions.

The revelation that BNZ was used in an attempt to pay for oil from Iran comes at a sensitive time.

Temperatures are running high between the US, UK, EU and Iran currently over the seizure by Britain of an Iranian oil tanker was followed by Iran's Revolutionary Guard seizing a British-flagged oil tanker.

BNZ's two other sanctions policy breaches referred to in the leaked papers happened at BNZ in the same three-month period the oil payment occurred in.

Both involved "non-compliance" with internal policies to conduct anti-bribery checks, and, NAB concluded, did not need reporting to authorities.

They both appeared to have happened in BNZ's London operation, the leaked documents said.

The BNZ sanctions policy breach happened at an inauspicious time for NAB.

It had been struggling to build the systems and processes it needed to meet its anti-money laundering obligations in Australia.

A review by AUSTRAC, Australia's money laundering watchdog, of NAB's "Suspicious Matters Reports" (NAB has a duty to report suspicious banking transactions) in April 2017 found "incomplete transaction information" and "inconsistent or absent customer details".

NAB had been hard at work to overhaul its "know your customer" processes, including at JB Were in Australia, and was working on processes to "offboard" customers who it could not get complete information for.

The reputational and financial impact on a bank of getting sanctions and anti-money laundering wrong had just been demonstrated in Australia with CBA suffering ongoing damage to its reputation from an investigation into failures to abide by anti-money laundering laws, which would lead to it settling a money laundering case brought by AUSTRAC for A$702m for having inadequate systems to spot suspicious transactions.

CBA's chief executive Ian Narev, the second New Zealander to hold the role after Sir Ralph Norris, left the bank shortly after the settlement.

In June this year, Sarah Salmond and Ben Gregson from Russell McVeagh warned New Zealand businesses over the seriousness of breaching US sanctions.

"The Trump Administration's heightened activity on the sanctions designation and enforcement fronts (especially regarding foreign sanctions violators) should cause New Zealand businesses to reflect on the importance of maintaining an effective sanctions compliance programme," they said.

New Zealand banks were being very cautious, they said.

"Some banks refuse to handle Iran-related business altogether. Others only handle it for key clients, or when transactions are of a significant value." (Via Stuff)