Nasdaq Agrees to $4M Sanctions Settlement Stemming From Compliance ‘Deficiencies’

OFAC said Nasdaq in 2008 bought OMX AB, a Swedish financial company that owned and operated the Armenian stock exchange, and renamed it Nasdaq OMX Armenia OJSC. The company continued to operate the exchange, including by operating trading platforms that gave Armenian banks -- including Iran-based Bank Mellat’s Armenian subsidiary, Mellat Bank SB CJSC -- access to overnight liquidity loans and foreign exchange. OFAC said Bank Mellat’s subsidiary, Mellat Armenia, “regularly participated in the credit resource and foreign exchange markets operated and overseen” by Nasdaq OMX Armenia.

Nasdaq OMX Armenia knew Mellat Armenia participated in those markets, and its website even “identified Mellat Armenia as a market participant,” OFAC said, listing the bank’s “trading name, address, and contact information.” The stock exchange’s fee assessments also “required monthly analyses of the trades in which the Iranian-owned bank had participated,” the agency said.

But OFAC said Nasdaq OMX Armenia and Nasdaq, its parent company, never “properly understood the sanctions implications of Mellat Armenia’s participation on the platforms.” This “lack of understanding” continued until September 2014, when Nasdaq submitted a voluntary self-disclosure to OFAC.

The agency suggested Nasdaq and its subsidiary should have identified the compliance concerns sooner, saying its 2012 “Global International Business Conduct Policy” outlined Nasdaq’s “worldwide policy of compliance with trade laws and regulations governing its international business activities.” OFAC said the policy “explicitly stated” that it applied to all Nasdaq employees, including subsidiaries, and included a section “specifically addressing economic sanctions laws and regulations.” The section required all employees to contact Nasdaq’s general counsel office before conducting activities with a list of countries or parties subject to U.S. sanctions, including Iran and Mellat Armenia.

OFAC said “neither Nasdaq nor Nasdaq OMX Armenia, however, appears to have taken steps to update or apply its sanctions compliance policies to Nasdaq OMX Armenia’s conduct with respect to Mellat Armenia” once the Armenian Stock Exchange became blocked from providing services to the Iranian government in 2012. The agency noted that even though a 2012 Nasdaq risk assessment questionnaire said Mellat Armenia was a participant in the change -- and specifically said Iran’s state-owned Bank Mellat owned Mellat Armenia -- “Nasdaq took no action in response.”

OFAC pointed to another compliance failure in 2013, saying a different Nasdaq questionnaire showing Mellat Armenia as a market participant was sent to Nasdaq’s risk management division in Stockholm and forwarded to Nasdaq’s compliance and legal department in the U.S. Those compliance officers “did not appear to sufficiently understand the implications of the reference to Mellat Armenia,” OFAC said, and Nasdaq OMX Armenia continued to provide the bank credit resource and foreign exchange services until Nasdaq’s voluntary disclosure in 2014.

In total, Nasdaq OMX Armenia earned about $16,000 in commissions and fees from processing the transactions relating to the bank. OFAC added that Nasdaq wound down its ownership interest in the Armenian Stock Exchange after disclosing the potential violations.

OFAC said Nasdaq committed 151 violations of the Iranian Transactions and Sanctions between Dec. 28, 2012, and Sept. 3, 2014, which had a total value of nearly $230 million. The agency said it could have fined Nasdaq $458 million but settled on a lesser penalty partly because the violations were self-disclosed, and OFAC determined the case to be non-egregious.

Other mitigating factors included that OFAC hadn’t issued a penalty notice to Nasdaq in the previous five years and Nasdaq cooperated fully with the agency’s investigation, including by agreeing to toll the case’s statute of limitations. OFAC also said the “true magnitude of the sanctions harm” was “significantly less” than the value of the transactions and added that Nasdaq was “subsequently eligible” for a license to authorize certain activities between the Armenian Stock Exchange and Mellat Armenia.

Nasdaq also took “remedial measures” to address its sanctions compliance “deficiencies,” OFAC said, including by divesting from Nasdaq OMX Armenia, creating a “dedicated sanctions working group” and a new compliance training program, improving its screening software and conducting assessments of its compliance programs.

OFAC also pointed to several aggravating factors, including Nasdaq’s failure to “exercise due caution or care” in complying with U.S. sanctions and that it had “actual knowledge” Mellat Armenia was trading on the exchange. The agency also noted Nasdaq is a “large, commercially sophisticated, international financial services corporation.”

The case highlights that mergers and acquisitions can lead to increased sanctions risks, OFAC said, and companies should be sure to integrate their compliance standards to any newly acquired businesses, including through “adequate compliance training, resources, and culture.” The agency said “basic screening” of the Armenian Stock Exchange’s members during the acquisition phase may have addressed the issue before any violations occurred.

OFAC also stressed the importance of multinational companies conducting “routine sanctions risk assessments” and of disclosing a violation as soon as possible after discovering it, noting that Nasdaq became aware of the issues in 2012 but continued processing the transactions until 2014. “A well-designed and -implemented compliance program” allows companies to “remediate deficiencies in a timely manner to prevent additional violations,” OFAC said.

A Nasdaq spokesperson said Dec. 11 that it's "pleased to resolve this matter," adding that it "maintains a robust compliance program and is committed to adhering to the highest levels of ethics and integrity."