OFAC Fines Investment Broker Millions for Alleged Sanctions Violations Involving Russia, China, Others

Interactive Brokers voluntarily disclosed the violations, which OFAC said weren’t egregious. The agency said it could have imposed a maximum civil penalty of over $5 billion, but it settled on a lesser amount after taking into account the “significant remedial measures” the company put in place and its “substantial cooperation” with OFAC’s multiyear investigation.

OFAC said Interactive Brokers, which provides online trading services for investors across more than 150 electronic exchanges and market centers globally, discovered the violations in 2018 during a sanctions compliance review. The company identified and disclosed to OFAC 12,367 apparent violations that occurred between July 2016 to January 2024, which included providing brokerage and investment services to people in Iran, Cuba, Syria and the Crimea region of Ukraine; processing trades in securities subject to OFAC’s Chinese Military-Industrial Complex program; conducting transactions involving sanctioned people under OFAC’s Russia, Global Magnitsky, Venezuela and Syria sanctions programs; and carrying out “new investment” in Russia.

Interactive Brokers provided brokerage and investment services to more than 200 account holders in Iran, Cuba, Syria and Crimea from July 2016 to July 2021, OFAC said, with those accounts carrying out nearly 12,000 transactions. Although many customers gave Interactive Brokers “Know Your Customer information” that indicated they weren’t located in a sanctioned country, OFAC said their IP addresses and other customer investigations revealed they were actually located in “comprehensively sanctioned jurisdictions.”

The agency said Interactive Brokers’ IP geoblocking controls had a “technical bug” that allowed customers in Iran, Cuba and Syria to access the company’s desktop and mobile app, and the company “did not adequately audit or test these systems during this time period.” Interactive Brokers also failed to include Crimea in its IP blocking list and failed to include IP addresses linked to Sevastopol, a “major Crimean city,” in the blocking list. The company relied on “representations from third-party introducing brokers that they would not introduce new clients from Crimea,” OFAC said.

Interactive Brokers also processed 259 funds transfers to sanctioned Russian banks after the country’s invasion of Ukraine between February 2022 and October 2022, OFAC said. The company carried out those transfers “on the mistaken belief” that they were authorized by wind-down provisions in OFAC general licenses.

Other violations occurred when Interactive Brokers processed 29 “sale transactions” on behalf of U.S. people from July 2022 to January 2024 that involved 13 entities with ties to China’s military, intelligence and security research and development programs, including the development of weapons and Chinese surveillance technology. OFAC said these violations happened because the company’s order system that executes trades -- known as the Consumer Communication Protocol system -- didn’t “incorporate sanctions-related securities screening prior to processing margin-related automatic liquidation orders.” Those transactions violated OFAC’s Chinese Military-Industrial Complex Sanctions Regulations.

Interactive Brokers also failed to “prevent new investment” in Russia after the country’s invasion of Ukraine in 2022, OFAC said. Although the company “took steps” to restrict their customers’ ability to trade any security issued by a Russian entity and the ability of customers located in Russia to “open new positions on margin,” two accounts held by people in Russia were able to “reactivate account permissions to initiate new margin loans.” OFAC said this was “due to a limited technical deficiency allowing certain margin accounts to restore margin permissions” between March and April 2023.

Those accounts initiated 66 margin loans from April 1, 2023, to Dec. 30, 2023, and Interactive Brokers earned interest on those loans.

The order outlines other sanctions violations allegedly committed by Interactive Brokers, including when it processed $28,000 worth of customer trades for securities issued by Xinjiang Tianye Water Saving Irrigation System Co., which is owned 50% or more by Xinjiang Production and Construction Corps, an entity sanctioned by OFAC in 2020. Interactive Brokers also dealt in the property of a person sanctioned for ties to corruption in Venezuela and another person sanctioned for ties to an international network benefiting former Syrian leader Bashar Assad.

OFAC described a range of steps Interactive Brokers took to improve its compliance program after discovering the violations, including by “enhancing its IP geo-blocking measures, adopting a risk-based approach to identify and mitigate sanctions compliance risks, including annual risk assessments, and implementing annual independent audits as well as ongoing internal testing of its sanctions compliance program.” The company also began several “transactional and data reviews,“ and “where OFAC requested additional transactional and data reviews, the company promptly and fully cooperated with such requests,” the agency said.

In total, Interactive Brokers invested more than $10 million in improving its compliance procedures and plans to make “further prospective investment in sanctions compliance enhancements.” It also greatly cooperated with OFAC by carrying out “several voluminous, comprehensive multi-year transactional and data reviews in a timely fashion -- engaging in many of these reviews without OFAC’s prompting -- by providing well-organized and useful submissions in response to OFAC information,” the agency said.

OFAC also noted that the company hadn’t received a penalty notice in the previous five years and that the transactions that violated sanctions represented less than 0.0001% of Interactive Brokers’ total trading volume during that time period. “In many cases, moreover, the economic benefit to the sanctioned party was limited,” OFAC said.

The agency also pointed to several aggravating factors, noting that OFAC didn’t “identify indicia of willfulness but did determine” that Interactive Brokers “failed to exercise due caution or care for its sanctions compliance obligations” by allowing the violations to persist for at least eight years. The company also was “aware or had reason to know of the conduct as it took place” and that it caused harm to multiple U.S. sanctions programs. OFAC noted that the firm is a “highly sophisticated, heavily regulated, and technology-driven firm with global operations” and millions of clients worldwide.

OFAC said the case highlights the importance of broker-dealers -- especially those using real-time, automated systems to manage large volumes of trades -- investing in sanctions compliance. “OFAC strongly encourages the implementation of sanctions compliance tools and programs that are commensurate with the size, speed, and complexity of a business’ operations.”

The penalty also underscores the importance of obtaining and using all information to verify a customer’s location, including by using IP address and geolocation data, and integrating that data into compliance programs. Businesses should make an “appropriate investment in sanctions compliance headcount,” OFAC said, and should carry out “proactive, self-initiated sanctions reviews to identify compliance deficiencies and potential apparent violations.”

An Interactive Brokers spokesperson noted that the company carried out remedial measures to improve its compliance program and voluntarily disclosed the issues.

The settlement reflects the company's "proactive approach to compliance and our commitment to meeting and exceeding our regulatory obligations," the spokesperson said in a July 15 email. Interactive Brokers' "current sanctions compliance program is robust, well-staffed and well-managed. We are pleased to resolve this matter and put these issues behind us."