BILL ANALYSIS Ó
AB 978
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CONCURRENCE IN SENATE AMENDMENTS
AB 978 (Blumenfield)
As Amended June 10, 2013
Majority vote
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|ASSEMBLY: |72-1 |(May 16, 2013) |SENATE: |33-0 |(July 8, 2013) |
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Original Committee Reference: J., E.D. & E.
SUMMARY : Requires the Commissioner of the Financial Institutions
(CFI) to examine a licensed financial institution that maintains
a correspondence account or a payable-through account with a
foreign institution for compliance with the federal Comprehensive
Iran Sanctions, Accountability, and Divestment Act of 2010 (Iran
Sanctions Act) and related federal regulations and presidential
executive orders, as specified. In the case of violations, the
CFI is authorized to bring state action and is required to forward
evidence to the United States (U.S.) Department of the Treasury.
The terms of the bill are inoperative should Iran be removed from
the U.S. Department of State's list of countries that support acts
of international terrorism or the U.S. President certifies that
Iran has ceased its efforts relative to nuclear explosive devices
of related technologies, as specified.
The Senate amendments are technical.
EXISTING FEDERAL LAW , the Iran Sanctions Act, requires the U.S.
Department of the Treasury to prohibit, or impose strict
conditions on, the opening or maintaining in the U.S. of a
correspondent account or a payable-through account for a foreign
financial institution which the U.S. Department of the Treasury
finds knowingly facilitates the efforts of the government of Iran
to acquire or develop weapons of mass destruction, or provide
support for organizations designated as foreign terrorist
organizations. This includes the efforts of the Central Bank of
Iran or any other Iranian financial institution, Iran's Islamic
Revolutionary Guard Corps, and other individuals or third parties.
In enforcement of this law against U.S. persons (including
corporations), the law requires that the person accused knew or
should have known that they were violating the act.
EXISTING STATE LAW defines a licensee to mean any bank, savings
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association, credit union, transmitter of money abroad, issuer of
payment instruments, issuer of traveler's checks, insurance
premium finance agency, and business and industrial development
corporation that is authorized by the commissioner to conduct
business in this state.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, implementation of this bill would result in minor and
absorbable costs to the Department of Financial Institutions.
According to the Senate Appropriations Committee, pursuant to
Senate Rule 28.8, negligible state costs.
COMMENTS : This bill directs the CFI to ensure licensees have
established appropriate policies and are undertaking practices
that prevent the maintenance and opening of correspondent accounts
and payable-through accounts with foreign financial institutions
that illegally assist Iranian institutions. As increasingly
sophisticated techniques are used by Iran to subvert economic
sanctions, this bill would use the existing licensee examination
process to address this matter of international concern.
In making the case for higher scrutiny, the author states that
subversion of U.S. financial sanctions by Iran is a recognizable
threat to national and international security. This analysis
provides a brief summary on the scope of economic sanctions
imposed on Iran and their enforcement procedures, and details on
techniques used by foreign financial institutions to subvert
financial sanctions. Additional background was provided in the
policy analyses for the Assembly Jobs, Economic Development, and
the Economy Committee and the Assembly Banking and Finance
Committee.
Background: In June of 2010, the United Nations Security Council
adopted Resolution 1929 (U.N. SCR 1929), the fourth in a series of
resolutions imposing sanctions on Iran for nuclear activities.
Among its measures, U.N. SCR 1929 calls on nations to prevent any
financial service and to freeze any asset that could contribute to
Iran's nuclear activities. More specifically, nations are called
upon to prohibit new banking relationships with Iran, including
correspondent banking relationships, if there is a suspected link
to proliferation. Since the adoption and implementation of the
recommendations in U.N. SCR 1929 by the European Union, U.S.,
Canada, Japan, South Korea, and others, Iran's access to the
international financial system has been significantly limited.
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One month following the approval of U.N. SCR 1929, President
Barack Obama signed the Iran Sanctions Act (July 2010), which
further strengthened U.S. sanctions against Iran by specifically
targeting its energy and financial industries. The Iran Sanctions
Act is applicable to all banks that operate within the U.S.,
including foreign financial institutions that operate branches
within the U.S. The Iran Sanctions Act also applies to money
service businesses, trust companies, insurance companies,
securities brokers and dealers, commodities exchanges, clearing
corporations, investment companies, employee benefit plans, and
U.S. holding companies, U.S. affiliates, or U.S. subsidiaries of
any of these entities.
Under the Iran Sanctions Act, imports of goods and services of
Iranian origin into the U.S. (either directly or through a third
country) are generally prohibited, with limited exceptions for
personal items. Exports from the U.S. of goods, technologies, or
services (either directly or indirectly) to Iran are also
generally prohibited, unless licensed by the Office of Foreign
Assets Control (OFAC). Exceptions are made for articles intended
to relieve human suffering, such as clothing, food, and medical
supplies. U.S. persons are also prohibited from facilitating any
transactions with the intent of subverting the Iran Sanctions Act.
Financial transactions between U.S. and Iranian financial
institutions are also generally prohibited. In some cases, fund
transfers through third-country banks are permitted for several
types of underlying instances, including: noncommercial family
remittances, travel-related remittances, and transactions
authorized by OFAC. U.S. persons are prohibited from engaging in
any transactions with banks OFAC has identified for their
involvement in the financing of either weapons of mass destruction
or terrorism.
While targeted and coordinated efforts among nations have severely
limited legal access to the international financial system,
Iranian financial institutions continue to gain illegal access to
U.S. financial institutions. OFAC has identified several evasive
practices including the use of third-country exchange houses and
trading companies, the use of correspondent accounts, and
payable-through accounts.
Any foreign financial institution found to be in non-compliance
with the Iran Sanctions Act is added to the OFAC Foreign Financial
Institutions Subject to Part 561, which severely prohibits their
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ability to engage in financial transactions with U.S. financial
institutions. Federal law also prescribes domestic penalties for
any person that violates, attempts to violate, conspires to
violate, or causes a violation of the Iran Sanctions Act may be
subject to both civil and criminal penalties.
1)Civil Penalty: A civil penalty may be imposed that is not to
exceed the greater of $250,000 or an amount that is twice the
amount of the transaction that is the basis of the violation.
2)Criminal Penalty: A person that willfully commits, willfully
attempts to commit, or willfully conspires to commit, or aids or
abets in the commission of a violation shall, upon conviction,
be fined no more than $1 million, or if a natural person, may be
imprisoned for not more than 20 years, or both.
In addition to fines and actions under the Iran Sanctions Act, the
Assembly Banking and Finance Committee's analysis provided
information on how the U.S. Department of the Treasury applied
more general laws to inhibit Iran's access to U.S. financial
markets. In December 2009, the U.S. Department of the Treasury
announced that Credit Suisse would pay a $536 million settlement
for illicitly processing Iranian transactions with U.S. banks.
And, in June 2012, Dutch bank ING agreed to pay a $619 million
penalty for moving billions of dollars through the U.S. financial
system, using falsified records, on behalf of Iranian and Cuban
clients.
Individual states have also been active. In August 2012, Standard
Chartered agreed to pay a $340 million settlement with New York
State regulators for allegedly processing transactions with Iran
in contravention of U.S. regulations. The settlement was the
largest fine ever collected by a single U.S. regulator in a
money-laundering case. The bank is alleged to have concealed over
60,000 transactions between 2001 and 2007 totaling more than $250
billion for Iranian clients. For example, Standard Chartered was
accused of failing to maintain accurate books and records,
obstructing the regulatory investigation, failing to report crimes
and misconduct, falsifying books and reports, filing false
instruments, falsifying business records, and engaging in
unauthorized Iranian transactions in violation of federal law. In
June 2013, New York State regulators reached a $250 million
settlement with Tokyo-Mitsubishi UFJ to pay $250 million in fines
to the state for violating state banking laws involving illegal
transactions with Iran and other sanctioned regimes including
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Sudan and Myanmar.
California law authorizes penalties for licensees including up to
$1,000 a day, provided that the aggregate penalty of all offenses
in any one action against any licensee or subsidiary of a licensee
shall not exceed $50,000. Higher penalties may be applied if a
licensee or subsidiary of the licensee that has been found to have
recklessly ($5,000 per day not to exceed $75,000) or knowingly
($10,000 per day not to exceed the value of 1% of total licensee
assets) violated a law, order, condition, or written agreement, as
specified. State law also authorizes the CFI to pursue other
administrative actions, as well as court actions in order to
enforce specified laws.
Analysis Prepared by : Toni Symonds and Zachary Hutsell / J.,
E.D. & E. / (916) 319-2090
FN: 0001248