207. What were the criteria for this finding? How many other institutions were you looking at and why did you decide to take action against Bank of Kunlun?
Based on information made available to the Treasury Department, the Department has found that China’s Bank of Kunlun has knowingly facilitated significant transactions for various Iranian-linked banks designated by the United States under our WMD or terrorism authorities.
Upon finding that Bank of Kunlun was knowingly engaged in these activities that are sanctionable under the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA), the Secretary of the Treasury has prohibited U.S. banks from opening or maintaining correspondent accounts or payable-through accounts in the United States for Bank of Kunlun – effectively cutting off Bank of Kunlun’s direct access to the U.S. financial system.
Since CISADA was signed into law in July 2010, Treasury has engaged with over 120 financial institutions and bank regulators in more than 60 countries all over the world to brief them on the financial provisions of CISADA, and, in cases where we had specific concerns, has shared information about those concerns.
This global engagement campaign has proven highly successful, as we have seen the overwhelming majority of financial institutions with which we have engaged change their business practices – even close any correspondent accounts with U.S. designated Iranian banks – to ensure that their access to the U.S. financial system is not put at risk.
The July 31, 2012 action against Bank of Kunlun was in response to its ongoing relationships with U.S.-designated Iranian banks.
Note: The Treasury Department had also made a CISADA finding against Iraq’s Elaf Islamic Bank on July 31, 2012. On May 17, 2013, Elaf Islamic Bank was delisted and its name was removed from the Part 561 List. [05-17-2013]
Through 12/2020, the Bank of Kunlun and Elaf Bank cases, announced on the same day, are the only two banks that OFAC has ever secondarily sanctioned pursuant to CAPTA sanctions. The sanction on Elaf was removed soon after its imposition, and the Kunlun sanction remains in force as of 12/2020. The CAPTA sanction is “[US] financial institutions are prohibited from opening or maintaining a correspondent account or a payable-through account,” but for Kunlun, the bank never actually had a correspondent account with any U.S. bank to begin with. (The director of OFAC at the time of the enforcement action (Szubin) later called Kunlun “a tiny regional bank that had next to no dealings with the U.S. markets and the U.S. dollar”). (Transcript of May 10, 2017 S. Hrg. 115-50; avail. At https://www.govinfo.gov/content/pkg/CHRG-115shrg26242/html/CHRG-115shrg26242.htm).
Note however that other actions against non-U.S. banks that are sometimes described as "sanctions" have been taken pursuant to Section 312 of the USA Patriot Act by FinCen, in lieu of CAPTA sanctions imposed by OFAC [1]. The Bank of Dandong case, for example, was a Chinese bank found to have acted as a conduit for illicit North Korean financial activity. This is activity that, but for the PATRIOT ACT, would almost certainly have resulted in the imposition of secondary sanctions by OFAC under the North Korean section of the CAATS Act [2], or otherwise full blocking. OFAC has a practice of blocking banks outright for activity that might otherwise be treated by less-harsh CAPTA sanctions. Refer to General Note on Provisions Containing Secondary/"CAPTA" Sanctions Applicable to Foreign Financial Institutions (System Ed. Note)
[1] https://www.fincen.gov/news/news-releases/fincen-further-restricts-north-koreas-access-us-financial-system-and-warns-us
[2] https://www.treasury.gov/press-center/press-releases/Pages/tg1661.aspx