US Fines Bank $3.6 Billion For Breaching Zimbabwe Sanctions

Zimbabwe's biggest bank by asset base, CBZ Bank, has been slapped with a staggering $3,8 billion fine by the United States Treasury's Office of Foreign Assets Control (Ofac) for thousands of financial transactions done on behalf of ZB Bank then under economic sanctions imposed by the world's largest economy, the Zimbabwe Independent reported.

However, after mitigation and negotiations in recent months, the penalty has been reduced to $385 million. The amount could still be further reduced as difficult negotiations are still ongoing.

In a pre-penalty notice to CBZ through its American lawyers Ferrari Law Partners, Ofac said CBZ - which has been issuing cautionary statements of late over this issue - had perpetrated 15 127 violations of US sanctions on Zimbabwe.

"Accordingly, the base penalty for the apparent violations equals the applicable schedule amount for each apparent violation, capped at $250 000 per apparent violation, which in this case totals $3 856 505 460," Ofac deputy director Andrea Gacki wrote in March. The case has been ongoing since then.
US Fines Bank $3.6 Billion For Breaching Zimbabwe Sanctions
Ofac said it had arrived at the figure after CBZ failed to make voluntary self-disclosure of the violations.

After some CBZ mitigation, Ofac reduced the amount to $385 million.

"Ofac has determined that these factors taken together support a reduction of 90% ($385 650 546) from the base penalty amount," the Ofac letter says.

The case is likely to send shockwaves across the financial services sector amid fears of a massive negative impact on the bank which could trigger a run on deposits and systemic risk.

Already, the sensational case has claimed the scalp of CBZ group chief executive Never Nyemudzo who was forced out this week. Although he has said he voluntarily decided to take a rest, the Ofac case was the root cause of the problem. not insider loans, shareholder displeasure or alleged fraudulent activities.

While there were many attendant opportunistic issues, the Ofac issue, which on some transactions preceded his tenure. was the main cause of his departure this week. Nyemudzo accepted a huge exit package last week before an announcement of his departure this week.

Nyemudzo's case is different from that of former CBZ chairman Elliot Mugamu who was forced out following pressure from National Social Security Authority (Nssa) over corporate governance, dividend and remuneration packages issues for executives, as reported in March.

CBZ is the largest bank in the country by deposits and assets. According to an internal presentation made during the release of the group's half-year results in August. CBZ, which processed $14 billion in transactions in the first six months of the year, accounted for 35% of the value of national transactions. The bank, which boasts of 408 000 active accounts. has assets worth USS2,2 billion. representing 14% of the gross domestic product.

Outside the central bank, CBZ is government's main banker with most state-owned enterprises and the bulk of civil servants transacting through the institution.

CBZ offers a wide range of financial services solutions to personal and corporate customers, including current accounts, term deposits. corporate banking, investment banking, treasury services and trade finance.

CBZ majority shareholders as at March 2017 included CBZ Holdings Limited 24.59%. Government of Zimbabwe 16,01%, Libyan Foreign Bank 14,06% and Nssa 11,71%.

The US Treasury said pursuant to guidelines, the fine could either be increased or reduced. Efforts to get a comment from Ferrari were unsuccessful as he was said to be out of office.

CBZ, according to the Ofac letter, took remedial action by closing the internal account used to conduct transactions on behalf of ZB customers. Ofac also considered other mitigating factors as the bank has no prior sanctions history, including receipt of penalty notice or finding of violation in the five years preceding the date of the earliest transaction giving rise to the apparent violations.

It is also understood the bank's lawyers will further explain that most of the transactions in question between ZB and CBZ were "in-country", arguing these may not be subjected to Ofac compliance requirements. The lawyers will also argue the transactions were not carried out by persons or entities facing sanctions.

Source - Zimind

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