The U.S. has imposed strong economic sanctions against Iran since the 1980s. Most relevant in this case, President Clinton on August 19, 1997 signed executive orders confirming that virtually all trade and investment activities with Iran by U.S. persons, wherever located, are prohibited. Accordingly, U.S. persons, including foreign branches of U.S. depository institutions and trading companies, are prohibited from engaging in any transaction, including: purchase, sale, transportation, swap, financing or brokering related to goods or services of Iranian origin or goods or services owned and control by the Government of Iran. New investments by U.S. persons, including commitment of funds or other assets, loans, or any other extensions of credit in Iran or in property, including entities owned and controlled by the Government of Iran are also prohibited. The U.S. Department of the Treasury, through its Office of Foreign Assets Control, administers the sanctions program under the Iranian Transaction Regulations and the Iranian Assets Control Regulations. According to the U.S. Treasury Department, these prohibitions are designed to prevent the financing of international terrorism, development of nuclear weapons, and interference with sea traffic in the Strait of Hormuz.
Over the years, Iran has increasingly traded gold by buying, selling, lending, and bartering because financial sanctions have prevented the country from using traditional bank payment methods in trading with other countries and companies within such countries. The gold trade has therefore been essential in Iran’s ability to withstand and circumvent the increasingly restrictive U.S. sanctions. Its gold reserves allegedly exceed $100 billion.
Since at least 2002, CBK allegedly engaged in unlawful gold transactions with and on behalf of the Central Bank of Iran. It was also allegedly the largest counterparty to the Central Bank of Iran’s gold trading. CBK is one of the top three global gold bullion traders and markets itself as a “leading trader of physical gold.” It conducts its precious metals trading through its Luxembourg branch but because it facilitates trading on a 24-hour basis, it also operates through its branches in Singapore and New York. Orders were allegedly passed through the New York branch, leading to unlawful trading with Iran through that branch. CBK is allegedly the only international bank to use Luxembourg as its central location for precious metals trading. The other banks use London. CBK traders allegedly said that it was to keep government eyes off of their trading with Iran. CBK allegedly engaged in the illegal trading in a variety of ways. Some of the transactions were disguised by the use of dummy entities, some had the effect of subsidizing CBK’s overall precious metals operation, and some transactions allegedly provided hedging through trades in gold futures contracts on the U.S. Commodities Exchange and transactions in U.S. securities on the New York Stock Exchange. The relator, a former employee of CBZ, is also alleging that CBZ pressured him to involve his American clients by disguising the origin of the illegal trades.
The complaint was unsealed after the government declined to intervene in the case. But just last week, CBZ agreed to enter into a deferred prosecution agreement and to pay a $563 million forfeiture and $79 million fine to the federal government for the processing of transactions for Iranian and Sudanese entities. The New York State Department of Financial Services simultaneously announced that CBZ has agreed to pay a monetary penalty of $610 million. CBZ stripped out information that would have normally triggered anti-money laundering and Bank Secrecy Act monitoring software related to the transactions. The transactions occurred between 2002 and 2008 and were valued at more than $253 billion.