QUICK FACTS
Overview
Interactive Brokers LLC (IB) agreed to pay $11,832,136 to settle with the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) for 12,367 violations of various sanctions programs between July 15, 2016 and January 31, 2024.
The violations involved providing brokerage and investment services to customers in sanctioned jurisdictions such as Iran, Cuba, Syria, and Crimea; processing trades in securities subject to Chinese Military-Industrial Complex sanctions; conducting transactions with blocked persons under Russia, Global Magnitsky, Venezuela, and Syria programs; and engaging in new investment in the Russian Federation.
OFAC deemed the violations non-egregious and voluntarily self-disclosed, with the settlement reflecting remedial measures and cooperation by Interactive Brokers.
Details of the CASE
IB engaged in apparent violations across multiple OFAC sanctions programs due to deficiencies in its compliance controls, such as IP geo-blocking, sanctions screening, and system audits. IB's platform enabled trade execution, clearance, settlement, margin lending, fund transfers, and other services, often on a global scale. In 2018, IB initiated a self-review that uncovered these issues, leading to voluntary disclosure to OFAC.
Key categories of violations included exporting services to over 200 accountholders in Iran, Cuba, Syria, and Crimea, resulting in nearly 12,000 transactions. These were identified via IP address data despite customers' reported residences in non-sanctioned areas. Deficiencies like a technical bug in IP blocking and incomplete coverage of Crimea allowed access.
IB responded by restructuring its sanctions program from 2019 to 2024, enhancing screening, IP blocking, risk assessments, and audits, while cooperating extensively with OFAC's investigation.
WORKED EXAMPLES
- Fund Transfers to Blocked Russian Banks: From February 25, 2022, to October 10, 2022, IB processed 259 transfers to banks blocked under E.O. 14024, believing wind-down licenses applied.
- Chinese Military-Industrial Complex Securities: From July 4, 2022, to January 31, 2024, IB executed 29 automatic margin liquidation sales for U.S. persons in securities of 13 prohibited entities, as the system lacked sanctions checks.
- New Investment in Russia: Between April 1, 2023, and December 30, 2023, two Russian accounts initiated 66 margin loans due to a technical glitch restoring permissions, violating E.O. 14071.
- Global Magnitsky Securities Trades: Between August 5, 2020, and November 30, 2021, IB processed 8 trades worth about $28,000 in securities of Xinjiang Tianye Water Saving Irrigation System Co Ltd., 50% owned by a sanctioned entity, due to delayed ownership data.
- Venezuela Blocked Person Transactions: Between September 25, 2018, and June 26, 2019, IB handled 13 transactions (3 withdrawals totalling $16,466 and 10 forex trades totalling $119,366) for a blocked individual, after incorrectly dismissing a screening alert.
- Syria Blocked Person Transfers: On June 18 and 25, 2019, IB processed two transfers totalling $39,000 for a blocked person, due to delayed alert review from resource constraints.
fines and Penalties
The total settlement amount is $11,832,136. This reflects OFAC's base penalty calculation of $60,130,059 (one-half of the transaction values), adjusted for mitigating factors such as self-disclosure, cooperation, and remediation.
Key quotes
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"The settlement amount reflects OFAC's determination that the apparent violations were non-egregious and voluntarily self-disclosed. The settlement amount further reflects the significant remedial measures IB implemented upon discovery of the apparent violations and the substantial cooperation IB provided over the course of an extensive, multi-year OFAC investigation." (From the OFAC Enforcement Release)
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"Broker-dealers utilising real-time, automated systems to manage large volumes of transactional activity should consider appropriate investments to ensure the modernisation of their sanctions compliance programs alongside the innovation and development of their customer-facing platform technologies that interact with the U.S. financial system." (From the OFAC Enforcement Release, under Compliance Considerations)]
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"This enforcement action underscores the importance of obtaining and using all available information to verify a customer's location or ordinary residency, including by using IP address and geolocation data for sanctions compliance purposes." (From the OFAC Enforcement Release, under Compliance Considerations)
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