The U.S. Commodity Futures Trading Commission (CFTC) has just announced the filing and simultaneous settlement of charges against Zulutrade, Inc., a registered Introducing Broker with the American regulator, for failure to diligently supervise activities relating to its business as a CFTC registrant.
Specifically, the CFTC found that for at least a three-year period from October 2010 to October 2013, Zulutrade failed to follow the regulatory procedures for screening of account holders from the U.S. Department of the Treasury’s Office of Foreign Assets Control’s (OFAC) targeted countries.
The CFTC requires Zulutrade to pay a $150,000 civil monetary penalty and disgorge $80,000 in commissions and fees it earned from accounts relating to the supervisory failure.
OFAC enforces economic and trade sanctions against targeted foreign countries based on US foreign policy and national security goals. US persons and entities are generally prohibited from doing business with persons and entities from OFAC targeted countries.
During the relevant period, Zulutrade had a procedure to screen for potential account holders from OFAC targeted countries. That procedure provided that Zulutrade could delegate implementation of OFAC screening to third party service providers or agents provided Zulutrade had a written agreement with the service provider outlining the third party’s responsibilities, and that Zulutrade would actively monitor the delegation to assure that the procedures are being conducted in an effective manner.
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However, the CFTC found that Zulutrade failed to ensure that it had written agreements with all such entities. Consequently, Zulutrade opened approximately 400 accounts for account holders from OFAC targeted countries (primarily Iran, Sudan, and Syria). All of the accounts opened for account holders from targeted countries were from service providers with which Zulutrade did not have written agreements.
Additionally, OFAC has just announced that Zulutrade has agreed to pay $200,000 to settle potential civil liability for apparent violations of; the Iranian Transactions and Sanctions Regulations, the Sudanese Sanctions Regulations and Executive Order “Blocking Property of the Government of Syria and Prohibiting Certain Transactions With Respect to Syria.”
OFAC determined that Zulutrade did not voluntarily self-disclose the apparent violations, and that the apparent violations constitute a non-egregious case. The base penalty for the apparent violations was $844,090,000.
OFAC has stated that it considers the following to be aggravating factors: Zulutrade acted recklessly in maintaining accounts for, and placing FX trades on behalf of, persons subject to US sanctions without undertaking any measures to comply with OFAC regulations; Zulutrade, including its senior management, had reason to know of the conduct that led to the apparent violations; Zulutrade’s actions caused harm to US sanctions program objectives; and Zulutrade did not have an OFAC compliance program in place at the time of the apparent violations.
OFAC has stated that it considers the following to be mitigating factors: Zulutrade is a small company with limited business operations; Zulutrade has taken remedial action in response to the apparent violations; Zulutrade has not received a penalty notice or Finding of Violation in the five years preceding the earliest date of the transactions giving rise to the apparent violations; and Zulutrade substantially cooperated with OFAC’s investigation.