Wells Fargo fined $97 million for ‘reckless disregard’ of U.S. sanction rules

Wells Fargo will pay more than $97 million in fines for allowing transactions prohibited under U.S. sanction laws, the Federal Reserve and Treasury Department announced Thursday.

Wells Fargo and its predecessor, the Charlotte-based Wachovia Bank, violated national sanctions against Iran, Syria and Sudan when it designed a program to help a European bank process $532 million in prohibited transactions from 2008 to 2015, according to the Treasury Department. That resulted in a $30 million fine.

The Federal Reserve also fined Wells Fargo $67.8 million for “unsafe or unsound practices relating to historical inadequate oversight of sanctions compliance risks.”

Wells Fargo is “pleased to resolve this legacy matter,” which ended in 2015 after the bank voluntarily self-reported and fully cooperated with Office of Foreign Assets Control and the Federal Reserve Board, spokesperson Josh Dunn shared in a statement Friday.

How did Wells Fargo violate U.S. sanctions?

Mid-level management at Wachovia, which Wells Fargo bought in 2008, provided the European bank — unnamed in government documents — with a customized version of a trade finance software, according to the Treasury Department. The technology allowed the bank to process sanctioned jurisdictions and persons in-house.

The government uses financial sanctions by blocking assets and trade restrictions to accomplish foreign policy and national security, according to the Treasury Department.

To shield Wachovia staff from being directly involved with any such transactions, its system returned 124 non-compliant transactions to be processed abroad using the customized software it provided in 2008, according to the department’s news release.

While this process ensured the transactions were not processed directly through Wachovia or Wells Fargo, an investigation determined the modified software still relied on the bank’s technology infrastructure in Hong Kong and North Carolina, according to the Treasury Department.

The arrangement continued for seven years after Wells Fargo acquired Wachovia in 2008, despite some staff members raising concerns about the potential sanction violations.

In 2015, senior Wells Fargo management halted the practice and reported the issue.

The Office of Foreign Assets Control determined the violations were egregious, demonstrating “reckless disregard for U.S. sanctions requirements,” and Wells Fargo “failed to exercise a minimal degree of caution or care” when it failed to identify or prevent the transactions for seven years.

But it also found no indication that Wachovia’s senior management knew of the practice and acknowledged that Wells Fargo otherwise had a strong sanctions compliance program during the seven years the violation continued.

The transactions’ relation to agriculture, medicine and telecommunications, also mitigated harm to U.S. sanctions’ policy objectives, OFAC concluded.

Recent turbulence with Wells Fargo

While based in San Francisco, Wells Fargo has its largest employment hub in Charlotte and is one of the region’s largest employers with about 27,000 workers.

It also is the nation’s fourth largest bank by assets, at $1.7 trillion. The Federal Reserve capped the bank’s assets and ability to grow in the aftermath of the 2016 fake accounts scandal, when news broke that employees had created millions of fake accounts for customers — without their knowledge — in order to meet aggressive sales goals.

In 2018, the Office of the Comptroller of the Currency fined Wells Fargo $250 million by for “unsafe or unsound practices” related to the bank’s home lending business.

Last year, the Consumer Financial Protection Bureau found that the bank caused customers to lose their vehicles or homes when it improperly denied mortgage modifications, incorrectly applied car loan payments and charged surprise overdraft fees. The bureau charged the bank $3.7 billion in fines and restitution. The fine — the largest penalty in the agency’s history — led to a 50% drop in fourth quarter profits.

Wells Fargo CEO Charlie Scharf has maintained that the bank’s issues, which stem from the 2016 scandal, are being resolved.

“While our risk and regulatory work hasn’t always followed a straight line and we have more to do, we have made significant progress, and are moving forward,” he said in a statement on the bank’s fourth quarter earnings release.

Most recently, a nationwide computer glitch left irate customers with incorrect — and sometimes negative — balances and missing transactions earlier this month.