Deutsche Bank, including offices or correspondents in the United States, had willingly engaged with Iranian banks that were sanctioned (and thus off limits for any transactions) under American anti-terrorism sanctions.
Deutsche Bank and its Iranian Bank beneficiaries manipulated transactions in a
manner that surreptitiously funneled money from Deutsche Bank to the sanctioned Iranian banks.
Iran was an acknowledged “State sponsor of terrorism,” and those sanctioned Iranian banks had, at times, funded terrorist militias in Iraq. Although Plaintiff obviously could not demonstrate that Deutsche Bank was directly involved in the construction of the bomb, in the delivery of the bomb from Iran to a militia in Iraq, or in the deployment of the bomb that killed Plaintiff’s son, she sued Deutsche Bank on this legal theory of conspiracy:
Deutsche Bank violated U.S. law by finding a way to transfer funds to sanctioned banks in Iran; those Iranian banks, in turn, could use those illegally obtained funds to aid the terrorist militia in Iraq, including by supplying the bomb that killed Plaintiff’s son.
As a result of Iran’s involvement in terrorism, in 1995 the United States imposed broad-ranging sanctions prohibiting almost all trade between the two countries. See Exec. Order No. 12959.
Until November 2008, however, there were exceptions to the sanctions. The one that interests us allowed Iran some access to the U.S. financial system through a regulation known as the U-Turn exemption. 31 C.F.R. § 560.516 (1995), amended 73 Fed. Reg. 66,541 (Nov. 10, 2008).
This exemption allowed Iranian entities to use a non-Iranian bank with a cor-respondent account in the United States to process transactions.
For example, an Iranian bank could keep an account with a non-U.S. bank such as Deutsche Bank.
Deutsche Bank could then use its own correspondent account with a U.S. bank to process the Iranian bank’s transaction through the United States.
The exemption was a practical necessity for Iran because much of Iran’s economy is oil-based, and the oil market is conducted in U.S. dollars.
Without access to the U.S. financial system, Iran’s ability to use its oil-based earnings would be severely restricted.
The U-Turn exemption thus gave Iran the ability to use its earnings from oil sales for legitimate, non-terroristic, purposes. Critical to the U-Turn exemption’s functioning was the transparent identification of the various counter-parties to the transactions conducted pursuant to it.
This transparency allowed U.S. banks to ensure that no transactions would benefit any sanctioned entities, thereby preventing Iran from using any of its assets to pro-mote its terrorism goals.
Deutsche Bank found a way to subvert this regulatory scheme.
By strategically removing names or otherwise hiding the existence of potentially sanctioned counterparties to U.S. dollar-clearing transactions, Deutsche Bank avoided the U-Turn exemption’s transparency requirements and thus the additional regulatory scrutiny called for by the U.S. sanctions.
For example, on some transactions Deutsche Bank employees would include notes stating;
“PLS DON’T MENTION THE NAME OF BANK SADERAT IRAN OR IRAN IN USA,” or “THE NAME BANK MELLI OR MARKAZI SHOULD NOT BE MENTIONED … IMPORTANT: NO IRANIAN NAMES TO BE MENTIONED WHEN MAKING PAYMENT TO NEW YORK” (capitalization in original).
In November 2015, the discovery of these practices led to Deutsche Bank’s agreeing to a consent order with the New York State Department of Financial Services.
This consent order required Deutsche Bank to pay a $258 million civil penalty, to agree to an independent monitor’s oversight, and to fire numerous employees.
The consent order contains an exhaustive factual description of how Deutsche Bank avoided U.S. sanctions; it is the source of many of the facts that appear in Kemper’s complaint.