If you are a bank trying to skirt Treasury Department sanctions, you might not want to be so bold as to issue a memo to employees with explicit details on how to break the law. That's exactly what Royal Bank of Scotland did that put it in hot water.

Federal and state agencies -- including the Treasury's Office of Foreign Assets Control, the Federal Reserve and the New York State Department of Financial Services  -- announced a $100 million settlement on Wednesday with RBS over apparent violations of U.S. sanctions regulations and dealings with Iran, Sudan, Burma, and Cuba.

From 2005 to 2009, it engaged in payment practices that interfered with U.S. economic sanctions by removing material references prohibited locations and individuals from payment messages sent to U.S. financial institutions. Investigations were made considerably easier by the bank's ill-fated decision to actually train employees on how to manipulate records of the illegal transactions.

With respect to Iran, for example, RBS developed written procedures to send payments that omitted information about the Iranian nexus in cover payments sent to U.S. financial institutions. Those procedures instructed employees to list the actual name of the Iranian financial institution rather than the Bank Identifier Code in the beneficiary bank field of the payment instructions.  Doing so prevented the RBS payment system from automatically including references to the Iranian bank or Iran in related cover messages and resulted in the omission of that data from instructions sent to U.S. clearing banks. 

While the instructions were developed to handle payments involving Iran, RBS identified that similar methods were used for payments involving Sudan, Burma, and Cuba as well.

Under the settlement agreement, RBS is required to put in place and maintain policies and procedures to minimize the risk of the recurrence of such conduct in the future.  RBS is also required to provide OFAC with copies of a compliance review it will conduct as part of the settlement.

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