Clearstream Weighs Up Settlement Offer In Relation to U.S. Fine Threat

The boards of Clearstream and Deutsche Börse are considering whether to accept a settlement offer from the U.S. Treasury in relation to suspected violations of U.S. sanctions on Iran.

The U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) had looked into certain securities transfers within the Clearstream settlement system in 2008 undertaken to close Iranian customers’ accounts and the maintenance of an omnibus account in the U.S. during the same period. In 2007, Clearstream decided to terminate its relations with Iranian entities. This led customers to initiate certain transactions in February 2008. OFAC ultimately commenced an investigation regarding whether these transactions violated the U.S. Iranian Transactions Regulations.

As Clearstream disclosed in January 2013, OFAC’s preliminary view was that Clearstream had violated US sanctions on Iran in connection with certain securities transfers and included an indicative penalty of approximately $340 million.

OFAC informed Clearstream on Monday this week if it were to issue a formal pre-penalty notice at this time such notice would include a penalty of $168.8 million.

Clearstream now has the option to settle the matter with OFAC before the issuance of a pre-penalty notice, in which case a 10% discount would apply, for a total settlement payment of $151.9 million.

The boards within Deutsche Börse Group are analyzing the information received and will make a decision, expected in the next week, on whether to settle with OFAC in the next week. The Group has included a provision of €112.5 million in the third quarter and additionally booked an amount of €6.3 million for expenditures like legal costs in connection with the investigation of OFAC in the first three quarters 2013.

A statement from Clearstream says: “At this time, since our discussions with OFAC are ongoing, it would not be appropriate to comment further regarding OFAC’s determination.”

Clearstream added that if the executive boards of both Clearstream and Deutsche Borse decide to accept OFAC’s settlement offer, the settlement with OFAC would not constitute a finding of a violation. “Nor does OFAC’s settlement offer itself constitute a finding of a violation,” it adds.

The group added that the first half of 2013 Deutsche Börse Group generated an adjusted net income of EUR 348.1 million, so the potential settlement amount is covered by the on-going cash generation.

Analysts indicate that Clearstream and Deutsche Borse are likely to accept the offer given the tax effect. Peter Lenardos of RBC says: “By accepting the offer, Deutsche Börse can receive both a 10% discount and the settlement offer is deductible at Deutsche Börse’s corporate tax rate (around 26%). If Deutsche Börse does not accept the offer, no discount is applied and no tax deduction is received. The settlement offer, with discount, represents a 55% discount to the original amount, and including the tax shield at 26%, represents a discount of 67% to the original amount.”