Standard Chartered bank illegally "schemed" with Iran to launder as much as $250bn (£161bn) for nearly a decade, a US regulator says

Standard Chartered bank illegally "schemed" with Iran to launder as much as $250bn (£161bn) for nearly a decade, a US regulator says


The New York State Department of Financial Services said that the bank hid 60,000 secret transactions for "Iranian financial institutions" that were subject to US economic sanctions.

It labelled UK-based Standard Chartered a "rogue institution".

The bank has been threatened with having its US banking licence revoked.

The allegations are far larger than those involving HSBC, which was recently accused by the US Senate of failing to prevent money laundering from countries around the world including Mexico and Iran. It has set aside $700m to deal with any fines and penalties arising from those allegations.

The bank is ordered to appear before the regulator soon to "explain these apparent violations of law" from 2001 to 2010.

The regulator also said that it would hold a formal hearing over the "assessment of monetary penalties".

Other schemes found

The regulator also said it had uncovered evidence with respect to what are apparently similar schemes to conduct business with other countries under sanctions - Libya, Burma and Sudan.

"Investigation of these additional matters is ongoing," it added.

The regulator said that its nine-month probe, which involved looking through more than 30,000 pages of documents, including internal Standard Chartered Bank (SCB) emails, showed that the bank reaped "hundreds of millions of dollars in fees".

"SCB's actions left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity," it said.

'Staggering cover-up'

The bank was also accused of falsifying SWIFT wire payment directions by stripping the message of unwanted data that showed the clients were Iranian, replacing it with false entries.

Senior management were also said to have codified their illegal procedures in formal operating manuals, including one labelled "Quality Operating Procedure Iranian Bank Processing".

"It provided step-by-step wire stripping instructions for any payment messages containing information that would identify Iranian clients," the complaint said.

In numerous emails going back as far as 1995, the bank's lawyers advised on ways to go about circumventing US sanctions.

In March 2001, Standard Chartered's legal advisor counselled that "our payment instructions [for Iranian clients] should not identify the client or the purpose of the payment".

By 2006, there were concerns raised about the bank's conduct in its New York branch.

The chief executive for the Americas sent an email to London saying the programme needs to "evaluate if its returns and strategic benefits are... still commensurate with the potential to cause very serious or even catastrophic reputational damage to the group".

But those warnings were ignored by senior management in London in what the regulator called a "staggering cover-up".

'Obvious contempt'

Iran has been subject to US economic sanctions since 1979, and the laws were toughened by Executive Orders signed by President Bill Clinton in 1995 over US dollar transactions with Iran.

The US-dollar transactions in question originated and terminated in European banks in the UK and the Middle East, and were cleared through its New York branch, the complaint said.

Among the violations of the law, the bank is accused of:

falsifying business records
failing to maintain accurate books and records
failing to report misconduct to the regulator in a timely manner
evading Federal sanctions
In the 27-page complaint, the New York State Department of Financial Services said that Standard Chartered showed "obvious contempt for US banking regulations" and pointed to an email reply from a bank executive director to a New York branch officer.

"Who are you [Americans] to tell us, the rest of the world, that we're not going to deal with Iranians," the complaint quotes the director as saying.

Standard Chartered said: "The group is conducting a review of its historical US sanctions compliance and is discussing that review with US enforcement agencies and regulators.

"The group cannot predict when this review and these discussions will be completed or what the outcome will be."

MORE:

Standard Chartered may lose NY license over Iran ties


By Jonathan Stempel and Carrick Mollenkamp | Reuters – 56 mins



NEW YORK (Reuters) - In a rare move, New York's top bank regulator threatened to strip the state banking license of Standard Chartered Plc, saying it was a "rogue institution" that hid $250 billion in transactions tied to Iran, in violation of U.S. law.

The New York State Department of Financial Services (DFS) on Monday said the British bank "schemed" with the Iranian government and hid from law-enforcement officials some 60,000 secret transactions to generate hundreds of millions of dollars in fees over nearly 10 years.

At the same time, it exposed the U.S. banking system to terrorists, drug traffickers and corrupt states, the department said.

The loss of a New York banking license would be a devastating blow for a foreign bank, effectively cutting off direct access to the U.S. bank market. Standard Chartered processes $190 billion every day for global clients, the New York bank regulator said.

In an unusual look inside a bank, the regulator described how Standard Chartered officials debated whether to continue Iranian dealings. In October 2006, the top official for business in the Americas, whom the regulator did not name, warned in a "panicked message" that the Iranian dealings could cause "catastrophic reputational damage" and "serious criminal liability."

A top executive in London shot back: "You f---ing Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians." The reply showed "obvious contempt for U.S. banking regulations," the regulator said.

Standard Chartered is the third British bank to be ensnared in U.S. law-enforcement probes this summer. Barclays Plc agreed to pay $453 million to settle U.S. and UK probes that it rigged a global benchmark in June. A month later, a U.S. Senate panel issued a scathing report that criticized HSBC Holding Plc's efforts to police suspect transactions, including Mexican drug traffickers.

In a statement Standard Chartered said the bank "does not believe the order issued by the DFS presents a full and accurate picture of the facts."

The bank said it shared with U.S. agencies an analysis that demonstrated it "acted to comply, and overwhelmingly did comply" with U.S. regulations. Standard Chartered put the total value of Iran-related transactions that did not follow regulations at under $14 million.

"The group was therefore surprised to receive the order from the DFS, given that discussions with the agencies were ongoing," Standard Chartered said. "We intend to discuss these matters with the DFS and to contest their position."

DFS declined further comment.

The Iranian Embassy in Washington was not immediately available to comment. The Treasury Office of Foreign Assets Control, which enforces U.S. economic and trade sanctions against targeted countries, declined to comment.

Standard Chartered, a financier in emerging markets, is the sixth foreign bank since 2008 to be implicated in dealings with sanctioned countries such as Iran in investigations led by federal and New York law-enforcement officials.

Four banks -- Barclays Plc, Lloyds Banking Group, Credit Suisse Group and ING Bank NV -- have agreed to fines and settlements totaling $1.8 billion. HSBC Holdings Plc currently is under investigation by U.S. law enforcement, according to bank regulatory filings.

The New York regulator, headed by former prosecutor Benjamin Lawsky, ordered Standard Chartered to explain why the bank should not lose its state license and the ability to process dollar transactions. Lawsky also ordered the bank to bring in an outside consultant to monitor its transactions.

"Standard Chartered Bank operated as a rogue institution," Lawsky said in the order.

In an unusual move, the regulator also found fault with an outside consultant -- Deloitte LLP -- because the firm "apparently aided" the bank in its deception.

A report by Deloitte had "intentionally omitted critical information" when submitted to regulators, it said. A Deloitte spokesman did not immediately respond to requests for comment.

Deloitte was hired to conduct a review after Standard Chartered in 2004 was ordered by New York and federal regulators to correct anti-money laundering lapses. The review, known as a "look back," was supposed to identify suspicious transactions between 2002 and 2004. But at one point, Standard Chartered asked Deloitte to "delete" references to certain improper Iranian transactions, according to the New York order.

In a subsequent email, a Deloitte partner said the firm had "agreed" to the request because it was "too politically sensitive for both (Standard Chartered) and Deloitte. That is why I drafted the watered-down version."

In 2007, that report enabled Standard Chartered to show regulators in had corrected flaws in its anti-money laundering systems.

In a statement on Monday, Deloitte said its financial advisory service division "performed its role as independent consultant properly and had no knowledge of any alleged misconduct by bank employees. Allegations otherwise are unsupported by the facts."

Lawsky's investigation is extraordinary because probes into how banks carried out transactions tied to Iran primarily have been led by the district attorney's office in Manhattan and the U.S. Justice Department.

His probe is another sign that the regulator intends to join the New York attorney general and Manhattan district attorney in being a top financial watchdog. The DFS was created in October 2011, effectively assuming oversight of two former banking and insurance regulatory agencies that were abolished.

Probes by the Manhattan district attorney and U.S. Justice Department date to 2006 and have targeted some nine banks. Britain's Barclays agreed to pay $298 million in 2010 after admitting it processed payments for clients tied to Cuba, Sudan and other countries. Lloyds and Credit Suisse agreed to pay settlements of $350 million and $536 million.

In June, ING agreed to pay $619 million to settle allegations that it, too, violated U.S. sanctions against Cuba, Iran and other countries. It was the biggest fine levied against a bank for sanctions violations.

The Justice Department, working with the FBI in New York, is also investigating Standard Chartered's activities for violations of U.S. sanctions.

Standard Chartered, founded in 1853, is headquartered in London, but it specializes in financing in Asia, Africa and the Middle East.

Lawsky said Standard Chartered moved money through its New York branch on behalf of Iranian financial clients, including the Central Bank of Iran and state-owned Bank Saderat and Bank Melli, that were subject to U.S. sanctions.

Monday's order alleged that Standard Chartered removed codes on money transfers and altered message fields, inserting phrases such as "NO NAME GIVEN" to hide the nature of the transactions.

At the center of concern were alleged "U-Turn" transactions, involving money moved for Iranian clients among banks in Britain and the Middle East and cleared through Standard Chartered's New York branch, but which neither started nor ended in Iran.

Such transactions were permissible until November 2008, when the Treasury Department prohibited them on concerns that they were being used to evade sanctions, and that Iran was using banks to fund nuclear and missile development programs.

The New York order also alleged that even as some banks exited the U-Turn transactions, Standard Chartered hustled to "take the abandoned market share." In a December 2006 memo titled, "Project Gazelle, Report on Iranian Business," bankers discussed how to increase "wallet share" with Iranian clients.

Standard Chartered's stock fell 8 percent in the final 15 minutes of trading in London amid reports of the U.S. probe. Standard Chartered shares closed down 6.2 percent at 14.70 pounds ($22.91).

Chairman John Peace, CEO Peter Sands and Finance Director Richard Meddings could not be reached for comment, and the bank declined to comment beyond its brief statement.

(Additional reporting by Dena Aubin, Joseph Ax, Emily Flitter, Nate Raymond in New York, Aruna Viswanatha in Washington, D.C. and Steve Slater in London; Editing by Lisa Von Ahn, Alwyn Scott and Leslie Gevirtz)