United States: Standard Chartered Bank Accused Of Prohibited Dealings With Iran

Standard Chartered Bank (SCB), a wholly owned subsidiary of Standard Chartered plc, a British bank, faces the possible loss of its New York banking license following accusations by the New York State Department of Financial Services (NYDFS) that the bank hid 60,000 transactions involving Iran over the course of almost a decade.  The NYDFS charged on August 6 that the bank knowingly violated US law in processing the transactions, allegedly worth over $250 billion, in order to secure hundreds of millions of dollars of fees.  SCB is contesting the severity of the allegations, stating that the vast majority of its transactions were in accordance with US law and that the value of transactions it processed involving Iran which did not follow US legal requirements was $14 million.  While following in the line of a series of high profile sanctions investigations of US and non-US financial institutions, this case is unusual in that NYDFS acted alone in charging SCB while other regulators continue to consider the nature of SCB's wrongdoing.

The NYDFS accuses SCB of systematic misconduct involving wire transfers on behalf of Iranian financial institutions, including the Central Bank of Iran/Markazi, Bank Saderat and Bank Melli.  SCB allegedly sought to evade US sanctions and, in so doing, falsified business records, offered false instruments for filing, and failed to maintain accurate books and records.  From 2001 through 2007, according to the NYDFS Order, SCB stripped information from approximately 60,000 wire transfer messages used to identify sanctioned countries and replaced it with false information when routing US dollar payments for Iranian banks through SCB's New York branch.  During this time period, US banks were required by the US Office of Foreign Assets Control (OFAC) to screen dollar clearing transactions and to hold transactions involving sanctioned entities pending investigation, a requirement that would have caused unwanted delays to SCB's business.  OFAC rules in place prior to November 2008 allowed US banks to process certain transactions involving Iran (so-called "U-turn" transactions) that passed through the United States, but only if initiated outside the United States by non-Iranian foreign financial institutions and ending up with other non-Iranian foreign financial institutions.  31 C.F.R. 560.516.  (Certain designated Iranian banks, including Bank Saderat and Bank Melli were ineligible for such U-turn transactions beginning in 2007 due to their roles in providing support to terrorism and in Iran's weapons proliferation activities.)  See E.O. 13224 and 13382.  By stripping information from the wire transfer messages, NYDFS alleges, SCB's wire transfers violated the OFAC rules.

The earlier OFAC rules have been tightened substantially and currently disallow the type of U-turn transactions outlined above.  See Steptoe advisories issued previously for a discussion of some of the recent changes tightening US sanctions against Iran, particularly involving financial institutions.

Significant to the allegations are NYDFS claims that SCB officials colluded with the Iranian banks, deliberately providing the sanctioned entities with instructions as to how to evade detection under US sanctions rules.  The NYDFS states that SCB "conspired with Iranian Clients to transmit information to the New York branch by removing and otherwise misrepresenting wire transfer data that could identify Iranian parties."

The NYDFS Order highlighted a 2006 internal email exchange in which SCB's CEO for the Americas sounded the alarm about the Iran bank activity, stating that the business "needs urgent reviewing at the Group level 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," describing the possibility of "serious criminal liability."   

According to the NYDFS Order, "SCB's actions left the U.S. 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."  In addition to the allegations regarding Iranian wire transfers, the NYDFS is also investigating SCB's business with other sanctioned countries, including Libya, Myanmar and Sudan.  The NYDFS has ordered SCB to appear before the NYDFS on August 15 to demonstrate why its New York license should not be revoked and why its US dollar clearing operations should not be suspended pending a formal license revocation hearing.

The potential penalties facing SCB are significant.  SCB's primary business in the United States is the clearing of US dollars, clearing approximately $190 billion per day for international clients.   Loss of its clearing operations and the revocation of its New York operating license would severely impact SCB's US business.  In addition, like other banks accused of violating US sanctions against Iran, SCB likely faces substantial penalties from other US regulators.

While the NYDFS's public accusations regarding the bank have preceded those of other regulators, federal and New York state enforcement authorities are reportedly also investigating the bank's activities.  Standard Chartered has stated that it "had previously reported that it is conducting a review of its historical compliance and is discussing that review with US enforcement agencies," specifically referring to the NYDFS, the U.S. Justice Department (DOJ), the US Treasury Department, Office of Foreign Assets Control (OFAC), the Federal Reserve Bank of New York and the New York District Attorney.   

As a relatively new department, NYDFS may be signaling an aggressive stance against banks operating in New York.  According to its website, the NYDFS was established in October 2011 when New York combined the functions of the New York State Banking Department and the New York State Insurance Department into the new department and "aims to modernize regulatory oversight of the financial services industry."  The public accusations are likely to put pressure on other US regulators to come forward with additional charges in the near term.

The US Government has not been hesitant in the past to enforce US economic sanctions laws and regulations aggressively against foreign financial institutions.  The accusations against Standard Chartered follow a string of high profile cases involving sanctions against European banks by U.S. agencies and bank regulators for the banks' dealings with Iran:

  • In June of this year, Netherlands-based ING Bank, agreed to forfeit $619 million to settle criminal charges brought by the United States and the State of New York and civil claims raised by OFAC.  Regulators charged ING Bank with conspiring to violate US economic sanctions and with violating New York state laws by illegally moving billions of dollars through the US financial system on behalf of Cuban and Iranian entities.  The $619 million fine, split evenly between the US Government and the State of New York, was the largest ever against a financial institution in connection with an investigation into US sanctions violations and related offenses.  See related Steptoe advisory issued June 18, 2012.
  • In 2010, ABN AMRO Bank N.V., now known as the Royal Bank of Scotland (RBS) agreed to a fine of $500 million in a Department of Justice (DOJ) settlement for alleged violations of US sanctions law.  OFAC had previously settled with RBS for $40 million in 2006.
  • Similarly, Barclays Bank, Credit Suisse, and Lloyds TSB Bank all settled with the Department of Justice, OFAC, and New York banking regulators for violations of U.S. sanctions and related banking regulations in recent years.  Barclays Bank settled with DOJ for a penalty of $298 million in 2010, while Credit Suisse settled with DOJ for $536 million in 2009.  (OFAC deemed its penalties satisfied with these two banks by the DOJ settlements.)  By contrast, Lloyds agreed in 2009 to a $350 million settlement with DOJ, and also paid a $217 million penalty to OFAC, resulting in a total penalty of $567 million. All of the settlements involved accusations that the banks intentionally disguised transactions by stripping out of the transfer documentation and routing instructions the identifying information of sanctioned entities before processing the transactions through US financial institutions.  The charges also included that the banks were providing advice to sanctioned entities about how to evade US sanctions, and were manipulating related messages.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions