Thwarting controls against money laundering, Standard Chartered Bank enabled Iranian banks and corporations to hide roughly 60,000 transactions worth at least $250 billion within the bank, New York State’s banking regulator charged Monday.
The New York State Department of Financial Services accused the British bank, which it called a “rogue institution,” of hiding the transactions to gain hundreds of millions of dollars in fees from January 2001 through 2010.
Under United States law, transactions with Iranian banks are strictly monitored and subject to sanctions because of government concerns about the use of American banks to finance Iran’s nuclear programs and terrorist organizations.
The highest levels of management knew that Standard Chartered was deliberately falsifying records to allow billions of dollars in transactions to flood through the bank, according to the regulatory filing.
The bank “left the U.S. financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes,” the agency said in an order sent to the bank Monday. At the most extreme, the agency’s enforcement actions against the bank could include the revocation of its license to operate in New York.
Beyond the dealings with Iran, the department said it discovered evidence that Standard Chartered operated “similar schemes” to do business with other countries under United States sanctions, including Burma, Libya and Sudan.
During a nine-month investigation, the department, led by Benjamin M. Lawsky, said that it reviewed more than 30,000 bank documents, including internal e-mails. It investigated the bank because it had routed the transactions through its New York operations. Under the order, Standard Chartered will have to pay for an independent monitor to ensure its operations comply with state law.
In an e-mailed statement, a spokesman for Standard Chartered said the bank was reviewing its “historical U.S. sanctions compliance and is discussing that review with U.S. enforcement agencies and regulators.” He added that the bank “cannot predict when this review and these discussions will be completed or what the outcome will be.”
The department contends that Standard Chartered systematically scrubbed any identifying information from the transactions for powerful Iranian institutions, including the Central Bank of Iran and Bank Saderat, that are legally subject to sanctions under United States law.
The department accused the bank of undermining the safety of New York’s financial system through a range of violations including “falsifying business records” and “obstructing governmental administration,” according to the order.
Suspecting that Iranian banks were using their financial institutions to finance its nuclear weapons program, the United States Treasury Department banned certain transactions between Iranian banks and United States financial institutions in 2008. The regulator said the bank engaged in so-called U-turn transactions, where a foreign institution routes money to an American bank, which then transfers the money immediately to a separate foreign institution.
The accusations are the latest to strike British banks. In July, a United States Senate panel found that HSBC was used by Iranians looking to evade sanctions and by Mexican drug cartels to funnel money back into the United States.
Together, the allegations raise concerns that there is a broader pattern of illegal money freely flowing into the United States through international financial institutions.
In the Standard Chartered investigation, the order said that the bank’s management created a formalized operating manual that showed staff members how to strip off any information from the transactions that might tie them to the sanctioned Iranian institution. The manual was called “Quality Operating Procedure Iranian Bank Processing.”
Under a strategy called Project Gazelle, which the regulator said was approved at the highest echelon of the bank, Standard Chartered falsified or omitted client identification in paperwork authorizing transactions, the order said. To drum up more revenue, the bank wanted to forge “new relationships with Iranian companies,” bank e-mails show.
The order says that executives at Standard Chartered sidelined concerns raised by its management in the United States. Concerned that the bank’s practices ran afoul of regulators and could lead to criminal liability, executives at Standard Chartered urged a thorough accounting of the bank’s Iranian business, according to an e-mail uncovered as part of the investigation.
Rather than quashing the program once concerns were raised, executives at Standard Chartered got better at shielding the wire transfers and other transactions, according to the order. What’s more, the regulator said Monday, the bank responded to calls for a review with outright hostility. A London executive of the bank was quoted in the document as having directed an expletive at Americans and adding, “Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”
By falsifying records and lying to regulators, the regulator said, Standard Chartered conducted a widespread conspiracy continuing for almost 10 years.
-This story was published first in The New York Times on 06/08/2012