US state charges Stanchart of $250-bn secret deals with Iran

New York state today accused global banking giant Standard Chartered of hiding about 60,000 secret transactions with the Iranian government, involving a whopping USD 250 billion, and exposing the US financial system to terrorists, weapon dealers and drug kingpins.

The UK-based bank, which has significant presence across the world, has also been found to have deficient money laundering controls in its outsourcing of work to India, found a probe by New York State Department of Financial Services. "For almost ten years, SCB (Standard Chartered Bank) schemed with the Government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least USD 250 billion, and reaping SCB hundreds of millions of dollars in fees," the New York state department said in a 27-page order.

"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 added.

The order further said SCB had assured the Department in May 2010 that it would take immediate corrective actions on issues previously raised by the US Office of Foreign Assets Control (OFAC).

Notwithstanding that promise, the state department's last regulatory examination of the banks' New York branch in 2011 identified continuing and significant BSA/AML (Banking Secrecy Act/Anti Money Laundering) failures.

Among these, the bank was outsourcing its "entire OFAC compliance process for the New York branch to Chennai, India, with no evidence of any oversight or communication between the Chennai and the New York offices."

Part of the US Department of Treasury, the OFAC is the designated government agency for preparing list of entities with whom US citizens and entities are barred from doing any business.

The other failures included an OFAC compliance system that lacked the ability to identify misspellings and variations of names on the OFAC sanctioned list.

Also, there was no documented evidence of investigation before release of funds for transactions with parties whose names matched the OFAC-sanctioned list.

The order against Stanchart by New York state comes close on the heel of the US Senate's Permanent Committee on Investigations report on July 17 charging another UK-based global bank HSBC of exposing the US financial system to terrorist financing and money laundering risks.

In that probe also, HSBC's staff in India had come under the scanner for deficiencies in their role as "offshore reviewers" of the global banking giant's compliance to safety mechanism against money laundering and terrorist financing.

The Senate sub-committee probe found that HSBC's Anti-Money Laundering (AML) Compliance Department, which included employees in India, was highly inadequately staffed and deficiencies were found in the quality of the work done by HSBC's "offshore reviewers in India", who were used for clearing a major backlog of suspected transaction alerts at the bank.

The New York State Financial Services Department said its order against Stanchart follows an "extensive investigation (that) included the review of more than 30,000 pages of documents, including internal SCB e-mails that describe willful and egregious violations of law."