StanChart accused of laundering billions for Iran

 The ‘apparent fraudulent and deceptive conduct’ by the bank occurred from 2001 to 2010, the US order said.

Shares of Standard Chartered fell sharply in Hong Kong on Tuesday after US regulators accused the British bank of using its operations based in New York to scheme with the Iranian government for nearly a decade to launder $250 billion.

The New York State Department of Financial Services accused Standard Chartered, which the agency called a ‘rogue institution,’ of masking more than 60,000 transactions for Iranian banks and corporations, motivated by the millions of dollars it reaped in fees.
Senior management at the 150-year-old bank used the New York branch ‘as a front for prohibited dealings with Iran — dealings that indisputably helped sustain a global threat to peace and stability,’ according to a regulatory order sent to the bank.

The bank said that it ‘strongly rejects the position and portrayal of facts’ by the agency. The bank’s Hong Kong-traded stock closed at 160.10 HK dollars, or $20.64, on Tuesday, a 15 per cent drop from the previous day. The FBI, said that it had an open investigation into money laundering at Standard Chartered. In the order, regulators paint a vivid picture of a cover-up that included the code name Project Gazelle, money flowing to the Iranian central bank, US executives warning of ‘criminal liability’ and a manual that taught employees how to automate the masking of a rising number of illegal transactions.

The accusations against Standard Chartered came as US officials worked to crack down on the flow of money to foreign countries, companies and individuals connected to terrorism, weapons of mass destruction and drug trafficking. Beyond the dealings with Iran, the banking regulator said it had discovered evidence that Standard Chartered had operated ‘similar schemes’ to do business with other countries under US sanctions, including Libya, Myanmar and Sudan.

But the order accuses senior executives at the bank of having suppressed complaints. For example, in 2006, according to the order, the bank’s chief executive for the Americas wrote his bosses in London that the transactions had “the potential to cause very serious or even catastrophic reputational damage to the group.” According to the order, the response was hostile, denigrated Americans and asked: “Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”

The New York agency, led by superintendent Benjamin M Lawsky, said it was ‘impossible to know’ how much of the money might have been used by Iran to finance its nuclear programme or to support terrorist organisations. Lawsky said that the department, which examined more than 30,000 internal memos, e-mails and other documents in its nine-month investigation, would hold hearings to determine any financial penalty.

Standard Chartered is the latest in a series of global banks to be accused of facilitating illegal flows of money from outside the United States. In July, a US Senate panel issued a report that accused HSBC of being used by Mexican drug cartels to funnel cash back into the US, by Saudi banks with terrorist ties that needed access to dollars and by Iranians who wanted to circumvent US sanctions.

Formal oversight

The ‘apparent fraudulent and deceptive conduct’ by Standard Chartered occurred from 2001 to 2010, the order said, and was particularly ‘egregious’ because some of the transactions were being processed at the same time the bank was under formal oversight by New York banking regulators from 2004 to 2007. Standard Chartered, which is based in London, relies for most of its profit on business in Africa, Asia and the Middle East.

Before 2008, the US government permitted money to be transferred through the US from one entity based outside the country to another, but only after a thorough vetting to detect suspicious activity. In so-called U-turn transactions, a foreign institution routes money to a bank in the US, which transfers the money immediately to a separate foreign institution.

On suspicion that Iran was using its banks — including the Central Bank of Iran, Bank Saderat and Bank Melli Iran — to finance nuclear weapons and missile programmes, the policy toward Iran was changed and the transactions were banned entirely in 2008.
Standard Chartered disputed the accusations and said that ‘well over 99.9 per cent of the transactions relating to Iran complied with the U-turn regulations.’ Those that did not comply amounted to less than $14 million, the bank said. The bank said in its statement late Monday that it had kept the US and the state authorities apprised of the review it initiated in 2010.

The activity seen as possibly illegal stretched back to 1995, after president Bill Clinton levied sanctions against Iran. At the time, the general counsel of Standard Chartered e-mailed the bank’s chief compliance officer a plan to ignore regulations imposed by the Treasury Department, according to the order. In the e-mails included in the order, the executives said a memo containing the plan “MUST NOT be sent to the US,” to prevent prosecution.

That strategy of flouting the US law was commonplace by 2001, Lawsky said. An e-mail from a lawyer to bank executives in 2001 said that payment instructions for Iranian clients “should not identify the client or the purpose of the payment.”

One Iranian client, for example, was told to use “No name given’  in paperwork to transfer money, the order said. That way, the money transfer could escape scrutiny and ‘not appear to N.Y. to have come from an Iranian bank,’ a 2003 e-mail from a Standard Chartered official said. The bank came under scrutiny from the Federal Reserve Bank of New York in 2003 after regulators discovered deficiencies in monitoring its transactions. As a result, the bank entered a formal agreement with regulators that it would strengthen its oversight and admit an independent   consultant to inspect transactions from July 2002 to October 2004.

Even the independent monitoring, by Deloitte & Touche, was perverted, according to Lawsky. In 2005, at the behest of the bank, Deloitte agreed to omit critical transactions from its report to regulators. ‘This is too much and too politically sensitive for both SCB and Deloitte. That is why I drafted the to watered-down version,’ a Deloitte executive said in a 2005 e-mail in the order.

Deloitte denies it aided the bank. The consultant ‘performed its role as independent consultant properly and had no knowledge of any alleged misconduct by bank employees,’ Jonathan Gandal, a Deloitte spokesman, said in a statement. ‘Allegations otherwise are unsupported by the facts.’ In its last examination of the bank in 2011, the New York Department of Financial Services said it had found ‘continuing and significant’ failures in complying with bank ja secrecy and money laundering laws.