Standard Chartered agrees $340m settlement with US regulator over Iran

August 14, 2012

The Guardian on August 14, 2012 released the following:

“Chief executive Peter Sands under pressure after bank agrees to pay fine levied by New York department of financial services

[By] Jill Treanor

Standard Chartered has fended off threats by a New York regulator to revoke its banking licence for alleged breaches of US sanctions but chief executive Peter Sands is under intense pressure after the bank agreed to pay a $340m (£220m) despite insisting that it had committed only minor breaches of the rules.

Barely 24 hours before the bank was due to attend a hearing with the New York department of financial services (DFS), the regulator announced the surprise settlement which also includes the installation a monitor for at least two years to evaluate the bank’s risk controls. Inspectors from the DFS will be installed at the bank’s office in New York and the bank will “permanently install personnel” in New York solely to ensure it adheres to money laundering laws.

Benjamin Lawsky, the head of the DFS, who stunned Standard Chartered last week with damning allegations of sanctions breaches, had summoned the bank to appear at a hearing in New York at 10am local time on Wednesday. But the showdown was adjourned following the settlement, which was announced after the London market had closed.

Lawsky claims that Standard Chartered schemed to hide 60,000 transactions valued at about $250bn (£160bn) which breached sanctions with Iran. Sands admitted to only 300 breaches, with a much smaller value of about $14m.

Lawsky had said that he could withdraw the bank’s licence but has now dropped the threat, which analysts said could protect the share price on Wednesday. However, his statement announcing the settlement insisted that both sides had agreed that the “conduct at issue” covered $250bn – the full amount of his original order.

The size of the fine is considerably larger than the $5m that the bank had argued its breaches should require it to pay – although it may still rise as the DFS is only one of a number of authorities which has been investigating possible breaches.

Others authorities include the department of justice and the office of foreign assets control (Ofac). Standard Chartered has admitted since 2010 that it has been discussing potential sanctions breaches.

But the bank was unprepared for the decision by the DFS to publish its allegations while Sands was on holiday with his family. Investors’ fears that it could be stripped of its New York licence and possible resignations at the top of the bank sliced almost 25% off the bank’s share price. The shares have been clawing back the losses, ending on Tuesday at £13.70, nearly 3% higher, but still below the £16 levels from last week.

The loss of its banking licence would be more damaging than the fine, although Sands on Tuesday told the Business Standard paper in India – where the bank has a high street banking operation – that he did not believe the bank would be stripped of its ability to conduct business directly in the US.

“We hope we do not lose our licence, we don’t believe we should lose our licence and we don’t believe we will,” Sands said, adding the bank was planning for all possible outcomes.

Ian Gordon, banks analyst at Investec, said: “It has taken the nuclear option off the table and suggests the total settlement will be manageable.”

Sands joined the bank as finance director in 2002 so has been on the board through most of the 2001-2007 period covered by the allegations. He was appointed chief executive in November 2006 when he was replaced as finance director by Richard Meddings, who joined the bank four years earlier and was previously head of risk.

Meddings is the executive whom Lawsky claimed made a remark to a US-based Standard Chartered executive about “fucking Americans” when warned about the potential breaches of sanctions. Standard Chartered insists the remarks are inaccurate.

Lawsky also hit out against accountants Deloitte, which he said had drafted a “watered down version” of a report on the potential Iranian sanction breaches for Standard Chartered.

Joe Echevarria, chief executive of Deloitte, told Reuters that the allegations were “distortions of the facts”. “It’s an unfortunate choice of words that was pulled out of context,” Echevarria said.”

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Douglas McNabb – McNabb Associates, P.C.’s
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To find additional global criminal news, please read The Global Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.

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In Laundering Case, a Lax Banking Law Obscured Money Flow

August 9, 2012

The New York Times on August 8, 2012 released the following:

“By JESSICA SILVER-GREENBERG and EDWARD WYATT

The list of global banks that have been accused in recent years of laundering foreign transactions totaling billions of dollars has been growing — Credit Suisse, Lloyds, Barclays, ING, HSBC — and now Standard Chartered.

The details in each case are different, with the international banks suspected of using their American subsidiaries to process tainted money for clients that included Iran, Cuba, North Korea, sponsors of terrorist groups and drug cartels.

What the cases have in common is that the accused banks took advantage of a law that was not changed until 2008 and that allowed banks to disguise client identities and move their money offshore. The cases, including one filed this week by New York’s banking regulator against Standard Chartered, also cast a harsh light on just how much activity with Iran was permitted in the years leading up to 2008 and whether the practices had violated the spirit, if not the letter, of the law.

Foreign banks until 2008 were allowed to transfer money for Iranian clients through their American subsidiaries to a separate offshore institution. In the so-called U-turn transactions, the banks had to provide scant information about the client to their American units as long as they had thoroughly vetted the transactions for suspicious activity. Suspecting that Iranian banks were financing nuclear weapons and missile programs, the loophole was finally closed in 2008.

The new money-laundering claims made by the New York Department of Financial Services against Standard Chartered are particularly embarrassing for the Treasury Department, because they show how, until 2008, foreign banks could collaborate with their Iranian clients to circumvent United States sanctions, said Jimmy Gurulé, a former Treasury Department official who is a law professor at the University of Notre Dame.

Standard Chartered, as part of a strategy to ignore regulations imposed by a division of the Treasury Department, schemed with its Iranian clients to omit crucial details from money-transfer paperwork, according to a regulatory order filed Monday. 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,” according to the order.

The strategy of masking client details was driven, in part, by a desire for speed, according to law enforcement officials involved in the money-laundering cases. Transactions with certain risky clients, like the Iranians, were subject to much more rigorous vetting. To avoid the holdup, the officials said, some foreign banks willfully removed the names.

Since January 2009, the Justice Department, Treasury and other government entities have brought charges against five foreign banks — the British banks Lloyds and Barclays; the Dutch banks Credit Suisse and ABN Amro, now the Royal Bank of Scotland; and ING Bank of Amsterdam. The British bank HSBC is also under investigation by United States authorities for suspected money-laundering violations connected to Iran, Mexico, Saudi Arabia, Cuba and North Korea, and the bank has set aside $700 million to cover potential fines.

The settlements with the five banks generally included deferred prosecution agreements along with a substantial forfeiture of assets comparable in size to the basket of illegal transactions the banks engaged in. The five cases, which resulted from bank actions from 1995 through 2007, produced forfeitures of $2.3 billion over the last three and a half years. About half of that money went to Treasury and half to other entities, including the Manhattan district attorney’s office, which joined the Justice Department in most of the settlements.

So far, the Standard Chartered case is playing out entirely differently. To start with, action against the bank on Monday was brought by a single regulator, Benjamin M. Lawsky, a former prosecutor who now leads the New York Department of Financial Services. That is virtually unprecedented, since the vast majority of money-laundering charges come from regulators acting in concert.

The federal agencies are still investigating Standard Chartered and are debating just how expansive the suspected wrongdoing was. Mr. Lawsky claims the bank processed $250 billion in tainted money while cloaking the identities of its Iranian clients by stripping their names from paperwork. Some federal authorities, though, believe that the amount is closer to the $14 million that Standard Chartered acknowledges did not comply with regulations.

It is unclear whether the bank will settle with regulators or continue to fight. Standard Chartered must appear next week before Mr. Lawsky to explain the apparent violations and why it should not have its New York license revoked.

The divergent views on the bank’s culpability stem, in part, from the murkiness of the law governing how foreign institutions processed transactions with Iran.

Until 2008, American economic sanctions had a large exception for Iran because the Middle Eastern nation had such a vast oil business with the United States. The loophole permitted the U-turn transactions, allowing foreign institutions to route money to a bank in the United States, which would then transfer the money immediately to a different foreign institution.

Since Monday, Standard Chartered has fiercely argued that its transactions on behalf of Iranian banks and corporations fell squarely within that loophole. But Mr. Lawsky is largely basing his case on claims that the bank violated the law by covering up the identity of its Iranian clients and thwarting American efforts to detect money laundering.

In the settlements with the five banks since 2009, federal authorities and the Manhattan prosecutor accused the banks of “stripping” identifying information from some of the transactions that would have shown they were subject to sanctions and should not be allowed.

For example, in Lloyds’s $217 million settlement in 2009, senior bank managers warned colleagues in 2002 against “stripping” information from transactions referencing Iran, according to court records. In response, the records say, Lloyds simply began to “instruct Iranian banks on how to ‘clean’ payment instructions in which they were the originating bank to avoid detection” by Treasury Department filters.

The stripping constituted criminal conduct, the Justice Department said, when the transfers from sanctioned countries terminated in the United States — rather than taking a U-turn and heading back offshore. By ending in America, the transactions were subjected to stricter security standards, law enforcement officials said. In a letter sent Wednesday from Adam J. Szubin, director of Treasury’s Office of Foreign Assets Control, to Britain’s Treasury office, the department explained its enforcement efforts both before and after the 2008 changes. Now, all cross-border transfers require “the inclusion of complete originator and beneficiary information,” according to the letter, which was obtained by The New York Times.

United States banks were involved in the pre-2008 transactions only as an intermediary, and American banks have generally not been charged with violations similar to those brought against the five foreign banks. Because American banks were prohibited from being the beginning or ending party in transactions involving Iran and other sanctioned countries, they would not have been involved in the conduct that got the foreign banks into trouble.

Since the tighter sanctions went into effect, there have been no charges brought on post-2008 conduct, although Treasury’s letter says that investigations are ongoing.

Gina Talamona, a Justice Department spokeswoman, said that the lack of recent illegal conduct is because the settlements with foreign banks “required the banks to implement rigorous compliance programs and other safeguards” against further violations of sanctions. She said that the department’s enforcement program “has had a significant impact on banking industry practices involving sanctions.””

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Douglas McNabb – McNabb Associates, P.C.’s
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To find additional global criminal news, please read The Global Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.

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U.S. Treasury Confirms Probe Of Standard Chartered

August 8, 2012

Bloomberg on August 8, 2012 released the following:

“By Ian Katz and Cheyenne Hopkins

The U.S. Treasury Department said its Office of Foreign Assets Control is investigating Standard Chartered Plc for “potential Iran-related violations as well as a broader set of potential sanctions violations.”

OFAC, as the office is commonly referred to, “will continue to implement and enforce our sanctions vigorously,” Adam Szubin, the office’s director, said today in a letter to Second Permanent Secretary Tom Scholar at the U.K. Treasury. Szubin said OFAC will coordinate with “other federal and state agencies,” including the New York State Department of Financial Services. OFAC enforces economic and trade punishments.

Standard Chartered might be asked to pay as much as $700 million to resolve money-laundering allegations filed by the head of the New York agency after his department grew impatient with inaction by federal regulators, a person familiar with the case said.

Benjamin Lawsky, superintendent of the state’s financial services department, tried unsuccessfully a few months ago to get U.S. regulators to punish the London-based bank for conduct involving disguised Iranian money transfers, said the person, who asked not to be identified because the matter is confidential. The transfers have been under investigation by federal agencies for more than two years, according to Lawsky’s Aug. 6 order.

CEO Sands

Standard Chartered Chief Executive Officer Peter Sands criticized Lawsky’s claims.

“We reject the position and portrayal of facts by the Department of Financial Services,” Sands said on a conference call with reporters today, his first public comments since the findings were published. “It would be disproportionate and wholly inconsistent with the actions of other U.S. authorities in other sanctions matters” to revoke the bank’s New York license, he said.

Lawsky has threatened to strip the bank of its license to operate in the state, alleging it processed $250 billion of deals with Iranian banks subject to sanctions.

The OFAC director’s letter to the U.K. Treasury was obtained by Bloomberg News.”

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Douglas McNabb – McNabb Associates, P.C.’s
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To find additional global criminal news, please read The Global Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.

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Regulator Says British Bank Helped Iran Hide Deals

August 7, 2012

The New York Times on August 6, 2012 released the following:

“By JESSICA SILVER-GREENBERG

Using its New York-based operations, a major British bank schemed with the Iranian government for nearly a decade to launder $250 billion, leaving the United States financial system vulnerable to terrorists and corrupt regimes, New York’s top banking regulator charged on Monday.

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 order requires the bank to explain the apparent violations of law in a hearing later this month and justify why its license to operate in New York shouldn’t be revoked.

The bank said Monday night that it “strongly rejects the position and portrayal of facts” by the agency.

The Federal Bureau of Investigation 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 Iran’s central bank, United States 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 come as United States officials work 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 operated “similar schemes” to do business with other countries under United States sanctions, including Myanmar (formerly Burma), Libya and Sudan.

Earlier Monday, 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.”

But the order accuses senior executives at the bank of suppressing 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 department of financial services, 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 program or to support terrorist organizations.

Mr. Lawsky said that the department, which examined more than 30,000 internal memos, e-mails and other documents in its nine-month investigation, will 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 Senate panel issued a report that accused HSBC of being used by Mexican drug cartels to funnel cash back into the United States, by Saudi Arabian banks with terrorist ties that needed access to dollars and by Iranians who wanted to circumvent United States sanctions.

In June, the Justice Department and the New York County district attorney’s office reached a $619 million settlement with ING Bank over accusations that it had illegally moved billions of dollars into the United States for sanctioned Cuban and Iranian entities.

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 even as 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 federal government permitted money to be transferred through the United States from one non-American based entity to another, but only after being thoroughly vetted to detect suspicious activity. In so-called U-turn transactions, a foreign institution routes money to a bank in the United States, which transfers the money immediately to a separate foreign institution.

Suspecting that Iran was using its banks — including the Central Bank of Iran/Markazi, Bank Saderat and Bank Melli — to finance nuclear weapons and missile programs, the policy toward Iran changed and the transactions were banned entirely in 2008.

The order on Monday cited those Iranian state-owned banks as clients of Standard Chartered.

Standard Chartered disputed the accusations and said that “well over 99.9 percent 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 federal and state authorities apprised of the review it initiated in 2010. It said that it “did not identify a single payment” connected to a terrorist entity or organization and that it had “ceased all new business with Iranian customers” five years ago.

The apparent illegal activity 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 a division of 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 U.S.,” to prevent prosecution.

That strategy of flouting the United States law was commonplace by 2001, Mr. 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.

In a strategy called Project Gazelle, the bank devised to forge “new relationships with Iranian companies” and intermediaries “in oil- and gas- related businesses,” a memo from 2005 included in the order said.

The bank’s management created a formal operating manual called “Quality Operating Procedure Iranian Bank Processing,” that showed staff members how to strip off information that might tie them to the sanctioned Iranian institutions.

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 strengthen its oversight and bring in an independent consultant to inspect transactions from July 2002 to October 2004.

Even the independent monitoring, by Deloitte & Touche, was perverted, according to Mr. 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 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 state’s Department of Financial Services said it had found “continuing and significant” failures in complying with bank secrecy and money laundering laws.”

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Douglas McNabb – McNabb Associates, P.C.’s
OFAC SDN Removal Videos:

OFAC Litigation – SDN List Removal

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OFAC SDN Removal Attorneys

————————————————————–

To find additional global criminal news, please read The Global Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.

————————————————————–

International criminal defense questions, but want to be anonymous?

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