You f---ing Americans. Who are you to tell us, the rest of the world, that we‟re not going to deal with Iranians. -- SCB‟s Group Executive Director
Laudering money for rogue nations and drug cartels seems to be par for the course. The latest scandal is this bomb: a British bank has been laundering Iranian money for over a decade. The New York State Department of Financial services filed an Order Pursuant to Banking Law § 39, which that describes willful and egregious violations of law by Standard Chartered Bank, aka SCB. The above quote is part of the documentation against SCB.
For almost ten years, SCB schemed with the Government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250 billion, and reaping SCB hundreds of millions of dollars in fees. 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.
Wow, a decade, this has been going on a decade, after 9/11. Yet the order seems to be only to hearing to revoke their banking license in the state of New York. Even worse, the latest slap on the wrist fine to negotiate a settlement is being reported to be only $700 million. These offenses are brazen, yet notice who is filing the order. It is not the Federal regulatory bodies or the Department of Justice, it is the New York State Department of Financial Services. Doesn't that seem mighty kick the can down the food-chain road until finally someone, somewhere stood up? Below are quotes from the order which should outrage anyone bothering to read it.
From January 2001 through 2007, SCB conspired with its Iranian Clients to route nearly 60,000 different U.S. dollar payments through SCB‟s New York branch after first stripping information from wire transfer messages used to identify sanctioned countries, individuals and entities (“wire stripping”).
SCB ensured the anonymity of Iranian U.S. dollar clearing activities through SCB‟s New York branch by falsifying SWIFT wire payment directions.
When SCB employees determined that it was necessary to “repair” unadulterated payment directives, they did so by stripping the message of unwanted data, replacing it with false entries or by returning the payment message to the Iranian Client for wire stripping and resubmission. Thus, SCB developed various ploys that were all designed to generate a new payment message for the New York branch that was devoid of any reference to Iranian Clients.
The bank also had a cohort in crime. Recognize this name, one of our too big to fail accounting firms?
SCB intentionally withheld material information from New York and Federal regulators in its effort to service Iranian Clients. SCB carefully planned its deception and was apparently aided by its consultant Deloitte & Touche, LLP (“D&T”), which intentionally omitted critical information in its “independent report” to regulators.
New York DFS calls Standard Chartered Bank a rogue institution, rightly so. Deloitte & Touche isn't just a minor party to this criminal enterprise, they literally scrubbed their SCB audit to hide the illegal Iranian wire transfers from regulators:
SCB retained D&T to conduct the required independent review and
to report its findings to the regulators. In August and September 2005, D&T unlawfully gave SCB confidential historical transaction review reports that it had prepared for two other major foreign banking clients that were under investigation for OFAC violations and money laundering activities. These reports contained detailed and highly confidential information concerning foreign banks involved in illegal U.S. dollar clearing activities.
Having improperly gleaned insights into the regulators‟ concerns and strategies for investigating U-Turn-related misconduct, SCB asked D&T to delete from its draft “independent” report any reference to certain types of payments that could ultimately reveal SCB‟s Iranian U-Turn practices. In an email discussing D&T‟s draft, a D&T partner admitted that “we agreed” to SCB‟s request because “this is too much and too politically sensitive for both SCB and Deloitte. That is why I drafted the watered-down version."
So, the real question is where were the Federal regulators? Within the order is the headline SCB Defrauds Regulators, which seems like throwing a bone to the big guys upstairs for not doing anything.
By 2003, New York regulators had discovered other significant BSA/AML violations at SCB‟s New York branch, including deficiencies in its suspicious activity monitoring and customer due diligence policies and procedures. In October 2004, SCB consented to a formal enforcement action and executed a written agreement with the Department and FRBNY, which required SCB to adopt sound BSA/AML practices with respect to foreign bank correspondent accounts (the “Written Agreement”). The Written Agreement also required SCB to hire an independent consultant to conduct a retrospective transaction review for the period of July 2002 through October 2004.
The order says the FRBNY lifted their written agreement in 2007, due to the lies Deloitte & Touche wrote up, plus Standard Chartered Bank themselves gave the New York Fed fraudulent data. Still, federal regulators were aware of Iranian U-turns in 2006. Hello, it's 2012.
We're not alone in wondering where were federal regulators:
The lack of action by everyone ex the lowly New York banking supervisor is mighty troubling. The evidence presented in Lawsky’s filing is compelling; he clearly has not gone off half cocked. Why has he pressed forward and announced this on his own? The Treasury Department’s Office of Terrorism and Financial Intelligence has supposedly been all over terrorist finance; the consultants to that effort typically have very high level security clearances and top level access (one colleague who worked on this effort in the Paulson Treasury could get the former ECB chief Trichet on the phone). For them not to have pursued it anywhere as aggressively as a vastly less well resourced state banking regulator, particularly when Iran is now the designated Foreign Enemy #1, does not pass the smell test.
At a minimum, this lack of sufficient inquisitiveness on behalf of the Feds would the bank snookered them by being terribly forthcoming (as in it was responding only to specific inquiries, and then as narrowly as possible). But it raises the more troubling specter that Federal regulators (oh, and the US Department of Justice) wanted to keep this all quiet so as not to lead to embarrassing headlines. Although there is nothing in the filing to point to failure to act by the New York Fed, which was presumably the lead party in the 2003 sanctions against SCB (indeed, it says specifically that SCB deceived Federal regulators), the flip side is there would be only downside to Lawsky in doing anything that would make Fed or Treasury think he was trying to make then look bad.
The Washington Post also quoted many commenting on the lack of Federal action and of course most Federal agencies wouldn't comment on Standard Chartered Bank.
James Gurule, a former undersecretary of enforcement for the Treasury Department, contends that regulators have long been asleep at the wheel.
“Why up until this point has no bank official been held criminally responsible for willful and intentional violations of U.S. economic sanctions and anti-money-laundering laws?” Gurule said. “The Department of Justice enters into a deferred prosecution agreement, the banks pay a fine and that’s the end of it.”
The story is getting worse. CNBC is reporting the Federal Reserve and U.S. Treasury Department are royally POed that the New York Department of Financial Services issued their order. Seems they interfered with the never ending, slap on the wrist on real consequence penalties that were under negotiation. So, the good news of this story is we have one newly formed state regulator not exactly playing ball.
Lawsky's stunning move, which included releasing embarrassing communications and details of the bank's alleged defiance of U.S. sanctions against Iran, is rewriting the playbook on how foreign banks settle cases involving the processing of shadowy funds tied to sanctioned countries. In the past, such cases have usually been settled through negotiation - with public shaming kept to a minimum.
Regardless, we'll get some more Banking Committee hearings, some sound bytes by Congressional representatives and Senators, maybe even a mention in a White House press briefing. But will this stop? We doubt it, the profits are simply too great and D.C. regulators these days seem to be there only for show.
Update: On August 14th, 2012, New York regulators settled with Standard Chartered for a measly $340 million fine and canceled a hearing that surely would have exposed more wrong doings.
A New York regulator settled a money laundering probe of Standard Chartered Plc (STAN) for $340 million a day before the U.K.-based bank was to appear at a hearing to defend its right to continue operating in the state.
As part of the agreement, the bank agreed to install an on- site monitor for at least two years who will report directly to state officials. New York regulators will also place examiners at the bank. As a result of the accord, announced today by the state in an e-mailed release, the hearing that had been scheduled for tomorrow has been adjourned.
That's just outrageous. Zerohedge put it best, to launder Iranian money, Standard Chartered just paid a 0.14% transaction fee. Can you say that about your own ATM?