New York’s top financial regulator accused a Standard Chartered PLC unit of running a “rogue institution” that “schemed” with Iran’s government to hide more than $250 billion in illegal transactions for nearly a decade.
The New York State Department of Financial Services threatened to revoke the license of Standard Chartered Bank, a U.S. unit of the U.K. bank located in midtown Manhattan. The agency ordered officials of the U.S.-based subsidiary to “explain these apparent violations of law” at a hearing later this month.
The agency also could seek a large fine from Standard Chartered, and Benjamin M. Lawsky, the agency’s superintendent, demanded that the banking unit’s operations be overseen by an independent monitor chosen by his office.
Standard Chartered was notified of the regulatory action on Monday. A bank spokeswoman in New York declined immediate comment. A Federal Reserve Bank of New York spokesman wasn’t immediately available to comment. The New York Fed regulates Standard Chartered’s New York unit, and the New York State Department of Financial Services regulates the New York branches of all non-U.S. banks.
U.S. law tightly restricts the dealings of financial institutions with sanctioned foreign countries. The law is aimed at keeping terrorists, arms dealers and drug kingpins from getting their hands on U.S. dollars. Banks are required to closely monitor money movements for signs of suspicious activity.
Mr. Lawsky said the agency’s ongoing investigation of the U.K. bank also “has uncovered evidence with respect to what are apparently similar schemes” by a Standard Chartered subsidiary in New York “to conduct business with other U.S. sanctioned countries, such as Libya, Burma and Sudan.” Burma is the former name of the Asian country now known as Myanmar.
A nine-month probe by his office that included scrutiny of more than 30,000 pages of internal memos, emails and other records found that Standard Chartered masked the identity of Iranian clients in 60,000 transactions, according to Monday’s 27-page order.
The agency alleged a systematic conspiracy to falsify wire-transfer orders and lie to regulators. Mr. Lawsky claimed that executives of the U.S. unit had extensive knowledge of the scheme, which allegedly lasted from 2001 to 2010.
The transactions were part of a strategy by the bank called “Project Gazelle,” according to an internal memo written in 2005 that was cited by Mr. Lawsky in his regulatory order. Standard Chartered wanted to increase “our wallet share from existing relationships with Financial Institutions and Iranian companies” and establish “new relationships with Iranian companies and [intermediaries] in oil and gas related businesses,” the memo said.
In 2006, though, Standard Chartered’s chief executives for the Americas urged a review of the Iranian business, writing in an email to risk, compliance and public affairs departments, all in London, that he was concerned about “very serious or even catastrophic reputational damage” and management’s exposure to “personal reputational damages and/or serious criminal liability.”
At the time, other financial institutions were being prosecuted for violating economic and trade sanctions.
The response was disturbing, Mr. Lawsky alleged in Monday’s regulatory order. “You f—ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with the Iranians?” a branch officer in New York said, according to an interview with another bank employee cited by Mr. Lawsky.
The New York agency alleged that dozens of Standard Chartered employees knew and supported the scheme to hide Iranian client activities, including risk and compliance officers, legal counsel, and officials in public affairs, sales and banking.
After President Clinton enacted sanctions against Iran, Standard Chartered Bank’s general counsel devised a plan with the bank’s chief compliance officer in a June 1995 email to have the London branch “ignore OFACs regulations” and keep New York’s office in the dark so U.S. regulators couldn’t prosecute a breach against the London or New York branches, Mr. Lawsky alleged. The general counsel said the memo “MUST NOT be sent to the U.S.”
OFAC is an abbreviation for the Office of Foreign Assets Control, a division of the U.S. Treasury Department that imposes sanctions, can seize assets and enforce violations of trade or economic restrictions.
For a time, the U.S. government allowed money to move from one non-U.S. entity through the U.S. to another offshore locale, but those transactions were subject to stringent reviews to be sure that no party was tied to terrorist groups or other harmful groups. In 2008, those transactions were cut off for any Iranian institutions because the U.S. suspected Iran’s banks of helping finance nuclear weapons.
By 2001, Standard Chartered’s strategy was being carried out on a routine basis, Mr. Lawsky said. Some bank executives openly discussed the practice of having employees “repair” wire-transfer messages to remove references to Iranian clients, noting that the “repairs” wouldn’t guarantee the transactions complied with U.S. government sanctions, the order said.
In 2001, a lawyer told bank executives in an email that “our payment instructions [for Iranian Clients] should not identify the client or the purpose of the payment.” An excerpt from the email was cited in Monday’s order.
After an outside legal review suggested that Standard Chartered’s New York branch do more due diligence, executives decided instead to conspire with Iranian clients to hide their identities and ensure that money moved quickly through the wire-transfer system, Mr. Lawsky alleged Monday. To do so, the bank removed or misrepresented wire-transfer data that could identity Iranian parties, the regulator said.
For example, instead of using an Iranian client’s name, one Iranian customer was told to use a period, the words “NO NAME GIVEN” or “SCB London” in required electronic-message fields, the agency alleged.
“Therefore, the payments going to NY do not appear to NY to have come from an Iranian Bank,” the order said, citing a 2003 email from one Standard Chartered official.
Standard Chartered published the procedures in a manual called “Quality Operating Procedure Iranian Bank Processing,” which instructed employees of Standard Chartered Bank to “repair payment by making appropriate changes,” the regulatory order said.
Mr. Lawsky said the U.K. bank’s subsidiary in New York made hundreds of millions of dollars in fees from its Iranian business. As other banks pulled away from the country, Standard Chartered grew even larger, he said; it processed $500 million a day in receipts for the National Iranian Oil Company, for example.
The U.K. bank was created in a merger of two 150-year-old banks that focused largely on the emerging markets in Asia and Africa. The bank now has 1,700 branches in 70 countries. More than 90% of Standard Chartered’s overall profit comes from its business in Asia, the Middle East and Africa.
In 2003, New York banking regulators were concerned that Standard Chartered wasn’t reviewing its customers or monitoring transactions properly. In 2004, the U.S. unit entered into an agreement with New York’s Banking Department and the Federal Reserve Bank of New York to “address deficiencies” in its compliance with anti-money laundering laws and rules, particularly those related to fund transfers.
Standard Chartered’s chief executive for the Americas called the agreement a hindrance to “its growth ambition and strategic freedom that went way beyond just the U.S.” according to an email cited in Monday’s order.
Standard Chartered also agreed to hire an outside consultant to review transactions starting in July 2002 for any signs of suspicious clients. The bank hired the consulting arm of Deloitte & Touche, but Mr. Lawsky accused Deloitte in Monday’s order of agreeing to alter its review to omit any mention of payments that could highlight Iranian money transfers, said the order.
A Deloitte partner wrote in an email to Standard Chartered’s head of compliance that he drafted a “watered-down version,” according to the document filed Monday by Mr. Lawsky.
A Deloitte spokeswoman couldn’t be immediately reached for comment.
Standard Chartered executives assured banking regulators they were in compliance with the order. Regulators later rescinded the order. Last year, though, the New York State Department of Financial Services found in a checkup that the U.S. unit failed to have proper compliance procedures in place to make sure that no money was being transferred for off-limits clients.
Write to Liz Rappaport at [email protected]
The New York State Department of Financial Services threatened to revoke the license of Standard Chartered Bank, a U.S. unit of the U.K. bank located in midtown Manhattan. The agency ordered officials of the U.S.-based subsidiary to “explain these apparent violations of law” at a hearing later this month.
The agency also could seek a large fine from Standard Chartered, and Benjamin M. Lawsky, the agency’s superintendent, demanded that the banking unit’s operations be overseen by an independent monitor chosen by his office.
Standard Chartered was notified of the regulatory action on Monday. A bank spokeswoman in New York declined immediate comment. A Federal Reserve Bank of New York spokesman wasn’t immediately available to comment. The New York Fed regulates Standard Chartered’s New York unit, and the New York State Department of Financial Services regulates the New York branches of all non-U.S. banks.
U.S. law tightly restricts the dealings of financial institutions with sanctioned foreign countries. The law is aimed at keeping terrorists, arms dealers and drug kingpins from getting their hands on U.S. dollars. Banks are required to closely monitor money movements for signs of suspicious activity.
Mr. Lawsky said the agency’s ongoing investigation of the U.K. bank also “has uncovered evidence with respect to what are apparently similar schemes” by a Standard Chartered subsidiary in New York “to conduct business with other U.S. sanctioned countries, such as Libya, Burma and Sudan.” Burma is the former name of the Asian country now known as Myanmar.
A nine-month probe by his office that included scrutiny of more than 30,000 pages of internal memos, emails and other records found that Standard Chartered masked the identity of Iranian clients in 60,000 transactions, according to Monday’s 27-page order.
The agency alleged a systematic conspiracy to falsify wire-transfer orders and lie to regulators. Mr. Lawsky claimed that executives of the U.S. unit had extensive knowledge of the scheme, which allegedly lasted from 2001 to 2010.
The transactions were part of a strategy by the bank called “Project Gazelle,” according to an internal memo written in 2005 that was cited by Mr. Lawsky in his regulatory order. Standard Chartered wanted to increase “our wallet share from existing relationships with Financial Institutions and Iranian companies” and establish “new relationships with Iranian companies and [intermediaries] in oil and gas related businesses,” the memo said.
In 2006, though, Standard Chartered’s chief executives for the Americas urged a review of the Iranian business, writing in an email to risk, compliance and public affairs departments, all in London, that he was concerned about “very serious or even catastrophic reputational damage” and management’s exposure to “personal reputational damages and/or serious criminal liability.”
At the time, other financial institutions were being prosecuted for violating economic and trade sanctions.
The response was disturbing, Mr. Lawsky alleged in Monday’s regulatory order. “You f—ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with the Iranians?” a branch officer in New York said, according to an interview with another bank employee cited by Mr. Lawsky.
The New York agency alleged that dozens of Standard Chartered employees knew and supported the scheme to hide Iranian client activities, including risk and compliance officers, legal counsel, and officials in public affairs, sales and banking.
After President Clinton enacted sanctions against Iran, Standard Chartered Bank’s general counsel devised a plan with the bank’s chief compliance officer in a June 1995 email to have the London branch “ignore OFACs regulations” and keep New York’s office in the dark so U.S. regulators couldn’t prosecute a breach against the London or New York branches, Mr. Lawsky alleged. The general counsel said the memo “MUST NOT be sent to the U.S.”
OFAC is an abbreviation for the Office of Foreign Assets Control, a division of the U.S. Treasury Department that imposes sanctions, can seize assets and enforce violations of trade or economic restrictions.
For a time, the U.S. government allowed money to move from one non-U.S. entity through the U.S. to another offshore locale, but those transactions were subject to stringent reviews to be sure that no party was tied to terrorist groups or other harmful groups. In 2008, those transactions were cut off for any Iranian institutions because the U.S. suspected Iran’s banks of helping finance nuclear weapons.
By 2001, Standard Chartered’s strategy was being carried out on a routine basis, Mr. Lawsky said. Some bank executives openly discussed the practice of having employees “repair” wire-transfer messages to remove references to Iranian clients, noting that the “repairs” wouldn’t guarantee the transactions complied with U.S. government sanctions, the order said.
In 2001, a lawyer told bank executives in an email that “our payment instructions [for Iranian Clients] should not identify the client or the purpose of the payment.” An excerpt from the email was cited in Monday’s order.
After an outside legal review suggested that Standard Chartered’s New York branch do more due diligence, executives decided instead to conspire with Iranian clients to hide their identities and ensure that money moved quickly through the wire-transfer system, Mr. Lawsky alleged Monday. To do so, the bank removed or misrepresented wire-transfer data that could identity Iranian parties, the regulator said.
For example, instead of using an Iranian client’s name, one Iranian customer was told to use a period, the words “NO NAME GIVEN” or “SCB London” in required electronic-message fields, the agency alleged.
“Therefore, the payments going to NY do not appear to NY to have come from an Iranian Bank,” the order said, citing a 2003 email from one Standard Chartered official.
Standard Chartered published the procedures in a manual called “Quality Operating Procedure Iranian Bank Processing,” which instructed employees of Standard Chartered Bank to “repair payment
Mr. Lawsky said the U.K. bank’s subsidiary in New York made hundreds of millions of dollars in fees from its Iranian business. As other banks pulled away from the country, Standard Chartered grew even larger, he said; it processed $500 million a day in receipts for the National Iranian Oil Company, for example.
The U.K. bank was created in a merger of two 150-year-old banks that focused largely on the emerging markets in Asia and Africa. The bank now has 1,700 branches in 70 countries. More than 90% of Standard Chartered’s overall profit comes from its business in Asia, the Middle East and Africa.
In 2003, New York banking regulators were concerned that Standard Chartered wasn’t reviewing its customers or monitoring transactions properly. In 2004, the U.S. unit entered into an agreement with New York’s Banking Department and the Federal Reserve Bank of New York to “address deficiencies” in its compliance with anti-money laundering laws and rules, particularly those related to fund transfers.
Standard Chartered’s chief executive for the Americas called the agreement a hindrance to “its growth ambition and strategic freedom that went way beyond just the U.S.” according to an email cited in Monday’s order.
Standard Chartered also agreed to hire an outside consultant to review transactions starting in July 2002 for any signs of suspicious clients. The bank hired the consulting arm of Deloitte & Touche, but Mr. Lawsky accused Deloitte in Monday’s order of agreeing to alter its review to omit any mention of payments that could highlight Iranian money transfers, said the order.
A Deloitte partner wrote in an email to Standard Chartered’s head of compliance that he drafted a “watered-down version,” according to the document filed Monday by Mr. Lawsky.
A Deloitte spokeswoman couldn’t be immediately reached for comment.
Standard Chartered executives assured banking regulators they were in compliance with the order. Regulators later rescinded the order. Last year, though, the New York State Department of Financial Services found in a checkup that the U.S. unit failed to have proper compliance procedures in place to make sure that no money was being transferred for off-limits clients.
Write to Liz Rappaport at [email protected]