Standard Chartered Plc might be asked to pay as much as $700 million to resolve money laundering allegations filed by New York’s banking superintendant after his department grew impatient with inaction by federal regulators, a person familiar with the case said.
Benjamin Lawsky, who heads up New York’s Department of Financial Services, 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.
A settlement of $700 million would match the amount that HSBC Holdings Plc (HSBA) set aside last month after a Senate committee found the bank gave terrorists, drug cartels and criminals access to the U.S. financial system.
Other foreign banks that have resolved allegations of executing wire transfers on behalf of sanctioned nations or groups include Barclays Plc (BARC), Credit Suisse Group AG (CSGN), Lloyd’s of London and ABN AMRO Group NV. In each of these cases, the settlements involved joint investigations by regulators.
Lawsky’s decision to move forward alone is unusual, said Jimmy Gurule, a former Treasury Department undersecretary for enforcement who now teaches at the University of Notre Dame.
“In the past six to seven cases involving institutions violating U.S. sanctions, this is the only one where a regulator acted unilaterally,” he said.
David Neustadt, spokesman for New York’s Department of Financial Services, declined to comment on the reasons for Lawsky’s actions. Julie Gibson, a spokeswoman for Standard Chartered’s U.S. operations, also declined to comment on the state’s investigation.
In response to Lawsky’s order, Standard Chartered said Aug. 6 that, while it was cooperating with all U.S. investigations, it would contest the New York regulator’s claims. A hearing over whether Standard Charter’s license to operate in New York should be revoked has been scheduled for Aug. 15.
Lawsky was willing to break ranks with national regulators on the Standard Chartered probe, including the U.S. Treasury Department’s Office of Foreign Assets Control, because of e- mails that surfaced in the investigation, said the person familiar with the case.
According to the order filed by Lawsky on Aug. 6, executives at Standard Chartered’s London headquarters adopted a policy to strip out the names of Iranian entities that needed to clear U.S. dollar payments from 2001 to 2007, so that U.S. bank overseers wouldn’t be aware of the Iranian connection.
Lawsky alleges in the order that Standard Chartered executed 60,000 wire transfers, amounting to $250 billion, on behalf of Iranian financial institutions during that period.
In its response to Lawsky’s order, the bank said its own review of those transactions, conducted by Promontory Financial Group, showed that 99.9 percent of those transfers complied with existing rules regarding so-called “U-turn” transactions involving sanctioned nations.
Standard Chartered received some support from the U.S. Treasury Department’s OFAC department, which said the bank’s wire transfers didn’t appear to violate laws in force at the time because the people executing the transfers in New York weren’t aware they were acting on behalf of Iranian banks.
“The New York intermediary through which the transaction went through did not have to be notified by the British bank that it was carrying out this transaction on behalf of an Iranian entity in order to meet the requirements of this regulation,” said John Sullivan, the Treasury Department spokesman responsible for terrorism and financial intelligence.
Sullivan declined to discuss any further details about the probe of Standard Chartered.
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