The regulator said Standard Chartered moved money through its New York branch on behalf of Iranian financial clients, including the Central Bank of Iran and state-owned Bank Saderat and Bank Melli, that were subject to U.S. sanctions – generating hundreds of millions of dollars in fees.
At the center of concern were alleged “U-Turn” transactions, involving money moved for Iranian clients among banks in Britain and the Middle East and cleared through Standard Chartered’s New York branch, but which neither started nor ended in Iran.
While the United States imposed economic sanctions on Iran in 1979, these so-called “U-Turn” transactions were outlawed only in November 2008 amid Treasury Department concerns they were being used to evade sanctions, and that Iran was using banks to fund nuclear and missile development programs.
Mr. Lawsky’s order alleged that even as some banks exited the U-Turn transactions, Standard Chartered hustled to “take the abandoned market share.”
David Proctor, who worked for Standard Chartered from 1999 until 2006 and who oversaw the Iran business briefly in 2006 when he was CEO in the United Arab Emirates, said the rules on dealing with Iran were unclear.
“At the time (May 2006), ... the key question was to try and understand exactly what counted as a U-turn transaction,” he said. Proctor, who now provides advice for banks with BAS Consulting in Singapore, said Standard Chartered now has to help clear up what actually happened. “Banks these days don’t have a choice,” he said. “You have to be transparent.”
As part of a review the bank sought to give to regulators, Standard Chartered hired Promontory Financial Group, a Washington D.C. consulting firm run by Eugene Ludwig, who served as U.S. Comptroller of the Currency from 1993-98. Promontory was hired to review Standard Chartered’s transactions tied to Iran. The bank’s review ultimately settled on the figure of less than $14-million for improper transactions.
Mr. Lawsky’s agency also received the Standard Chartered internal review, according to people familiar with the situation. But the new regulator had little interest in a settlement that didn’t yield embarrassing details about Standard Chartered’s activities, these people said.
Earlier this year, Standard Chartered representatives met with Mr. Lawsky’s office to argue that the illicit transactions were a technical violation, according to one source. Mr. Lawsky’s investigators weren’t convinced, this person said.
The bank, which must appear before the New York regulator on August 15, has said Mr. Lawsky’s interpretation of the U-turn exemption is “incorrect as a matter of law.”
Standard Chartered chief executive officer Peter Sands scrambled back from vacation to help the bank plan a defense and limit damage to its reputation.
The bank has hired two prominent law firms – Sullivan & Cromwell in New York and Slaughter and May in London – to represent it in its dealings with various U.S. authorities over transactions linked to Iran. Among the Sullivan & Cromwell partners working for Standard Chartered is Rodgin Cohen, one of the best-known U.S. corporate lawyers, a person familiar with the matter said. Sullivan & Cromwell has represented other non-U.S. banks probed for allegedly ignoring U.S. sanctions against countries.
The broadside against Standard Chartered has touched a nerve in Britain, where some investors, and at least one lawmaker, have alleged it might be part of a plot by U.S. authorities to undermine London as a banking center.
Standard Chartered is the third British bank to be ensnared in U.S. law enforcement probes in recent weeks. Barclays in June agreed to pay $453-million to settle U.S. and British probes that it rigged the Libor benchmark, and, a month later, a U.S. Senate panel issued a scathing report criticising HSBC’s efforts to police suspect transactions, including Mexican drug traffickers.
“I think it’s a concerted effort that’s been organised at the top of the U.S. government. This is Washington trying to win a commercial battle to have trading from London shifted to New York,” said John Mann, a member of parliament’s finance committee who also called for a parliamentary inquiry.
Mr. Mann, from the centre-left Labour party, has become a public scourge of London bankers’ greed during the financial crisis. But he told Reuters he saw “anti-British bias” behind “disproportionate publicity that’s given to British banking problems as opposed to American banking problems.”
A British executive at an institution which ranks among Standard Chartered’s top 25 shareholders also saw a politically motivated move by U.S. officials irked by the major role London plays in the global financial industry, attracting big investments from major U.S. banks like JPMorgan Chase, Goldman Sachs and Morgan Stanley.
“Are we starting to see an anti-London bias in U.S. regulatory activities?” the executive asked. “Oh yes. Is there any subtle form of banking sector protectionism going on? Yes.”