The New York State Department of Financial Services (DFS) said Standard Chartered “schemed” with the Iranian government and hid from law enforcement officials some 60,000 secret transactions to generate hundreds of millions of dollars in fees over nearly 10 years, also exposing the US banking system to terrorists, drug traffickers and corrupt states.
The loss of a New York banking licence would be a devastating blow for a foreign bank, effectively cutting off direct access to the US bank market. Standard Chartered processes $190 billion every day for global clients, the New York bank regulator said.
In an unusual look inside a bank, the regulator described how Standard Chartered officials debated whether to continue Iranian dealings. In October 2006, the top official for business in the Americas, whom the regulator did not name, warned in a “panicked message” that the Iranian dealings could cause “catastrophic reputational damage” and “serious criminal liability.”
A top executive in London shot back: “You f—ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.” The reply showed “obvious contempt for US banking regulations,” the regulator said.
Standard Chartered is the third British bank to be ensnared in US law enforcement probes this summer. Barclays Plc agreed to pay $453 million to settle US and UK probes that it rigged a global lending benchmark in June. A month later, a US Senate panel issued a scathing report that criticised HSBC Holding Plc’s efforts to police suspect transactions, including Mexican drug traffickers.
The DFS declined further comment. The Representative Office of Iran in Washington was not immediately available to comment. The Treasury Office of Foreign Assets Control, which enforces US economic and trade sanctions against targeted countries, declined to comment.
Standard Chartered, a financier in emerging markets, is the sixth foreign bank since 2008 to be implicated in dealings with sanctioned countries such as Iran in investigations led by federal and New York law enforcement officials.
Four banks – Barclays, Lloyds (LLOY.L), Credit Suisse Group (CSGN.VX) and ING Bank (ING.AS) – have agreed to fines and settlements totalling $1.8 billion. HSBC currently is under investigation by US law enforcement, according to bank regulatory filings.
The New York regulator, headed by former prosecutor Benjamin Lawsky, ordered Standard Chartered to explain why the bank should not lose its state licence and the ability to process dollar transactions. Lawsky also ordered the bank to bring in an outside consultant to monitor its transactions.
“Standard Chartered Bank operated as a rogue institution,” Lawsky said in the order.
In an unusual move, the regulator also found fault with an outside consultant – Deloitte LLP < DLTE.UL> – because the firm “apparently aided” the bank in its deception.
A report by Deloitte “intentionally omitted critical information” when submitted to regulators, it said. Deloitte was hired to conduct a review after Standard Chartered in 2004 was ordered by New York and federal regulators to correct anti-money laundering lapses.
The so-called “look back” review was supposed to identify suspicious transactions between 2002 and 2004. But at one point, Standard Chartered asked Deloitte to “delete” references to certain improper Iranian transactions, according to the New York order.
In a subsequent email, a Deloitte partner said the firm had “agreed” to the request because it was “too politically sensitive for both (Standard Chartered) and Deloitte. That is why I drafted the watered-down version.” In 2007, that report enabled Standard Chartered to show regulators it had corrected flaws in its anti-money laundering systems.
In a statement on Monday, Deloitte said its financial advisory service division “performed its role as independent consultant properly and had no knowledge of any alleged misconduct by bank employees. Allegations otherwise are unsupported by the facts.”