Standard Chartered told to explain Iranian money movement

New York's top bank regulator has threatened to strip Standard Chartered Plc of its state banking license.

They claimed the British bank was a “rogue institution” that hid $250 billion in transactions tied to Iran, in violation of US law.

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 - exposing the US banking system to terrorists, drug traffickers and corrupt states.

The loss of a New York banking license would be a devastating blow for the foreign bank, effectively cutting off direct access to the US banking 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 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 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.

In a statement, Standard Chartered said: “The group strongly rejects the position or the portrayal of facts as set out in the order issued by the DFS. It does not believe the order issued by the DFS presents a full and accurate picture of the facts.”

It said it shared with US agencies an analysis that demonstrated it “acted to comply, and overwhelmingly did comply” with US regulations. Standard Chartered put the total value of Iran-related transactions that did not follow regulations at less than $14 million.

“The group was therefore surprised to receive the order from the DFS, given that discussions with the agencies were ongoing,” Standard Chartered said. “We intend to discuss these matters with the DFS and to contest their position.”

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, Credit Suisse Group and ING Bank - have agreed to fines and settlements totaling $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 license 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.

Lawsky 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 US sanctions.

Monday's order alleged that Standard Chartered removed codes on money transfers and altered message fields, inserting phrases such as “NO NAME GIVEN” to hide the nature of the transactions.

At the centre 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 'I'.