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British Bank in $340 Million Settlement for Money Laundering

Wednesday, 15 August 2012 09:35 By Jessica Silver-Greenberg, The New York Times News Service | Report

Benjamin Lawsky, a New York state regulator who filed an order against Standard Chartered on August 6, 2012, at his office in New York, January 12, 2012. (Photo: Michael Appleton for The New York Times)Benjamin Lawsky, a New York state regulator who filed an order against Standard Chartered on August 6, 2012, at his office in New York, January 12, 2012. (Photo: Michael Appleton for The New York Times)Standard Chartered, the British bank, has agreed to pay New York’s top banking regulator $340 million to settle claims that it laundered hundreds of billions of dollars in tainted money for Iran and lied to regulators.

The agreement is a victory for Benjamin M. Lawsky and his 10-month old agency, the New York Department of Financial Services, which took on the bank alone in charging that it schemed for nearly a decade with Iran to hide from regulators 60,000 transactions worth $250 billion.

Some federal authorities worry the deal has the potential to undercut a sweeping settlement between the bank and federal regulators, including the Federal Reserve and the Treasury Department. They are also investigating Standard Chartered, a 150-year-old bank based in London with operations across the globe.

The $340 million deal is a huge amount for a single state regulator, and it falls near the middle of the collective settlements that the Justice Department and the Manhattan district attorney have reached with other global banks in recent years over money laundering charges, from $619 million with ING bank in June to $298 million with Barclays in 2010.

Standard Chartered has maintained that only $14 million of the $250 billion in transactions violated federal regulations. In a statement announcing the settlement, Mr. Lawsky said, “The parties have agreed that the conduct at issue involved transactions of at least $250 billion.”

The bank said in a regulatory filing Tuesday that “a formal agreement containing the detailed terms of the settlement is expected to be concluded shortly.” Standard Chartered “continues to engage constructively with the other relevant U.S. authorities. The timing of any resolution will be communicated in due course,” the filing said.

After frantic negotiations with Mr. Lawsky’s office, which threatened to revoke the bank’s state license at a hearing scheduled for Wednesday, Standard Chartered made a calculation to settle, in part, to resolve the public relations headache, according to people briefed on the matter.

The agreement ends a weeklong international drama that thrust the upstart regulator into the spotlight and pitted Mr. Lawsky against federal authorities who thought he was overstepping his bounds and British authorities who accused him of tarnishing the reputation of their banks.

The size of the settlement is puzzling to some federal officials, including the Justice Department, because there is still widespread disagreement about the extent of the bank’s wrongdoing, according to regulators briefed on the matter.

In the weeks leading up to Mr. Lawsky’s move against the bank, the Justice Department was on the brink of deciding not to pursue criminal charges, after concluding that virtually all of the transactions with Iran had complied with United States law, current and former authorities said.

Until 2008, federal law allowed foreign banks to transfer money for Iranian clients through their American subsidiaries to another foreign institution. Mr. Lawsky claimed the 60,000 transactions occurred from January 2001 through 2007, as United States authorities suspected Iranians of using their banks to finance terrorism and nuclear weapons development.

Standard Chartered maintains that “99.9 percent” of the transactions under scrutiny involved legitimate Iranian banks and corporations and that none of the payments had anything to do with supporting terrorist activities. Because the bank did not properly report the transactions that had been routed through its New York branch, Mr. Lawsky’s office has said it was impossible to know how the money was used by the Iranians.

Mr. Lawsky based his case, in large part, on claims that the bank had violated state law by masking the identities of its Iranian clients, lying to regulators and thwarting American efforts to detect money laundering.

Particularly difficult for the bank, people with knowledge of the settlement talks said, was a trove of e-mails and memos detailing an elaborate strategy devised by the bank’s executives. An e-mail from a lawyer to bank executives in 2001 said that payment instructions for Iranian clients “should not identify the client or the purpose of the payment,” according Mr. Lawsky’s order.

One Iranian client was told to use “NO NAME GIVEN” in paperwork to transfer money, to escape scrutiny and “not appear to N.Y. to have come from an Iranian bank,” according to a 2003 e-mail from a bank official cited in the order.

In 2006, according to the order, the bank’s chief executive for the Americas wrote his bosses in London that the transactions with Iran had “the potential to cause very serious or even catastrophic reputational damage to the group.”

While violating the spirit of the law, the stripping of data that identified Iranian clients was not typically illegal until 2008 because foreign banks didn’t have to provide much information to their American units as long as they had thoroughly scoured the transactions for suspicious activity.

For Standard Chartered, the settlement signals a strategic shift. Last week, it said it “strongly rejects the position and portrayal of facts” by the agency.

The settlement is far more than the $5 million that the bank had been willing to pay to settle the case earlier this year, people with knowledge of the case said.

Even so, “it’s a small number to pay for the privilege of continuing to do billions of dollars of business through its New York branch,” said Sarah Jane Hughes, a banking law professor at the Indiana University Maurer School of Law.

Gov. Andrew M. Cuomo of New York lauded the Department of Financial Services, which was formed last year through a merger of existing banking and insurance departments. He said in a statement that the “result demonstrates the effectiveness and leadership” of the agency “and I commend the state Legislature for creating a modern regulator for today’s financial marketplace.”

The $340 million will go entirely to Mr. Lawsky’s department and then into the state government’s general fund.

Over the weekend, Standard Chartered worked closely with Mr. Lawsky’s office to hash out some kind of agreement, with the bank’s chief executive, Peter Sands, flying to New York from London early this week.

Mr. Lawsky has been unapologetic in his approach to the bank, even while weathering some criticism for going on the offensive against the bank on his own rather than moving in concert with other regulators.

The bank said that in 2010 it voluntarily turned over to several United States regulators a battery of e-mails and other internal bank documents detailing its dealings with Iran. But Mr. Lawsky felt he couldn’t wait any longer for federal regulators after an examination by his office revealed persistent failures in its compliance with bank secrecy and money-laundering laws, according to people with knowledge of the review.

As part of the settlement, the bank will install a monitor for at least two years to vet the bank’s money-laundering controls and put in permanent officials who will audit the bank’s internal procedures.

This story, "British Bank in $340 Million Settlement for Laundering," originally appears at the New York Times News Service.

© 2014 The New York Times Company Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.

Jessica Silver-Greenberg

Jessica Silver-Greenberg is a reporter at The New York Times.

 


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British Bank in $340 Million Settlement for Money Laundering

Wednesday, 15 August 2012 09:35 By Jessica Silver-Greenberg, The New York Times News Service | Report

Benjamin Lawsky, a New York state regulator who filed an order against Standard Chartered on August 6, 2012, at his office in New York, January 12, 2012. (Photo: Michael Appleton for The New York Times)Benjamin Lawsky, a New York state regulator who filed an order against Standard Chartered on August 6, 2012, at his office in New York, January 12, 2012. (Photo: Michael Appleton for The New York Times)Standard Chartered, the British bank, has agreed to pay New York’s top banking regulator $340 million to settle claims that it laundered hundreds of billions of dollars in tainted money for Iran and lied to regulators.

The agreement is a victory for Benjamin M. Lawsky and his 10-month old agency, the New York Department of Financial Services, which took on the bank alone in charging that it schemed for nearly a decade with Iran to hide from regulators 60,000 transactions worth $250 billion.

Some federal authorities worry the deal has the potential to undercut a sweeping settlement between the bank and federal regulators, including the Federal Reserve and the Treasury Department. They are also investigating Standard Chartered, a 150-year-old bank based in London with operations across the globe.

The $340 million deal is a huge amount for a single state regulator, and it falls near the middle of the collective settlements that the Justice Department and the Manhattan district attorney have reached with other global banks in recent years over money laundering charges, from $619 million with ING bank in June to $298 million with Barclays in 2010.

Standard Chartered has maintained that only $14 million of the $250 billion in transactions violated federal regulations. In a statement announcing the settlement, Mr. Lawsky said, “The parties have agreed that the conduct at issue involved transactions of at least $250 billion.”

The bank said in a regulatory filing Tuesday that “a formal agreement containing the detailed terms of the settlement is expected to be concluded shortly.” Standard Chartered “continues to engage constructively with the other relevant U.S. authorities. The timing of any resolution will be communicated in due course,” the filing said.

After frantic negotiations with Mr. Lawsky’s office, which threatened to revoke the bank’s state license at a hearing scheduled for Wednesday, Standard Chartered made a calculation to settle, in part, to resolve the public relations headache, according to people briefed on the matter.

The agreement ends a weeklong international drama that thrust the upstart regulator into the spotlight and pitted Mr. Lawsky against federal authorities who thought he was overstepping his bounds and British authorities who accused him of tarnishing the reputation of their banks.

The size of the settlement is puzzling to some federal officials, including the Justice Department, because there is still widespread disagreement about the extent of the bank’s wrongdoing, according to regulators briefed on the matter.

In the weeks leading up to Mr. Lawsky’s move against the bank, the Justice Department was on the brink of deciding not to pursue criminal charges, after concluding that virtually all of the transactions with Iran had complied with United States law, current and former authorities said.

Until 2008, federal law allowed foreign banks to transfer money for Iranian clients through their American subsidiaries to another foreign institution. Mr. Lawsky claimed the 60,000 transactions occurred from January 2001 through 2007, as United States authorities suspected Iranians of using their banks to finance terrorism and nuclear weapons development.

Standard Chartered maintains that “99.9 percent” of the transactions under scrutiny involved legitimate Iranian banks and corporations and that none of the payments had anything to do with supporting terrorist activities. Because the bank did not properly report the transactions that had been routed through its New York branch, Mr. Lawsky’s office has said it was impossible to know how the money was used by the Iranians.

Mr. Lawsky based his case, in large part, on claims that the bank had violated state law by masking the identities of its Iranian clients, lying to regulators and thwarting American efforts to detect money laundering.

Particularly difficult for the bank, people with knowledge of the settlement talks said, was a trove of e-mails and memos detailing an elaborate strategy devised by the bank’s executives. An e-mail from a lawyer to bank executives in 2001 said that payment instructions for Iranian clients “should not identify the client or the purpose of the payment,” according Mr. Lawsky’s order.

One Iranian client was told to use “NO NAME GIVEN” in paperwork to transfer money, to escape scrutiny and “not appear to N.Y. to have come from an Iranian bank,” according to a 2003 e-mail from a bank official cited in the order.

In 2006, according to the order, the bank’s chief executive for the Americas wrote his bosses in London that the transactions with Iran had “the potential to cause very serious or even catastrophic reputational damage to the group.”

While violating the spirit of the law, the stripping of data that identified Iranian clients was not typically illegal until 2008 because foreign banks didn’t have to provide much information to their American units as long as they had thoroughly scoured the transactions for suspicious activity.

For Standard Chartered, the settlement signals a strategic shift. Last week, it said it “strongly rejects the position and portrayal of facts” by the agency.

The settlement is far more than the $5 million that the bank had been willing to pay to settle the case earlier this year, people with knowledge of the case said.

Even so, “it’s a small number to pay for the privilege of continuing to do billions of dollars of business through its New York branch,” said Sarah Jane Hughes, a banking law professor at the Indiana University Maurer School of Law.

Gov. Andrew M. Cuomo of New York lauded the Department of Financial Services, which was formed last year through a merger of existing banking and insurance departments. He said in a statement that the “result demonstrates the effectiveness and leadership” of the agency “and I commend the state Legislature for creating a modern regulator for today’s financial marketplace.”

The $340 million will go entirely to Mr. Lawsky’s department and then into the state government’s general fund.

Over the weekend, Standard Chartered worked closely with Mr. Lawsky’s office to hash out some kind of agreement, with the bank’s chief executive, Peter Sands, flying to New York from London early this week.

Mr. Lawsky has been unapologetic in his approach to the bank, even while weathering some criticism for going on the offensive against the bank on his own rather than moving in concert with other regulators.

The bank said that in 2010 it voluntarily turned over to several United States regulators a battery of e-mails and other internal bank documents detailing its dealings with Iran. But Mr. Lawsky felt he couldn’t wait any longer for federal regulators after an examination by his office revealed persistent failures in its compliance with bank secrecy and money-laundering laws, according to people with knowledge of the review.

As part of the settlement, the bank will install a monitor for at least two years to vet the bank’s money-laundering controls and put in permanent officials who will audit the bank’s internal procedures.

This story, "British Bank in $340 Million Settlement for Laundering," originally appears at the New York Times News Service.

© 2014 The New York Times Company Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.

Jessica Silver-Greenberg

Jessica Silver-Greenberg is a reporter at The New York Times.

 


Hide Comments

blog comments powered by Disqus