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.
The deal, however, 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 federal agencies and state prosecutors 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 has not admitted any
wrongdoing, and it 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, were 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.
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