U.K. investment bank Standard Chartered could be suspended from operating in New York after state finance regulators found hundreds of billions of dollars worth of transactions with Iran.”Motivated by greed, SCB acted for at least 10 years without any regard for the legal, reputational, and national security consequences of its flagrantly deceptive actions,” the New York Department of Financial Services says.
The state regulator alleges the bank colluded on tens of thousands of transactions totaling more than $250 billion, earning Standard Chartered millions in fees.
U.S. regulations prevent financial institutions from making payments to clients before they have determined that they do not originate in a country under sanction, which currently includes Iran, North Korea, and Sudan.
Here are the craziest allegations and details from the report.
Standard Chartered evaded U.S. rules for more than a decade, routing more than 60,000 Iranian transactions.
3. From January 2001 through 2007, SCB conspired with its Iranian Clients to route nearly 60,000 different U.S. dollar payments through SCB’s New York branch after first stripping information from wire transfer messages used to identify sanctioned countries, individuals and entities (“wire stripping”). — Page 3
U.S. executives sent a series of warnings to SCB London.
7. In short, SCB operated as a rogue institution. By 2006, even the New York branch was acutely concerned about the bank’s Iran dollar-clearing program. In October 2006, SCB’s CEO for the Americas sent a panicked message to the Group Executive Director in London. “Firstly,” he wrote, “we believe [the Iranian business] needs urgent reviewing at the Group level to evaluate if its returns and strategic benefits are . . . still commensurate with the potential to cause very serious or even catastrophic reputational damage to the Group.” His plea to the home office continued: “[s]econdly, there is equally importantly potential of risk of subjecting management in US and London (e.g. you and I) and elsewhere to personal reputational damages and/or serious criminal liability.” — Page 4
London responded, saying “You f—ing Americans.”
8. Lest there be any doubt, SCB’s obvious contempt for U.S. banking regulations was succinctly and unambiguously communicated by SCB’s Group Executive Director in response. As quoted by an SCB New York branch officer, the Group Director caustically replied: “You f—ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.” — Page 5
SCB allegedly went so far as to create formal operating manuals for Iranian routing (!!).
30. Senior SCB management memorialised many of these procedures in formal operating manuals. One such manual entitled, “Quality Operating Procedure Iranian Bank Processing,” directed SCB London employees to “repair payment[s] by making appropriate changes” to transacting party codes. It provided step-by-step wire stripping instructions for any payment messages containing information that would identify Iranian Clients. — Page 13
Since they could not keep up with demand, SCB created electronic systems to process Iranian business.
32. These masking procedures evolved to meet SCB’s growing volume demands. When SCB anticipated that its business with Iranian Clients would grow too large for SCB employees to “repair” manually the instructions for New York bound wire transfers, SCB automated the process by building an electronic repair system with “specific repair queues,” for each Iranian Client. — Page 14
As other banks stopped working with Iran, SCB worked to gain market share.
35. Beginning in 2003, other banks with significant Iran portfolios began exiting the U-Turn business. For instance, SCB’s business managers learned that Lloyds TSB London were “withdrawing their services” with one of its Iranian client banks “primarily for reputational risk reasons.” Rather than follow suit, and despite concerns regarding reputational risk and OFAC sanctions, SCB positioned itself to take the abandoned market share. — Page 15
SCB called the Iranian routing Project Gazelle.
36. As described in a December 2005 internal memorandum written by SCB’s CEO for the United Arab Emirates and the Group Head of Compliance and Regulatory Risk, entitled “Project Gazelle, Report on Iranian Business – which was circulated among SCB’s key legal, compliance, and Iranian Client business managers – SCB’s “short to medium term strategy [was] to grow the wholesale business by growing our wallet share from existing relationships with Financial Institutions and Iranian companies and establishing new relationships with Iranian companies and [intermediaries] in oil and gas related businesses.” — Page 15
SCB allegedly asked its auditer, Deloitte, to water down its reports
45. Having improperly gleaned insights into the regulators’ concerns and strategies for investigating U-Turn-related misconduct, SCB asked D&T to delete from its draft “independent” report any reference to certain types of payments that could ultimately reveal SCB’s Iranian U-Turn practices. In an email discussing D&T’s draft, a D&T partner admitted that “we agreed” to SCB’s request because “this is too much and too politically sensitive for both SCB and Deloitte. That is why I drafted the watered-down version.” — Page 19
SCB allegedly withheld data from the U.S. after regulators made requests
48. In September 2006, New York regulators requested from SCB statistics on Iranian U-Turns, including the number and dollar volume of such transactions for a 12 month period. In response, SCB searched its records for 2005 and 2006, and uncovered 2,626 transactions totaling over $16 billion. SCB’s Head of Compliance at the New York branch provided the data to SCB’s CEO for the Americas, who in turn, sent it to the SCB Group Executive Director in London. In his memorandum to the Executive Director, the CEO expressed concern that this data would be the “wildcard entrant” in the ongoing review of U-Turns by regulators and could lead to “catastrophic reputational damage to the [bank].” Based on direction from “the powers that be,” SCB’s Head of Compliance in New York provided only four days of U-Turn data to regulators. — Page 20
SCB outsourced compliance to India to avoid communication with the U.S.
54.3 Outsourcing of the entire OFAC compliance process for the New York branch to Chennai, India, with no evidence of any oversight or communication between the Chennai and the New York offices. — Page 22