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Aug 21

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Standard Charter Bank Still In Trouble over Iranian Money Laundering Fraud

In a quick settlement over Iranian-related illegal conduct, Standard Chartered Bank (SCB) agreed on August 14 to pay $340 million in a settlement with the New York State Department of Financial Services (DFS). The DFS settlement allows SCB to continue operating in New York, but requires an on-site monitor who will report directly to DFS and will oversee SCB’s money laundering controls for at least two years.

Importantly, the settlement is only with the (DFS), and not all regulators that have an interest in the SCB misconduct. Given the seriousness of the DFS allegations, SCB will likely face additional sanctions, fines or penalties.

Details of the DFS Order are in this article. In summary, the settlement pertains to an August 6, 2012 DFS Order that reported:

For almost ten years, SCB schemed with the Government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250 billion, and reaping SCB hundreds of millions of dollars in fees. SCB’s actions left the U.S. financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity….”

The U.S. SCB executives were concerned about this illegality, and sought guidance from its parent company. The DFS Order explains this as follows:

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. … 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.”

perhaps the most interesting (at least to our firm, who is licensed as Certified Public Accountants) is the involvement of Deloitte and Touche (D&T), one of the “Big Four” accounting and auditing firms. According to the DFS Order, D&T directly aided and abetted the fraud by submitting a false report to DFS that was required by a prior written agreement between DFS and SCB. The DFS Order describes the requirement for the D&T report as follows:

By 2003, New York regulators had discovered other significant BSA [Bank Secrecy Act] and AML [anti-money laundering policies and procedures] violations at SCB’s New York branch, including deficiencies in its suspicious activity monitoring and customer due diligence policies and procedures. In October 2004, SCB consented to a formal enforcement action and executed a written agreement … To that end, SCB retained D&T to conduct the required independent review and to report its findings to the regulators.”

When D&T identified the wrongful SCB activity, D&T agreed to assist with the cover-up. The DFS Order states:

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.’”

The D&T report was a significant component of SCB avoiding further DFS regulatory scrutiny. According to the Order:

Using D&T’s “watered-down” report and the fraudulent data, SCB convinced the Department and FRBNY [the Federal Reserve Bank of New York] to lift the Written Agreement in 2007. In other words, SCB successfully misled New York regulators to believe that it had corrected serious flaws in its BSA/AML program.

But the opposite was true. By forging business records over many years to circumvent OFAC [U.S. Office of Foreign Assets Control] restrictions, SCB undermined all aspects of its BSA/AML program.”

 

 

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2012/08/standard-charter-bank-still-in-trouble-over-iranian-money-laundering-fraud/

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