News & Press: ACFCS News

U.S., UK fine StanChart $1.1 billion for Iran, Syria transactions – in third sanctions settlement

Tuesday, April 9, 2019   (0 Comments)
Posted by: Brian Monroe
Share |

By Brian Monroe
April 9, 2019

Federal and state authorities in the United States and United Kingdom Tuesday levied a penalty of more than $1.1 billion against one of London’s largest banks for engaging in thousands of illicit transactions worth hundreds of millions of dollars involving blacklisted countries including Iran, Sudan and Syria – a rare global settlement for financial crime compliance failures.  

The U.S. Department of Justice (DOJ), the U.S. Treasury’s Office of Foreign Assets Control (OFAC), New York State Department of Financial Services (NYDFS), the United Kingdom’s (U.K.) Financial Conduct Authority (FCA) along with other federal investigative and regulatory agencies issued the penalty against Standard Chartered Bank (StanChart) for years of violating U.S. sanctions policies and essentially breaching a prior deferred prosecution agreement (DPA).

The NYDFS penalized StanChart $340 million in August 2012 for AML, sanctions and books and records violations, at one point threatening to pull its banking license. The decision front-ran a concurrent federal investigation, leading to criticism of then head Benjamin Lawsky.

Just a few months later, in December 2012, the bank paid $327 million to U.S. regulators and prosecutors for sanctions breaches related to Iran and broader AML compliance failings.

In total, the NYDFS has penalized StanChart more than $1.1 billion alone in four separate actions for AML, sanctions and other financial crime failures.

“Global financial institutions serve as the first line of defense against money laundering and the financing of terrorist activities and those that fail to foster a strong compliance culture will be held accountable,” said Acting NYDFS Superintendent Linda Lacewell, in a statement.  

“While Standard Chartered has taken significant remedial measures since 2014 to develop a more robust program to prevent these egregious activities, the time has come for the bank to finish the job,” she said. “DFS will take whatever measures necessary to ensure that the bank lives up to its word and maintains effective safeguards against sanctions violations and money laundering.

Investigative, regulatory pile-on: Dollop of documents detail StanChart failings

To read the full OFAC action, click here.

DOJ To read the full DOJ action, click here.

To read the full Federal Reserve action, click here.

To read the full NYDFS action, click here.

To read the full Manhattan DA’s Office action, click here.

To read the full FCA action, click here.

Globetrotting, sanctions busting branches

The bank breached nearly a half-dozen U.S sanctions programs, including those relating to Burma, Cuba, Iran, Sudan, and Syria. OFAC stated it is also settling a separate case involving apparent violations by SCB of sanctions related to Zimbabwe.

As part of this latest agreement, the bank will have its DPA extended another two years.

At the heart of the penalties are a lack of oversight of foreign branches, a familiar refrain rife with risk and a major focal point of state and federal regulators and investigators.

In recent years many large U.S. and foreign banks have been chastised and penalized for weak oversight of foreign branches, affiliates and correspondent portals – an at-times complex and opaque vehicle that can allow murky customers and corporates and hidden nested entities access to the global financial system.

Between June 2009 and May 2014, the bank processed more than 9,300 transactions totaling just under $440 million that touched the United States and involved blacklisted individuals or countries – chiefly orchestrated by branches in the Middle East.  

The majority of the conduct concerns Iran-related accounts maintained by SCB’s Dubai, UAE branches, including accounts at SCB Dubai,” held for a number of general trading companies and a petrochemical company,” according to penalty documents.

SCB Dubai processed U.S. dollar transactions to or through SCB’s branch office in New York or other U.S. financial institutions on behalf of customers that sent payment instructions to SCB Dubai while physically located or ordinarily resident in Iran. 

SCB also processed online banking instructions for residents of comprehensively sanctioned countries.

StanChart has been a frequent target for U.S. authorities

StanChart is also getting more attention because of the increased focus by global regulatory and investigative agencies on how and where criminals, the corrupt and terror groups are gaining entry into the international financial system.

Not surprisingly, U.S. and U.K. authorities are cognizant of the bank’s global footprint and where most of their revenues come from, roughly 90 percent from Africa, Asia and the Middle East, putting the institution under an even more powerful microscope to uncover any missed instances of suspicious activity and intersections with rogue and recalcitrant regimes.

Moreover, any gaps could more quickly come to light as StanChart has been under constant enhanced monitoring from full-time monitors installed to give updates directly to regulators and be an on-the-ground, real-time remediator of past, present and future AML gaps, a still-wriggling stipulation from the 2012 DPA.

StanChart compliance ‘woefully inadequate’

The sanctions breaches uncovered by DFS related to $600 million in U.S. dollar clearing transactions between 2008 and 2014 originating from Standard Chartered’s London home office and its Dubai branch and that were transmitted to its New York branch in, violating laws in Gotham, despite continued protestations to the contrary.  

“Despite the bank’s repeated assurances to the Department, DFS’s on-going investigation identified significant gaps in the bank’s payment systems controls, incomplete customer due diligence, inadequate sanctions compliance leadership and little oversight of employees in Dubai,” according to NYDFS penalty documents.

StanChart also conducted an additional $20 million in U.S. dollar payments for sanctioned transactions involving Syrian, Sudanese, Burmese and Cuban entities, with the bulk of these transactions flowing through the bank’s New York Branch.

New York examiners, however, place a significant amount of blame, not just on revenue-hungry business line executives eager to flout sanctions rules, but squarely on the shoulders of top compliance officers who should have been uncovering the broad failures.

The NYDFS investigations uncovered that “both a senior U.S. sanctions compliance officer, and a senior U.K. sanctions compliance officer utterly failed to take steps to ensure that transactions from Iran were blocked after bank staff discovered dozens of clients used an internet platform known as “Straight-to-Bank,” or “S2B,” to access U.S. dollar accounts from Iran.”

Instead, the two executives tarried, dragging their feet and proceeding in a “business-as-usual fashion,” undertaking a “sluggish effort to try and persuade business managers to implement blocking of the S2B platform in Iran and other sanctioned countries – Myanmar, Sudan, Syria and Cuba.”

DFS found that senior compliance managers also “failed to take any steps to block or better identify payment instructions from customers originating from Iran through a bank fax system at the branch in the UAE in Dubai,” even though the risk for sanctions failings was higher.

The Department’s investigation further uncovered that the bank’s compliance infrastructure in the UAE region “was woefully inadequate. Compliance staff were poorly trained and unconcerned with U.S. sanctions regulations.”

DFS discovered some of the bank’s sanctions violations during the Department’s separate investigation of another bank. 

NYDFS examiners also found a bevy of individual failures where bank staff outside of compliance shirked U.S. sanctions rules to boost profits, keep a client or curry favor with new prospective businesses, including:

·       Between 2008 and 2012, Standard Chartered processed more than $150 million in incoming and outgoing dollar transactions for an Iranian petrochemical company, which was masked as being operated from Dubai. 

·       In another case, a bank manager in Dubai improperly took money from a sanctioned Iranian corporate entity to buy a personal car. Later, after the entity’s account was closed because of its sanctioned risk, the manager helped open another account for the entity under a different corporate name.

·       Another manager in Standard Chartered was found to have advised an Iranian front company located in Dubai how to evade detection by changing its corporate name and then opening a new account.

Big fine puts sanctions compliance back on the map

The failures in the StanChart penalty documents show that the era of massive fines for dealing with blacklisted regimes may not be over – as breaching a billion dollars doesn’t happen often and grabs the industry’s attention.

The penalty is among the largest ever levied for sanctions violations, charges that have hit many of the world’s largest foreign banks over the past decade, including HSBC at $1.9 billion, Commerzbank at $1.5 billion and Credit Agricole and Deutsche bank at a combined $1.1 billion.

BNP Paribas currently has highest ever sanctions penalty at $8.9 billion, also dealing with Iran and Sudan.

In many of these cases, banks had institutionalized evading compliance teams and sanctions screening systems by systematically “stripping” any references to Iran and other countries out of wire information, allowing them to enter the U.S. and dupe many domestic and foreign institutions in financial hubs like New York.

The StanChart penalty, however, for similar failings, was not a total surprise as the bank had telegraphed the incoming fine in several quarterly and annual reports, stating in recent months it had set aside some $900 million for sanctions and other compliance settlements.

Part of the reason the penalties were so high in this latest settlement is that the infractions occurred even after the 2012 DPA – a settlement that had to be pushed four times because StanChart felt it was unable to the meet the deadline, the latest extension occurring just 10 days ago.

This latest massive sanctions fine puts even more pressure on banks to improve insight into and oversight of their foreign branches, affiliates and correspondent banking relationships as the compliance in these areas is clearly on the minds of state and federal regulators and investigators.

As well, look for the fear of failure in this area to lead to a new wave of re-risking or de-risking out correspondent relationships with certain banks or even potentially whole countries – particularly in the MENA region. 

©2018 Association of Certified Financial Crime Specialists
All Rights Reserved