Standard Chartered signed a consent decree with the New York Department of Financial Services on September 21. The signed agreement, which you can read here, acknowledges about $250 billion of wires in approximately 59,000 transactions were “repaired” with the intent of hiding whose money was involved. By way, there is a previous enforcement action that didn’t detect any problem, which tells me this is a repeat violation.
The Wall Street Journal report StanChart Formalizes Settlement in Iran Case describes the settlement. The line that caught my interest is:
Standard Chartered, which contested the allegations when they were filed last month, acknowledged misconduct tied to 59,000 transactions totaling about $250 billion.
I was curious about that so I looked at the regulator’s web site which has a press release here, which had this comment:
The parties have agreed that the conduct at issue involved transactions of at least $250 billion.
Key terms of the settlement mentioned in the press release are:
The Bank shall pay a civil penalty of $340 million to the New York State Department of Financial Services.
The Bank shall install a monitor for a term of two years who will report directly to DFS and who will evaluate the money-laundering risk controls in the New York branch and implementation of appropriate corrective measures. In addition, DFS examiners shall be placed on site at the Bank.
The Bank shall permanently install personnel within its New York branch to oversee and audit any offshore money-laundering due diligence and monitoring undertaken by the Bank.
As mentioned earlier, the consent agreement is available online here.
Bank acknowledges ‘repaired’ wires totaled about $250b
Here are a few things of interest in the consent decree:
1. Throughout the period relevant to the Department’s investigation, Iran was subject to U.S. economic sanctions for, among other things, sponsoring international terrorism and attempting to build nuclear weapons.
2. From at least January 2001 through 2007, SCB provided U.S. dollar clearing services to Iranian state and privately owned banks, corporations, and individuals. In processing transactions on behalf of its Iranian customers, SCB removed or omitted Iranian information from U.S. dollar wire payment messages through a practice known internally at SCB as “repair,” which was designed to help SCB compete for Iranian business and to avoid potential processing delays.
3. The removal or omission of Iranian information, by the use of cover payments or by “repair,” occurred with respect to approximately 59,000 transactions totaling approximately $250 billion.
Paragraph 2 indicates the laundering program was running for at least seven years. In addition, the consent decree indicates it was an intentional effort in order to develop business. Paragraph 3 acknowledges 59,000 transactions with $250 billion transferred.
In contrast to some other comments in the signed agreement, this dollar amount is not asserted, alleged, or merely the position the department. Since every word, conjunction, and comma is negotiated in a consent decree, it looks to me like that’s a confession of an intentional program to launder $250 billion for the Iranian government and businesses.
Previous enforcement action
The real eye-opener for me is a previous enforcement action to address risk controls for money laundering. Check this out:
5. In 2004, SCB consented to a formal enforcement action and executed a written agreement (“Written Agreement”) with the New York Banking Department (“NYSBD”), a predecessor agency of the Department, and the Federal Reserve Bank of New York (“FRBNY”) regarding flaws in anti-money-laundering risk controls at SCB NY. The Written Agreement required SCB to adopt sound anti-money laundering practices with respect to foreign bank correspondent accounts and to hire an independent consultant to conduct a historical transaction review for the period July 2002 to October 2004. On July 10, 2007, the NYSBD and FRBNY terminated the Written Agreement and ended the ongoing enforcement action.
So the program required by that 2004 enforcement action failed to detect a structured, intentional money-laundering program that was in full operation before, during, and after the enforcement action.
I’ve not researched what was in that enforcement action, but it certainly looks like a fail for the efforts under the 2004 enforcement action. Looks to me like this current settlement is for a repeat violation of money-laundering regulations.
It seemed like the New York regulators were a bit more irritated than I would otherwise expect. The failure of the 2004 agreement indicates why.