More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
Another British bank, termed a “rogue institution,” is in the crosshairs of the New York Department of Financial Services, which has warned bank that it could be suspended from doing business in the state over charges that it violated money-laundering laws in dealings with institutions in Iran that are subject to U.S. economic sanctions.
Bloomberg reported Tuesday that Standard Chartered, a London-based bank with U.S. operations headquartered in New York, was warned in 2006 by its U.S. head that the bank’s actions could expose it to “catastrophic reputational damage.” However, the reply he received from a superior in London categorized U.S. employees with an obscenity, according to the order issued by the regulator.
The order quoted that reply saying in part, “Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?” According to the regulator, the bank conducted $250 billion in transactions with Iranian banks in seven years, violating federal laws against money-laundering.
Nearly 90% of Standard Chartered’s profit and revenue comes from Asia, Africa and the Middle East.
In a statement, the bank said that 99.9% of its Iran transactions were in compliance with U.S. Treasury regulations, and that the total value of transactions that failed to comply totaled less than $14 million. It also said it “strongly rejects the position and portrayal of facts” made by the state regulator, run by Superintendent Benjamin Lawsky.
Standard Chartered is far from the first London-based bank to be hit with charges for violating money-laundering laws. Barclays, a unit of Lloyds and HSBC just last month were accused of proscribed transactions.
“It really seems as if they are perfectly prepared to flout whatever sanctions, rules and laws anybody tries to impose on them,” said Sherrill Shaffer in the report. Shaffer, formerly a senior economist for the New York Fed and now a banking professor at the University of Wyoming in Laramie, added, “It starts to convey a picture that London-based banks have decided that they’re not going to pay attention to U.S. sanctions with regard to their U.S. operations.”
Should Standard Chartered lose its New York banking license, Royal Bank of Canada analysts said it would take a heavy toll on the bank’s ability to process dollar payments. Patrick Lee, an RBC analyst in London, said in the report, “These are very serious penalties. Standard Chartered’s U.S. headquarters are in New York, so a revocation of its license would have potentially major implications on its ability to conduct business in the U.S.”
Lee added, “Similarly, its U.S. dollar clearing operations, the seventh largest in the world, according to Standard Chartered, would potentially impact its core business trade finance business model.”
The order also cited consultants from the accounting and consulting firm Deloitte’s financial services and advisory group, according to Reuters, for "intentionally omitt[ing] critical information" in a report to regulators. The firm had been retained as part of a legal agreement with New York regulators, said the order, following other money-laundering compliance failures, and cited an e-mail saying that Deloitte had provided a “watered-down” version of the report because “this is too much and too politically sensitive for both Standard Chartered Bank and Deloitte.”
Cormac Leech, an analyst at London-based Liberum Capital, said in the report that the bank’s cost may rise as high as $5.5 billion in fines, lost revenue and reduction in share price. After the news hit, its stock was down as much as 14% in London trading; on Tuesday it suffered its largest decline in nearly 24 years, losing 23% in morning trading in London. Until Monday the stock was up 11% for the year.
Leech was quoted saying, “It’s unclear whether senior management will resign for the alleged shortcomings given that they have been in their current roles for much of the relevant period, raising the risk of kitchen-sinking on arrival of new management.”
The bank’s Iran office was opened in 1993, and in 2003 the bank said that “cross-border trade flows with markets like Turkey, Afghanistan, Iraq and Iran appear to be growing and offer potential to us.” While it halted all new business in Iran in May 2007, it did not completely exit the region until May of this year.
From 2001 to 2007, the agency’s order said, Standard Chartered executed 60,000 wire transfers involving $250 billion through its New York branch during a period in which the U.S. Office of Foreign Assets Control (OFAC) required U.S. banks to identify and filter all dollar-clearing transactions that involved any financial institutions in U.S.-sanctioned countries, even if those transactions were handled by a third-party bank.
Standard Chartered, however, “repaired” any orders for wire transfers that involved its New York branch, so that they contained no reference to Iranian bank involvement. This went on for seven years—until OFAC revoked such third-party transfers in 2008. But, said the order, the bank hid its actions even after transfers stopped.
The regulator alleged that the bank hid its conduct from bank supervisors for nearly 10 years, saying that it operated as a “rogue institution” that intentionally kept back information on its Iranian client transactions.