British bank Standard Chartered has been accused of exposing the US to terrorists, drug kingpins and weapon dealers by hiding £161bn of transactions with the Iranian government.
Standard Chartered stands accused of being a “rogue institution” by the New York State Department of Financial Services, who accused them of leaving the US “vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes”.
The bank, one of the five largest in the UK by market value, kept around 60,000 transactions secret from US regulators over nearly 10 years, the New York State Department of Financial Services claimed in a report.
The report alleges that in 2006, in response to the head of the bank’s American operations warning about “reputational damage” from dealing with Iranian clients, an unnamed director is said to have replied: “You f****** Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”
According to the New York bank regulator Standard Chartered hid $250bn (£161bn) of transactions with Iran, which are prohibited due to sanctions, over the period between 2001-2010.
Standard Chartered now faces having its licence to bank in the US removed.
Shares in the bank have fallen sharply in response to the claims.
Its chief executive, Peter Sands, is known for opposing new regulations to curb the excesses of the financial sector, and had been suggested as a possible successor to Sir Mervyn King as governor of the Bank of England.
The bank, which employs nearly 90,000 people worldwide, has been called to appear before regulators to explain the apparent violations and defend its licence to trade on the New York Stock Exchange.
Standard Chartered said it strongly rejected the regulator's portrayal of facts. "The group is conducting a review of its historical US sanctions compliance and is discussing that review with US enforcement agencies and regulators.
"The group cannot predict when this review and these discussions will be completed or what the outcome will be."
The allegations come after a US Senate committee sensationally accused British banking giant HSBC of facilitating money laundering for drug king pins, rogue states and terrorists.
The US Senate Homeland Security Sub Committee on Investigations accused HSBC of, among other suspect activities, providing services to some lenders in Saudi Arabia and Bangladesh believed to have helped fund al-Qaeda and other terrorist groups.
Fighting back: Standard Chartered's statement
Standard Chartered PLC (the "Group") refers to the order which it received today from one of its regulators, the New York State Department of Financial Services ("DFS") and which it placed on the RNS. The Group strongly rejects the position or the portrayal of facts as set out in the order issued by the DFS.
The Group had previously reported that it is conducting a review of its historical compliance and is discussing that review with US agencies, including the DFS, the Department of Justice, the Office of Foreign Assets Control, the Federal Reserve Group of New York and the District Attorney of New York. The disclosure appears in our Annual Results of 2010, 2011 and, again most recently, in the 2012 Interim Results in the Risk Review section at p.21 under Regulatory Changes and Compliance.
In January 2010, the Group voluntarily approached all relevant US agencies, including the DFS, and informed them that we had initiated a review of historical US dollar transactions and their compliance with US sanctions. This review focused primarily on transactions relating to Iran in the period 2001-2007, and in particular, their compliance with the U-turn framework established by the US authorities to enable ongoing US dollar trade with Iran by other countries.
This review was conducted by external counsel and external consultants. The Group waived its attorney-client and work product privileges to ensure that all the US agencies would receive all relevant information. The Group also gave regular updates and presentations to the DFS and the other agencies on the results of the Group's investigation. The materials included several thousands of pages of documents and interview notes, plus analysis of approximately 150 million payment messages.
The Group does not believe the order issued by the DFS presents a full and accurate picture of the facts. The analysis, that the Group shared with all the US agencies, demonstrates that throughout the period the Group acted to comply, and overwhelmingly did comply, with US sanctions and the regulations relating to U-turn payments. As we have disclosed to the authorities, well over 99.9% of the transactions relating to Iran complied with the U-turn regulations. The total value of transactions which did not follow the U-turn was under USD14m.
The Group believes that the interpretation reflected in the DFS' order, of the U-Turn exemption - a federal regulation administered and enforced by federal authorities - is incorrect as a matter of law. The Group's review of its Iranian payments also did not identify a single payment on behalf of any party that was designated at the time by the US Government as a terrorist entity or organization.
Standard Chartered ceased all new business with Iranian customers in any currency over five years ago. The Group has made presentations to the DFS and other US agencies concerning the strength of its global sanctions compliance programme during the period under review and through to the present day.
The Group is engaged in ongoing discussions with the relevant US agencies. Resolution of such matters normally proceeds through a co-ordinated approach by such agencies. The Group was therefore surprised to receive the order from the DFS, given that discussions with the agencies were ongoing. We intend to discuss these matters with the DFS and to contest their position.
The Group takes its responsibilities very seriously, and seeks to comply at all times with the relevant laws and regulations. It is in this spirit we initiated this review and have engaged with the US agencies.