Euromoney, April 10 2019
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Standard Chartered announced yesterday that it will pay US$1.1 billion to resolve investigations by US and UK regulators into its alleged breaches of sanctions against Iran.
The bank will pay US$947 million to an assortment of five US agencies, led by the US Department of Justice; and £102 million to the UK Financial Conduct Authority.
The agreement resolves an issue that has been hanging over the bank since Peter Sands’s time. It already paid a $667 million fine in 2012 over its handling of transactions involving Iran between 2001 and 2007. But then, while under a two-year deferred prosecution agreement, it revealed it had conducted other transactions for Iranian clients. A four year extension to the deferred prosecution agreement and a new investigation followed.
It’s this latter investigation that has now been settled, and it seems to have cost more than the bank had expected: it had provisioned $900 million for the fines. On top of that, the deferred prosecution agreement has been extended (again), to 2021.
The whole investigation was embarrassing for Standard Chartered. It wasn’t just the reputational hit of having broken rules; it was the garishness of the details, like the time the bank opened an account in the UAE for a “consulate” with Dh3 million (US$653,000) in cash in a suitcase. There was “little evidence that the origin of the funds had been investigated,” the UK FCA said yesterday.
There are many who feel the US over-reaches in its penalties over Iran sanctions, but Standard Chartered’s conduct frequently appeared brazen. The US Department of Justice complaint focuses on one Iranian client, Mahmoud Reza Elyassi, whom Standard Chartered employees helped move $240 million through the US financial system between 2007 and 2011. Elyassi didn’t exactly hide his Iranian affiliations: when he opened his account with Standard Chartered in Dubai in 2006, he provided his Iranian passport as ID. The DOJ says that when he faxed payment instructions, they usually came from an Iranian number.
Nor can the bank claim a one-off transaction, an aberrant error of judgement: the Department of Justice says 9,500 financial transactions were made through US financial institutions in that four-year period for Iranian entities. Standard Chartered has admitted as much.
One former employee of Stanchart’s Dubai branch, referred to as Person A, has pleaded guilty for conspiring to defraud the US and to violate IEEPA, a US federal law. Elyassi himself has also been charged. The complaint says two former employees of the branch were involved, and that they “helped Elyassi manage these accounts, concealed their Iranian connections, and facilitated foreign currency transactions in US dollars.”
The US regulators have been characteristically aggressive in monetary terms, but also some of the wording of today’s DOJ announcement will sting. “When a global bank processes transactions through the US financial system, its compliance program must be up to the task of detecting and preventing sanctions violations – and when it is not, banks have an obligation to identify, report and remediate any shortcomings,” said Assistant Attorney General Brian Benczkowski.
The FCA notes other misconduct, like failing to collect sufficient information on a customer exporting a commercial product “which could, potentially, have a military application.” It was exported to over 75 countries, two of them war zones. The FCA concerns cover the period 2009 to 2014 in its UAE branches, and 2010 to 2013 in its UK correspondent banking business.
Mark Steward, Director of Enforcement and Market Oversight at the FCA, called Stanchart’s oversight of financial crime controls “narrow, slow and reactive.”
Still, it’s done now. Banks and shareholders hate cases like this; they drag on long after the people involved have gone and often the whole management has changed in the meantime, but they leave uncertainty for shareholders and they look very bad indeed. The DOJ says that Standard Chartered has engaged in “significant remediation” since mid-2013, yet it is six years on from that change in conduct that the matter is finally going to go through the books, and there’s still a two-year hangover in the extended deferred prosecution agreement.
So Bill Winters can say, accurately, “The circumstances that led to today’s resolutions are completely unacceptable and not representative of the Standard Chartered I am proud to lead today.” But he’s still dealing with the consequences of misdeeds under previous administrations.