British bank accused of laundering Iranian money, violating U.S. law

Another banking scandal has hit the United States, but this time American bankers aren’t to blame.

On Tuesday, New York’s top banking regulator accused the British bank Standard Chartered of secretly helping the Iranian government to launder more than $250 billion over the last ten years.

Standard Chartered Bank is accused of hiding the identities of its Iranian clients by stripping their names from paperwork. This was allegedly done with the support of upper management.

Since 2008, U.S. regulations have prohibited doing business with Iranian banks. Standard Chartered broke those laws when they allowed some of these transactions to pass through New York, the regulator claims.

Standard Chartered has denied the accusations, saying 99.9 percent of the transactions in question complied with regulations. According to the New York Times, Standard Chartered said tht only $14 million did not comply with regulations.

But The New York State Department of Financial Services, which is suing the banks, claims they wiped their records clean of the illegal dealings so American officials wouldn’t know they ever happened. It also claims these transactions made the U.S. financial system vulnerable to terrorists.

Now other authorities investigating the bank are questioning just how expansive Standard Chartered’s mistakes were, and there’s some concern that the state of New York may be over reacting.

Times business reporter Ben Protess said the Federal Reserve, The New York Federal Reserve, the Justice Department and a few other authorities started looking into Standard Chartered’s practices about two years ago. But the case took a turn when New York State Banking regulator Ben Lawsky began pursuing it in 2011.

“In 2011, you have this new regulator pop up — the New York State Banking regulator, Ben Lawsky. And just a few months later, here in 2012, we have him bringing a case ahead of the other federal regulators who’ve been investigating this for even longer,” Protess said.

Protess said Lawsky’s allegations and regulatory order were issued with little notice, which may have irked Federal authorities, who had been methodically building a case.

Several people close to the case say Lawsky’s actions have stunned officials at the Federal Reserve and the Justice Department, the Times reports. He’s also been criticized by the Treasury Department and British officials, including London Mayor Boris Johnson. Johnson said “criticism of British banks stems from jealousy of London as a financial center.”

The bank has turned over several emails and internal bank documents that detail the scheme. The Times reports the documents outlined projects with code names, money flowing to Iran’s central bank, U.S.-based bank executives warning of “criminal liability” and a manual that told employees how to hide the wave of questionable transactions.

“If you look at the complaint that Mr. Lawsky filed on Monday, it details a lot of very concerning actions and some of the emails are pretty damning. But, on the other hand, we have to wait and see just how expansive the scope of the federal inquiry is going to be before we know just how expensive this is going to be,” Protess said.

According to Bloomberg, it could cost the bank up to $700 million just to settle with Lawsky. The amount is similar to what HSBC paid in fines relating to its money laundering problems. A London banking analyst told The New York Times that potential fines could reach $1.5 billion.

“It’s kind of too soon to tell,” Protess said, “but there’s a serious threat to this institution, which until now has had a pretty solid reputation,”

Pat McFadden, a British Labour member of parliament and a member of the U.K. Treasury committee, agreed. He said Standard Chartered’s denial is in contrast to the recent case involving Barclay’s Bank and the Libor-fixing scandal where Barclay’s cooperated with the investigation.

“Standard Chartered has adopted a very different tone, so, I wouldn’t want to declare a verdict at the moment. I think the important point is that banks, wherever they’re located, have got to abide by the rules. They’ve got to cooperate with regulators, and of course, they’ve got to abide by sanctions,” he said.

However, he said it’s important to realize that both banks in the U.S. and the U.K. have problems and have fallen short of regulatory laws.

“What I hope is not happening here is a battle for business,” McFadden said. “I think it’s important that banks in both the U.K. and in the U.S. abide by the laws of the respective countries. They respect the regulators in the areas where they operate, and that we accept that in two countries with big major financial operation, big major financial interests, that when things go wrong, they should be properly punished.”