Out-Law News 2 min. read

Standard Chartered settles with US regulators "before dispute resolved judicially and fairly", expert says


Multinational bank Standard Chartered is to settle with US regulators over money laundering allegations in a deal worth $340 million, the New York State Department of Financial Services (DFS) has announced.

The London-headquartered bank will pay a civil penalty to the DFS over allegations that it hid illegal transactions with Iran from regulators. While a full formal agreement has not yet been concluded, the DFS said in a short statement that both parties were in agreement that "the conduct at issue involved transactions of at least $250 billion".

A hearing scheduled to take place today has been adjourned, it added.

An order (27-page / 281KB PDF) served on the bank by the regulator last week attracted criticism from banking and corporate crime experts at Pinsent Masons, the law firm behind Out-Law.com, for its "intemperate and aggressive" language. The bank was accused by the DFS of "[leaving] the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes". Banking law expert Tony Anderson said that the bank would have been left with little choice but to agree to a settlement in order to minimise reputational damage.

"The approach of regulators issuing damaging statements before alleged regulatory breaches have been resolved judicially and fairly will be a significant concern for financial institutions," he said. "Faced with a plunging share price following publication of such statements, institutions will have little choice but to settle these disputes as soon as possible and on compromised terms, to avoid further reputational damage."

On its website, Standard Chartered said that it continued to "engage constructively with the other relevant US authorities".

"The timing of any resolution will be communicated in due course," it added.

The DFS said last week that Standard Chartered had "schemed with the Government of Iran" to hide an estimated 60,000 secret transactions from regulators over a 10-year period. However, the bank said in a statement that it had voluntarily told the authorities in 2010 that it had begun a review of its transactions involving Iran.

The Middle Eastern state is subject to US economic sanctions; however banks in the US were allowed some leeway in processing 'u-turn' payments for Iranian clients, providing that these did not use Iranian banks, until this loophole was closed in 2008. According to a statement released by Standard Chartered last week, 99.9% of its transactions relating to Iran complied with the regulations while those that did not amounted to less than $14m in value.

In a statement Benjamin Lawsky, New York Superintendent of Financial Services, said that alongside the civil penalty Standard Chartered had also agreed to install a monitor to evaluate the money-laundering risk controls in place at its New York branch, to report directly to the DFS, for a period of at least two years. DFS examiners would also be placed "on site at the Bank", he said.

Standard Chartered will also "permanently install personnel within its New York branch to oversee and audit any offshore money-laundering due diligence and monitoring" it carries out, according to the DFS statement.

Tom Stocker, an expert in corporate crime with Pinsent Masons, said last week that it was clear from a string of cases coming out of the US and the UK that a period of tougher enforcement against companies' "historic behaviour" had begun.

"Those laws are extremely onerous and far-reaching, and breaches can lead to corporate criminal liability, although civil penalties are achievable if cases are properly handled," he added.

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