Dirty Messages; Dirty Money: Standard Chartered Pays $350 Million Fine
Standard Chartered Bank's decision to settle with New York State's Department of Financial Services on Wednesday for a whopping $350 million for violating US sanctions over a ten-year period provides ample proof that something as simple as altering an electronic message can end up being pretty costly.
Ever since the DFS alleged the once pristine British bank with wrongdoing about ten days ago, Standard Chartered consistently insisted it was not engaged in a massive conspiracy to aid the Iranian government. At worst, only $14 million in payments moving through its New York office may have violated U.S. sanctions. Instead, it was the DFS which "misinterpreted" the law in coming up with a $250 billion figure in question. The interpretation involved loopholes in the law -- closed in 2008 -- which might actually have made Standard Chartered's activities, known as U-turn transactions, perfectly legal.
Yet Standard Chartered agreed on Wednesday to fork over multiples of the $14 million for illegally helping Iran. The penalty: a whopping $350 million. That’s nothing to sneeze over, but will help stabilize Standard Chartered's sinking stock price and keep its lucrative U.S. banking license. The DFS had threatened to cancel that leaving Standard Chartered without any connection to the US banking system to manage its US dollar clearing business. The bank also has some badly needed breathing room to negotiate settlements with other regulatory agencies -- such as the US Treasury -- now investigating the same activities in question.
In cutting a deal, Standard Chartered appears to have changed its tune when it comes to acknowledging how much money was really involved. So did the DFS for that matter -- and big time. Apparently, say media reports, the figure was closer to $300 million which anti-money laundering experts say is still a tiny percentage of Standard Chartered's overall payments business in the US. But those same reports also cite the DFS as investigating whether Standard Chartered violated sanctions against Libya, Myanmar and Sudan through the same electronic methods.
According to the DFS, messages about transfer of funds -- otherwise known as payment messages -- traveling through a network operated by La Hulpe, Belgium headquartered SWIFT, never indicated that an Iranian bank was the ordering party. That's the actual Standard Chartered customer who wanted the payment made. Standard Chartered got paid for being the go-between through its New York office. Payment operations specialists at the bank's London headquartered apparently changed the data fields showing the ordering parties from the names of Iranian banks to "Unknown."
Not only did DFS possess some pretty damaging emails of senior-ranking officials in London promoting Standard Chartered's illegal conduct, but it could easily prove Standard Chartered illegally altered the payment messages to its advantage to conceal illegal wire transfers. Doing so at the very least violates laws requiring banks to keep accurate documents. It wouldn't have mattered whether Standard Chartered intended or not to participate in money laundering activities or how much money was involved.
"The DFS didn’t have to nail Standard Chartered on the more serious charge which might either be subject to interpretation," says one securities law expert in New York. "Violating books and records rules over an extended period of time is pretty serious and banks should take every precaution not to do that." Three other attorneys contacted by www.iss-mag.com on Wednesday offered a similar stance. They declined to be identified due to what they say are "current and potential conflicts of interest."