In 2012, Standard Chartered Bank (SCB), a prominent British multinational banking and financial services company, faced significant regulatory scrutiny and enforcement actions by U.S authorities. The charges were centered around violations of U.S. economic sanctions, money laundering rules, and New York state laws.
Background and Findings
The New York State Department of Financial Services (DFS), in collaboration with other U.S. federal regulatory bodies, discovered that between 2001 and 2007, SCB had secretly moved approximately $250 billion through its New York branch on behalf of Iranian clients. This was during a time when the U.S. had imposed comprehensive sanctions against Iran, restricting economic dealings due to concerns over Iran’s nuclear program and its support of designated terrorist groups.
An examination of SCB’s wire transfer practices revealed that the bank deliberately removed or masked information related to the parties involved in the transactions. This practice, known as “wire-stripping,” made it appear as though the transactions were in compliance with U.S. sanctions laws and thus passed through the U.S. banking system without raising red flags.
In August 2012, DFS, under the leadership of Superintendent Benjamin Lawsky, accused SCB of being a “rogue institution” and threatened to revoke its license to operate in the state of New York. DFS alleged that SCB demonstrated “evident disregard for U.S. banking laws” and portrayed an institutional culture that prioritized profits over compliance.
By concealing the true nature of these prohibited transactions, SCB violated various U.S. laws, including the Bank Secrecy Act, the International Emergency Economic Powers Act, and the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) sanctions programs.
Settlement and Penalties
In light of these findings, SCB agreed to a settlement with the U.S. authorities in December 2012. The bank consented to pay a total of $667 million in fines, split amongst various regulatory bodies. The largest chunk, $340 million, was paid to the DFS, while $327 million was divided among the U.S. Department of Justice, the OFAC, the Federal Reserve, and the District Attorney’s office of New York County.
In addition to the financial penalties, SCB was mandated to enhance its sanctions compliance program, implement better risk management practices, and increase oversight of its U.S. operations. The DFS also placed a monitor at SCB’s New York branch to oversee the bank’s international transactions and report to the regulators.
Aftermath and Lessons Learned
The enforcement action against SCB set a precedent for foreign banks operating in the U.S., demonstrating the rigorous enforcement of U.S. sanctions laws. It underscored the importance of effective compliance programs and the need for banks to invest in robust systems and controls to detect and prevent illicit activities.
Moreover, it emphasized the role of state regulators like the DFS in financial enforcement, highlighting their ability to act independently and decisively in enforcing compliance with banking laws.
While SCB had to deal with the significant financial penalties and reputational damage from this event, it served as a wake-up call for the wider banking industry. Financial institutions worldwide were prompted to reassess their risk exposure and compliance mechanisms to ensure they did not find themselves in a similar situation.
The SCB enforcement action in 2012 provides a crucial lesson for multinational banks: Compliance with local and international banking laws and regulations isn’t optional; it’s fundamental. Failure to adhere can lead to severe financial penalties, reputational harm, and even the potential loss of operating licenses.