In a rare move, New York's top bank regulator threatened to strip the state banking licence of Standard Chartered Plc, saying it was a "rogue institution" that hid $250 billion in transactions tied to Iran, in violation of U.S. law.
The New York State Department of Financial Services on Monday said the British bank "schemed" with the Iranian government and hid from law-enforcement officials some 60,000 secret transactions to generate hundreds of millions of dollars in fees over nearly 10 years.
At the same time, it exposed the U.S. banking system to terrorists, drug traffickers and corrupt states, the department said.
The loss of a New York banking licence would be a devastating blow for a foreign bank, effectively cutting off direct access to the U.S. bank market. Standard Chartered processes $190 billion every day for global clients, the New York bank regulator said.
In an unusual look inside a bank, the regulator described how Standard Chartered officials debated whether to continue Iranian dealings. In October 2006, the top official for business in the Americas, whom the regulator did not name, warned in a "panicked message" that the Iranian dealings could cause "catastrophic reputational damage" and "serious criminal liability."
A top executive in London shot back: "You f---ing Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians." The reply showed "obvious contempt for U.S. banking regulations," the regulator said.
Standard Chartered is the third British bank to be ensnared in U.S. law-enforcement probes this summer. Barclays Plc agreed to pay $453 million to settle U.S. and UK probes that it rigged a global benchmark in June. A month later, a U.S. Senate panel issued a report criticizing HSBC Holding Plc's efforts to police suspect transactions, including Mexican drug traffickers.
In a statement Standard Chartered said the bank "does not believe the order issued by the DFS presents a full and accurate picture of the facts."
The bank said it shared with U.S. agencies an analysis that demonstrated it "acted to comply, and overwhelmingly did comply" with U.S. regulations. Standard Chartered put the total value of Iran-related transactions that did not follow regulations at under $14 million.
"The group was therefore surprised to receive the order from the DFS, given that discussions with the agencies were ongoing," Standard Chartered said. "We intend to discuss these matters with the DFS and to contest their position."
DFS declined further comment. The Iranian Embassy in Washington was not immediately available to comment. The Treasury Office of Foreign Assets Control, which enforces U.S. economic and trade sanctions, declined to comment.
Standard Chartered, a financier in emerging markets, is the sixth foreign bank since 2008 to be implicated in dealings with sanctioned countries such as Iran in investigations led by federal and New York law-enforcement officials.
Four banks - Barclays Plc, Lloyds Banking Group, Credit Suisse Group and ING Bank NV - have agreed to fines and settlements totaling $1.8 billion. HSBC Holdings Plc currently is under investigation by U.S. law enforcement, according to bank regulatory filings.
The New York regulator, headed by former prosecutor Benjamin Lawsky, ordered Standard Chartered to explain why the bank should not lose its state licence and the ability to process dollar transactions. Lawsky also ordered the bank to bring in an outside consultant.
"Standard Chartered Bank operated as a rogue institution," Lawsky said in the order.
In an unusual move, the regulator also found fault with an outside consultant - Deloitte LLP - because the firm "apparently aided" the bank in its deception.
A report by Deloitte had "intentionally omitted critical information" when submitted to regulators, it said. A Deloitte spokesman did not immediately respond to requests for comment.
Deloitte was hired to conduct a review after Standard Chartered in 2004 was ordered by New York and federal regulators to correct anti-money laundering lapses. The review, known as a "look back," was supposed to identify suspicious transactions between 2002 and 2004. But at one point, Standard Chartered asked Deloitte to "delete" references to certain Iranian transactions, according to the New York order.
In a subsequent email, a Deloitte partner said the firm had "agreed" to the request because it was "too politically sensitive for both [Standard Chartered] and Deloitte. That is why I drafted the watered-down version."