In June of 1995, Standard Chartered Bank's general counsel in
London sent an email to the bank's compliance officer that
"embraced a framework for regulatory evasion," according to the
case against Standard filed Monday by New York's top financial
regulator. The GC's email was allegedly in response to a U.S.
executive order imposing economic sanctions against Iran and
prohibiting U.S. banks from converting Iranian wire transfers
into dollars. But the Standard GC, working with the bank's
compliance staff, suggested that the bank simply cut its
American operation out of the loop. Even if regulators figured
out that Standard's London headquarters was evading the U.S.
executive order, the GC allegedly wrote in a "highly
confidential" email, "there is nothing they could do."
That sort of evasion and obfuscation typifies the Standard
Chartered legal department's attitude toward U.S. restrictions
on Iranian dollar transfers, at least as the in-house lawyers
are depicted in the New York regulator's filing. The New York
Department of Financial Services described a legal department
that not only looked the other way when the bank enacted a
system to work around restrictions on dollar transfers to and
from Iranian clients but even ignored a warning from outside
counsel that the work-around violated U.S. banking regulations.
A Standard Chartered spokeswoman declined to comment
specifically on the regulator's allegations about the bank's
legal department, directing me instead to the statement Standard issued Monday night, rejecting the allegations by New York
regulators. Nevertheless, if the New York account is correct --
and it does appear to be backed by internal bank documents --
Standard Chartered is an object lesson in how in-house lawyers
can fail their clients by refusing to say no.
The GC in 1995 -- who is unnamed in the DFS filing, like all
of the Standard Chartered lawyers mentioned in the order --
suggested that the bank might refer certain prohibited currency
transfer business to National Westminster Bank, which "would
expose to a penalty" if it breached the regulations
Standard was trying to evade. There's no indication in the
regulator's filing that Standard ever acted on the 1995 email
from the general counsel, but in March 2001 the bank's Group
Legal Advisor informed bank officers that "our payment
instructions [for Iranian clients] should not identify the
client or the purpose of the payment."
In May 2001 the bank sought advice from unidentified outside
counsel, who reported to the Group Legal Advisor and Head of
Compliance that to comport with U.S. law, Standard's New York
branch would have to ascertain that U.S. dollar clearing
transactions were permissible. Instead, according to Monday's
filing, the bank "conspired with Iranian clients to transmit
misinformation to the New York branch by removing and otherwise
misrepresenting wire transfer data that could identify Iranian
parties." Specifically, the filing alleges, bank employees
stripped wire transfers of data linking them with Iran, or else
sent them back to clients to be stripped of identifying
information. The regulator claimed that through such schemes,
Standard Chartered's New York branch improperly processed at
least $250 billion in about 60,000 transactions for Iranian
clients between 2001 and 2010. In the process, the DFS filing
asserted, Standard took in hundreds of millions of dollars in
fees.
And the legal department was in on the scheme, according to
the New York regulators. The "attorney in charge of [Bank
Secrecy Act/Anti-Money Laundering] compliance" and the "chief
lawyer in charge of legal and compliance" for the wholesale bank
division are both said to have known about and tolerated the
wire stripping. "Consistent with its historical views, SCB
apparently decided that regulatory compliance would impede ...
business expansion," Monday's filing said. "[The bank's] chief
legal and compliance officer for its wholesale banking business
explained that SCB wire stripped because 'there would be a delay
in the [Office of Foreign Assets Control] que [sic] if an
Iranian name was spotted by the OFAC filter in New York and the
payment would get held up.'"
In October 2003, the filing said, outside counsel for
Standard Chartered warned two top legal officials at the bank
that the system of stripping identifying information out of wire
transfers appeared to violate U.S. banking regulations. The law
restricting dollar exchanges for suspected terrorism sponsors,
outside counsel allegedly said in an email, "insists on full
disclosure of all parties in transactions to ensure that
transactions meet the terms of the rule."
The filing does not identify Standard Chartered's outside
counsel, but according to bank spokeswoman Julia Gibson,
Morrison & Foerster represented Standard in a 2004 settlement of Bank Secrecy Act claims by the Federal Reserve and the
predecessor to New York's DFS. Gibson said she did not know if
the outside counsel cited in the complaint is from MoFo; MoFo
bank regulatory partner Barbara Mendelson did not immediately
respond to a call and email from my Reuters colleague Nate
Raymond.
Standard Chartered's legal department did not heed the 2003
warning, according to Monday's filing, which cites several
examples of in-house bank lawyers continuing to sanction evasion
of U.S. restrictions. In December 2005, for instance, Standard's
"general counsel, head of legal and compliance and outside UK
counsel" allegedly discussed whether the new CEO of the American
branch of the bank, who had come from the United Arab Emirates
operation, might be forced to become a witness in the United
States about the bank's ties to Iran.
In 2006, the general counsel supposedly sent a memo to the
audit and risk committee specifically noting that some U.S.
clearing transactions had been processed in London with the name
of the Iranian bank client stripped away, even though such
transactions were supposed to have been vetted in the United
States. "SCB's chief legal counsel strategized, much as he had
in 1995, that 'it is reasonable to undertake due diligence on
behalf of New York outside the US,'" the regulators alleged,
"even though 'we are potentially placing our SCB New York office
and the Bank at risk if our due diligence procedures are not
fully effective.'"
Sullivan & Cromwell took over as U.S. regulatory counsel for
Standard Chartered in 2005 or 2006, according to bank
spokeswoman Gibson. An S&C team that includes H Rodgin Cohen and
Samuel Seymour is representing Standard in the new case. Seymour
declined to comment.
(Reporting by Alison Frankel)
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