UK-based Standard Chartered Bank (“SCB”) announced the terms of significant settlements last week with various U.S. and U.K. governmental agencies, resolving a series of related investigations into the bank’s alleged violations of international sanctions and concomitant failures of anti-money laundering (“AML”) controls over a period stretching from 2007 to 2014. The bank will pay a total of $1.1 billion in combined forfeitures and fines to various national and state agencies in the two countries — and extend, once again, its deferred prosecution agreements (“DPAs”) with the U.S. Department of Justice (“DOJ”) and the New York County District Attorney’s Office (“NYDA”).
Specifically, the bank will pay: a $480 million fine and a $240 million forfeiture to the DOJ; approximately $639 million to the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”); over $292 million to the NYDA; almost $164 million to the Board of Governors of the Federal Reserve System; and $180 million to the New York Department of Financial Services. The bank also will pay over £102 million (an amount approximately equal to over $133 million) to the U.K.’s Financial Conduct Authority (“FCA”). After certain payments are credited against some of these penalties, the total will exceed $1 billion.
Further, SCB has agreed to two-year extensions of deferred prosecution agreements (“DPAs”) with the DOJ and the NYDA, which originally were executed in 2012, have been extended several times, and previously were slated to end this month.
The DPA with the DOJ had stemmed from charges that the bank conspired to violate the International Emergency Economic Powers Act (“IEEPA”), the legal basis for U.S. freezes on banking transactions by hostile regimes. SCB now has admitted that over a four year period from 2007 through 2011, it processed prohibited transactions totaling approximately $240 million through U.S. financial institutions. These transactions were processed on behalf of Mahmoud Reza Elyassi, an Iranian national who was indicted in federal court for conspiracy to violate IEEPA and conspiracy to commit money laundering (and whose indictment was unsealed in coordination with the announcement of the SCB settlement). The related DPA with the NYDA involved SCB admitting that it violated New York law by, inter alia, concealing these and other transactions via falsification of New York banking records.
The indictment alleges that Elyassi conspired with two SCB employees based in Dubai, United Arab Emirates (“UAE”), to conduct U.S. dollar financial transactions in Iran and promote IEPPA violations, in part by using SCB accounts held by general trading companies that were registered in the UAE but which served as mere fronts for companies controlled by Elyassi that were conducting business in Iran.
In OFAC’s announcement of the details of its portion of the SCB settlement for violations of sanctions between 2009 and 2014 (i.e. violations occurring past the date of the conspiracy involving Elyassi), OFAC similarly highlighted that the locus of SCB’s allegedly illicit conduct were branches located in Dubai, and involved processing dollar-value transactions through SCB’s offices in the United States on behalf of customers physically located or generally resident in Iran. In the eyes of OFAC, this conduct (along with the bank’s alleged failure to engage in voluntary self-disclosure) constituted “an egregious case.”
The UK FCA Inflicts a Penalty
The FCA likewise described SCB’s UAE branches as the epicenter, or at least emblematic, of the bank’s allegedly systemic problems – namely, failures “to establish and maintain risk-sensitive policies and procedures . . . (and) to ensure its UAE branches applied UK-equivalent AML and counter-terrorist financing controls.” The FCA highlighted a few of the more egregious examples of these failures occurring between 2009 and 2014, such as “opening an account with 3 million UAE Dirham in cash in a suitcase [roughly £500,000 or $652,000] with little evidence that the origin of the funds had been investigated.” The FCA fined SCB over £102 million – a penalty which itself reflected a “30% discount” applied in reflection of SCB’s agreement not to contest the FCA’s findings, and which constitutes the second largest financial penalty for AML control failings that the agency ever has imposed.
SCB characterizes the behavior described above and in the settlement agreements as “legacy conduct,” emphasizing that “the vast majority of [the conduct] predated 2012, and none . . . occurred after 2014.” It also highlights its positive steps to improve, noting that since 2012 it has invested heavily in its financial crime compliance operations, revamped its senior management and governance, implemented mandatory AML trainings, and “introduced stringent due diligence requirements for existing and new clients.”