August 06, 2012

U-TURN

The charges are the latest by U.S. law enforcement that highlight how banks might have systematically moved U.S. dollars through sanctioned countries despite a federal crackdown.

New York banking licenses let foreign banks operate a hub to handle transactions in U.S. dollars, the world's most widely-used currency. Without that hub, a bank would lose access to the dollar markets.

Removal of a U.S. banking license could be unprecedented, and the threat of losing it could force Standard Chartered into at least paying a large fine and adopting compliance reforms.

Lawsky said Standard Chartered moved money through its New York branch on behalf of Iranian financial clients, including the Central Bank of Iran and state-owned Bank Saderat and Bank Melli, which were subject to U.S. sanctions.

At the center were the alleged "U-Turn" transactions -- money moved for Iranian clients among banks in the United Kingdom and Middle East and cleared through Standard Chartered's New York branch, but which neither started nor ended in Iran.

Such transactions were permissible until November 2008, when the Treasury Department prohibited them on concerns that they were being used to evade sanctions, and that Iran was using banks to fund nuclear and missile development programs.

The order contended that Standard Chartered found ways to circumvent the rules, such as by altering message fields and inserting phrases such as "NO NAME GIVEN" to hide the nature of the transactions.

Standard Chartered's New York branch held $40.8 billion of assets as of March 31, Lawsky said.

Standard Chartered as of June 2011 was one of only 10 foreign-owned institutions with "direct bidder" access to U.S. government debt auctions through a computerized system.

(Additional reporting by Dena Aubin, Joseph Ax, Emily Flitter in New York, Aruna Viswanatha in Washington, D.C. and Steve Slater in London; Editing by Lisa Von Ahn and Leslie Gevirtz)

Copyright 2012 by Reuters. All rights reserved.

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