Lies, Coaching at StanChart Kept Iran Cash Moving, U.S. Says

A pair of Standard Chartered Plc bankers in Dubai went a long way to protect the lucrative business of a prized Iranian client.

Now the cost of their actions is clear: The London-based bank just agreed to fines and penalties of more than USD 1 billion for failing to stop and disclose its work with the Iranian and several others.

U.S. court filings on Tuesday revealed how little some Standard Chartered employees heeded U.S. sanctions, and how they dissembled in order to hold onto profitable clients. When it came to the Iranian, Mahmoud Reza Elyassi, it was clear from the start that his company was linked closely to Iran. He submitted his Iranian passport as he opened an account in 2006. He routinely faxed payment instructions to the bank from a number originating in Iran.

The two Standard Chartered employees—a relationship banker and a foreign-exchange sales manager -- assured other bank executives that Elyassi’s business wasn’t prohibited by U.S. sanctions against Iran. After the bank moved to close Elyassi’s account because of too many rejected payments, the banker allegedly helped him open a new account in another company’s name.

Overall, the Standard Chartered employees helped Elyassi, 49, move USD 240 million through the U.S. financial system from 2007 to 2011, prosecutors say. Standard Chartered failed to disclose the activity to U.S. authorities even as it negotiated a settlement over other Iran-related violations in 2012, resulting in a sealed criminal charge against the banker, who pleaded guilty to conspiring to defraud the U.S. but wasn’t identified.

The bank’s resolution comes as President Donald Trump reasserts a hard line against Iran, most recently by designating an arm of Iran’s military as a terror organization.

Blacklisted Customers

The case involving Elyassi and the two bankers document the most egregious conduct cited by U.S. authorities amid a broad array of new evidence that the bank facilitated illicit business for blacklisted operators over the better part of a decade. The total value of the transactions exceeded USD 400 million, the vast majority for Iranian interests.

The court documents made public Tuesday make clear that while the Dubai branch was the locus of the misconduct, it was not limited to the employees who helped Elyassi. Another relationship banker helped an Iran-linked petrochemical company conduct extensive business through Standard Chartered. Others, including business and legal personnel, hesitated for more than a year to block online transactions originating from sanctioned countries despite warnings—and having the technological capability to do so.

The bank said Tuesday that it accepted “full responsibility” for the misconduct and faulted two former junior employees “who were aware of certain customers’ Iranian connections and conspired with them to break the law.”

The filings say that bank executives changed identifying information on customer accounts to hide Iranian ties for a petrochemical company and allowed thousands of fax and online transactions originating from IP addresses in Iran. It also facilitated hundreds of transactions in U.S. dollars involving Sudan, Syria, Cuba and Burma.

Charging Individuals

Through dozens of sanctions cases, some of them involving billions of dollars in prohibited transactions, the U.S. has rarely, if ever, charged an individual banker with facilitating the violations. In major cases, including those against HSBC Holdings Plc and BNP Paribas SA, the Justice Department faced intense criticism for extracting multibillion-dollar punishments from banks while failing to hold any individuals culpable.

The latest charges—albeit against an anonymous, low-level banker in a foreign country—represent an incremental step toward calling bank executives to account for financial misdeeds.

“Very few charges have been brought against individuals in the financial services sector and, more specifically, in anti-money laundering and sanctions related cases” since the Justice Department in 2015 started encouraging prosecutors to pursue individuals in corporate cases, said Jesse Morton, a fraud investigator at the Stout consulting firm in Atlanta.

It’s not clear whether the prosecution of individuals in the Standard Chartered case “is the result of the actions of these two being so blatant and egregious, the huge dollar amount and number of transactions at issue, the primary country at issue being Iran or the start of a new trend in these types of cases,” Morton said.

The banker, referred to only as Person A in court papers, and the foreign-exchange sales manager left Standard Chartered in 2014, in the middle of the Justice Department investigation.

Avoiding Detection

Prosecutors said the pair counseled Elyassi on ways to structure transactions in ways that wouldn’t raise suspicions about Iranian connections. They also provided false and misleading information to disguise his Iranian connections and lied to other bank executives, including compliance officials, when questioned about rejected payments, the U.S. says.

In the settlement with Standard Chartered, prosecutors said the two employees were motivated by their intent to generate revenue for the bank and keep their jobs.

Based on representations made by the two bank employees, Standard Chartered’s U.S. operation told the Treasury Department in 2010 that Elyassi’s company was based in Dubai and that it traded in power tools and circuits for the printing, diamond and car industries in China, Europe and the Middle East. In fact, according to Elyassi’s indictment, the trading companies were a front for an Iran-based currency-exchange business meant to provide covert access to the U.S. financial system for Iranian people and companies.

But even as Elyassi’s transactions washed through the global financial system, they began to set off alarms at European and U.S. banks that detected Iranian links. Several banks rejected the transactions, and even Standard Chartered’s own internal alerts flagged dozens of the payments for scrutiny.

Banker Coaching

When bank executives finally ordered the account shut down in 2011, Elyassi persuaded the banker in a telephone conversation to delay the closure for a few weeks while they opened a new account in a new company name so Elyassi could continue doing business, prosecutors said. The banker coached Elyassi on structuring payments to hide Iranian ties—telling him to stop sending payments directly from the account to Iranian entities and instead to transfer them through a personal account first, the U.S. says.

The new account was opened a day after the old one was closed, and remained open for nine more months—processing more than 200 transactions during that time, even after it immediately began generating a new series of red flags, according to the filings.

Elyassi was charged with conspiracy and money laundering. His whereabouts are unclear from court documents, but as an Iranian national operating in Iran and the United Arab Emirates, he probably won’t stand trial in the U.S. unless he’s apprehended in a third country with stronger U.S. ties. The U.A.E. has no extradition treaty with the U.S., and the U.S. and Iran have no diplomatic relations.

It’s unclear whether the second bank employee, identified in court filings as Person B, has been charged. The case of the banker who pleaded guilty remains under seal, suggesting he or she is continuing to cooperate with U.S. authorities.

Photo Credit: Bloomberg

Standard Chartered Reaches $1.1 bn US Settlement on Iran Sanctions

Standard Chartered will pay USD 1.1 billion to settle charges it processed transactions that violated US sanctions on Iran and flouted anti-money laundering requirements, US and British regulators announced Tuesday.

The British bank moved through hundreds of millions of dollars of US transactions from Iran and other sanctioned countries, said US Treasury officials, who were joined in the action by other federal and state agencies. 

Britain's Financial Conduct Authority—which worked with the US bodies—punished the bank for doing little to detect and counter the laundering of funds that may have come from crimes or which could have been used to finance terrorism 

"Standard Chartered's oversight of its financial crime controls was narrow, slow and reactive," said FCA Director of Enforcement and Market Oversight Mark Steward, who said the fine would have been "even higher" if the bank had not cooperated with the probes.

The British portion of the fine amounted to GBP 102.2 million (USD 133.7 million). 

A statement from the bank described the violations as "historical," adding that the "vast majority" of the problems predated 2012 and that none occurred since 2014.

"The circumstances that led to today's resolutions are completely unacceptable and not representative of the Standard Chartered I am proud to lead today," said Standard Chartered Group Chief Executive Bill Winters.

 "Fighting financial crime is central to what we do and who we are; we do not tolerate misconduct or lax controls and we will continue to root out any issues that threaten the trust we have built over more than 160 years."

Blindly accepting deposits?

 The FCA listed a number of flagrant instances in which the bank's money laundering controls fell short.

In one case, the Dubai branch opened an account for a customer with 3 million UAE Dirham (USD 815,000) in cash, apparently without investigating the source of the funds. 

The bank also did not sufficiently question a customer who exported a commercial product with potential military application to 75 countries, including two that had armed conflicts or where conflict was likely, the FCA said. 

The penalties also cover some USD 600 million in US transactions from 2008 to 2014 that originated at Standard Chartered's London and Dubai offices and went through its US branch, the New York State Department of Financial Services said in a statement.  

US regulators said a majority of the problem transactions violated US sanctions on Iran, with a smaller number involving Syria, Sudan, Cuba and Burma.

The US Treasury Department said the agreement requires the bank to conduct regular risk assessments and provide ongoing sanctions compliance training.

Other US bodies joining the agreement included the Federal Reserve and the Department of Justice, which extended a previously-written deferred prosecution agreement with the bank for two years. 

"Global financial institutions serve as the first line of defense against money laundering and the financing of terrorist activities and those that fail to foster a strong compliance culture will be held accountable," said Linda Lacewell, acting superintendent of the New York agency.

Photo Credit: Wikicommons