Bank Owes Over $1 billion in Penalties for White Collar Crimes

White-collar crimes are widespread and can include everything from healthcare fraud to tax evasion, and violations of banking or financial regulations. The Manhattan District Attorney’s Office, along with several other legal agencies, has finally resolved its investigation into UK-based Standard Chartered Bank and its criminal behavior. As a result, the bank owes over $1 billion in criminal and regulatory penalties. The City and State of New  York stand to receive over $140 million from this penalty.

SCB has agreed to pay this fine after admitting it violated the International Emergency Economic P30owers Act (IEEPA). This is an Act which allows the President to regulate various commercial activities once a national emergency is declared in response to an unusual threat to the U.S. which has a foreign source.

They are accused of processing nearly 10,000 financial transactions of over $240 million through U.S. banks and other financial institutions for the benefit of various Iranian organizations and entities. The Financial Conduct Authority in Britain has also conducted its own investigation, and the bank will be liable for regulatory fines in the U.K.

Unfortunately for SCB, this is not the first time it has been accused of violating the IEEPA.  In 2004, it signed an agreement with both the Federal Reserve and regulator in New York which stated specific changes it needed to make to its internal procedures in order to comply with anti-money laundering legislation. SCB failed to change its ways,  and from 2001 – 2007 it has been accused of circumventing U.S. sanctions and legislating, particularly as it pertained to Iran.

While still under the agreement of 2004, SCB failed to provide adequate responses to official inquiries regarding transactions, and also provided misleading information regarding certain transactions, especially with Iranian customers.  This particular act resulted in SCB paying $670m in regulatory fines. SCB continued to violate sanctions from 2007-2011, which is what the latest round of sanctions is designed to address. They entered into a deferred prosecution agreement  (DPA) in 2012, provided the bank could demonstrate that they were in compliance with regulations. The DPA has been extended three times since.

In 2014, SCB claims that it stopped breaking any sanctions, likely after BNP Paribas was ordered to pay $9 billion for breaking sanctions and shut out of dollar clearing – a record penalty. Yet it seems to some critics that shutting banks out of dollar clearing will hit harder than mere regulatory fines, especially since large banks like SCB continue to increase their profits year after year.

The latest DPA involves SCB admitting that two former employees of its Dubai branch wilfully helped Iranian customers conduct U.S. dollar transactions to benefit Iranian individuals and businesses. According to the indictment, the employee and several co-conspirators registered face trading companies in the UAE, posing them as fronts for money exchanges for business actually located in Iran.

The bank failed to disclose this activity in 2012, resulting in criminal charges for the banker, who pled guilty (but has not yet been identified). This step is unusual, as the  Justice Department has rarely charged individual bankers for facilitating sanctions violations – even for multi-billion dollar transactions as seen with HSBC or BNP Paribas. Perhaps this is a signal of things to come.

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