Critics say enforcement actions have fallen short of serving as a deterrent, especially since the punishments resulted in fines but no jail time. Policing the world’s banking system, others say, is no small task. And regulators are doing as much as they can in the face of rampant deception.
Indeed, some federal regulators wanted to move slower on Standard Chartered to make sure they had the strongest case possible.
The bank, whose stock tumbled more than 16 percent Tuesday, said “99.9 percent”of the transactions were legitimate. About $14 million slipped through the cracks, the banks said. But that may still be enough to put its ability to operate in the United States in jeopardy.
In 2003, the Federal Reserve Bank of New York first raised concerns about the bank’s money- laundering controls after discovering deficiencies. Standard Chartered entered into an agreement with regulators to shore up its controls and conduct an independent audit of its transactions from 2002 to 2004.
The bank, with the help of consultant Deloitte & Touch, allegedly omitted critical transactions from its report to regulators, according to an investigation unveiled Monday by Benjamin Lawsky, superintendent of New York’s Department of Financial Services. Deloitte denied any wrongdoing.
Lawsky’s office said, well after 2003, that Standard Chartered continued to remove crucial identifiers in financial transactions that would have indicated it was involved in financing activities in Iran. With that much effort dedicated to deceiving regulators, there may not have been much more the government could do, said Juan Carlos Zarate, a senior adviser at the Center for Strategic and International Studies, a nonpartisan think tank.“The government is doing what it can,” he said. “The reality is banks continue to be the gatekeepers in the financial system and continue to make a choice as to whether they will engage in suspect behavior.”
But James Gurule, a former undersecretary of enforcement for the Treasury Department and now a law professor at the University of Notre Dame, contends that regulators have long been asleep at the wheel. “Why up until this point has no bank official been held criminally responsible for willful and intentional violations of U.S. economic sanctions and anti-money-laundering laws?” Gurule said. “The Department of Justice enters into a deferred prosecution agreement, the banks pay a fine and that’s the end of it.”
Officials at the Justice Department argue that the agency has diligently prosecuted wrongdoing in financial services, especially in the past three years with such money laundering cases as Barclays and Credit Suisse.
“The Department of Justice’s resolutions have secured forfeiture of more than $2 billion from major financial institutions, required banks to implement rigorous compliance programs and other safeguards, and has had a significant impact on banking industry practices involving sanctions,” said Justice spokesperson Gina Talamona
Speaking before the Senate at a recent hearing, David Cohen, Treasury’s undersecretary for Terrorism and Financial Intelligence, defended regulatory efforts.
“The United States maintains one of the strongest and most effective anti-money-laundering and counter-terrorist financing regimes in the world,” he said. “But the scale, efficiency and sophistication of the United States’ financial system — particularly its banking sector — make it a prime target for those who seek to conceal and move illicit money.”
Federal Reserve officials declined to discuss the Standard Chartered case as it is an ongoing investigation. But spokeswoman Barbara Hagenbaugh said the central bank “has been working closely with various prosecutorial offices and [other regulators] on matters involving Iran and other sanctioned entities.”
No other state or federal regulators would discuss the Standard Chartered case.
U.S. officials have repeatedly expressed concerns about Iran’s ability to use commercial banks to soften the impact of financial sanctions against the Islamic Republic. The officials acknowledge that it’s unclear how much, if any, of the money directly benefited Iran’s weapons programs or terrorist operations, but they say help from foreign banks could ease the pressure on Iran’s leaders at a particularly sensitive time.
“Sanctions violations are something that this administration takes extremely seriously and has a strong record of action to this end,” White House press secretary Jay Carney said Tuesday. “The Treasury Department remains in close contact with both federal and state authorities on this matter.”
The United States has targeted Iran with multiple rounds of economic sanctions in 1995, 2006 and 2008. Some were intended to restrict Iran’s access to sensitive materials for its missiles and nuclear programs, while others were aimed more broadly at punishing Iran for its support for international terrorism or its pursuit of nuclear technology.
Sanctions were again dramatically tightened this year as the United States and the European Union sought to pressure Iran into scaling back its nuclear program. E.U. countries last month imposed an embargo on all imports of Iranian oil, while the Obama administration imposed penalties on companies that do business with Iran’s main financial institution, the Central Bank of Iran. The measures have drastically reduced Iran’s oil revenues and slashed the value of its currency, hurting both the government and ordinary citizens. The White House and Congress approved more sanctions last week after three rounds of nuclear talks with Iran failed to yield significant progress.Iran has insisted that it has a right to develop peaceful nuclear energy, but Western intelligence agencies say Iran is amassing a stockpile of enriched uranium it can one day use to make nuclear weapons if decides to do so.