Blame Standard Chartered in-house lawyers in money-laundering mess

By Alison Frankel
August 8, 2012

In June of 1995, Standard Chartered Bank’s general counsel in London sent an email to the bank’s compliance officer that “embraced a framework for regulatory evasion,” according to the case against Standard filed Monday by New York’s top financial regulator. The GC’s email was allegedly in response to a U.S. executive order imposing economic sanctions against Iran and prohibiting U.S. banks from converting Iranian wire transfers into dollars. But the Standard GC, working with the bank’s compliance staff, suggested that the bank simply cut its American operation out of the loop. Even if regulators figured out that Standard’s London headquarters was evading the U.S. executive order, the GC allegedly wrote in a “highly confidential” email, “there is nothing they could do.”

That sort of evasion and obfuscation typifies the Standard Chartered legal department’s attitude toward U.S. restrictions on Iranian dollar transfers, at least as the in-house lawyers are depicted in the New York regulator’s filing. The New York Department of Financial Services described a legal department that not only looked the other way when the bank enacted a system to work around restrictions on dollar transfers to and from Iranian clients but even ignored a warning from outside counsel that the work-around violated U.S. banking regulations. A Standard Chartered spokeswoman declined to comment specifically on the regulator’s allegations about the bank’s legal department, directing me instead to the statement Standard issued Monday night, rejecting the allegations by New York regulators. Nevertheless, if the New York account is correct – and it does appear to be backed by internal bank documents – Standard Chartered is an object lesson in how in-house lawyers can fail their clients by refusing to say no.

The GC in 1995 – who is unnamed in the DFS filing, like all of the Standard Chartered lawyers mentioned in the order – suggested that the bank might refer certain prohibited currency transfer business to National Westminster Bank, which “would expose to a penalty” if it breached the regulations Standard was trying to evade. There’s no indication in the regulator’s filing that Standard ever acted on the 1995 email from the general counsel, but in March 2001 the bank’s Group Legal Advisor informed bank officers that “our payment instructions [for Iranian clients] should not identify the client or the purpose of the payment.”

In May 2001 the bank sought advice from unidentified outside counsel, who reported to the Group Legal Advisor and Head of Compliance that to comport with U.S. law, Standard’s New York branch would have to ascertain that U.S. dollar clearing transactions were permissible. Instead, according to Monday’s filing, the bank “conspired with Iranian clients to transmit misinformation to the New York branch by removing and otherwise misrepresenting wire transfer data that could identify Iranian parties.” Specifically, the filing alleges, bank employees stripped wire transfers of data linking them with Iran, or else sent them back to clients to be stripped of identifying information. The regulator claimed that through such schemes, Standard Chartered’s New York branch improperly processed at least $250 billion in about 60,000 transactions for Iranian clients between 2001 and 2010. In the process, the DFS filing asserted, Standard took in hundreds of millions of dollars in fees.

And the legal department was in on the scheme, according to the New York regulators. The “attorney in charge of [Bank Secrecy Act/Anti-Money Laundering] compliance” and the “chief lawyer in charge of legal and compliance” for the wholesale bank division are both said to have known about and tolerated the wire stripping. “Consistent with its historical views, SCB apparently decided that regulatory compliance would impede … business expansion,” Monday’s filing said. “[The bank's] chief legal and compliance officer for its wholesale banking business explained that SCB wire stripped because ‘there would be a delay in the [Office of Foreign Assets Control] que [sic] if an Iranian name was spotted by the OFAC filter in New York and the payment would get held up.’”

In October 2003, the filing said, outside counsel for Standard Chartered warned two top legal officials at the bank that the system of stripping identifying information out of wire transfers appeared to violate U.S. banking regulations. The law restricting dollar exchanges for suspected terrorism sponsors, outside counsel allegedly said in an email, “insists on full disclosure of all parties in transactions to ensure that transactions meet the terms of the rule.”

The filing does not identify Standard Chartered’s outside counsel, but according to bank spokeswoman Julia Gibson, Morrison & Foerster represented Standard in a 2004 settlement of Bank Secrecy Act claims by the Federal Reserve and the predecessor to New York’s DFS. Gibson said she did not know if the outside counsel cited in the complaint is from MoFo; MoFo bank regulatory partner Barbara Mendelson did not immediately respond to a call and email from my Reuters colleague Nate Raymond.

Standard Chartered’s legal department did not heed the 2003 warning, according to Monday’s filing, which cites several examples of in-house bank lawyers continuing to sanction evasion of U.S. restrictions. In December 2005, for instance, Standard’s “general counsel, head of legal and compliance and outside UK counsel” allegedly discussed whether the new CEO of the American branch of the bank, who had come from the United Arab Emirates operation, might be forced to become a witness in the United States about the bank’s ties to Iran.

In 2006, the general counsel supposedly sent a memo to the audit and risk committee specifically noting that some U.S. clearing transactions had been processed in London with the name of the Iranian bank client stripped away, even though such transactions were supposed to have been vetted in the United States. “SCB’s chief legal counsel strategized, much as he had in 1995, that ‘it is reasonable to undertake due diligence on behalf of New York outside the US,’” the regulators alleged, “even though ‘we are potentially placing our SCB New York office and the Bank at risk if our due diligence procedures are not fully effective.’”

Sullivan & Cromwell took over as U.S. regulatory counsel for Standard Chartered in 2005 or 2006, according to bank spokeswoman Gibson. An S&C team that includes H. Rodgin Cohen and Samuel Seymour is representing Standard in the new case. Seymour declined to comment.

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