In a one-two punch reminiscent of Eliot Spitzer’s tenure as New York Attorney General, that State’s law enforcement authorities beat their federal counterparts to the punch by bringing proceedings in the most highly publicized financial scandal of the year: Standard Chartered Bank’s alleged money laundering on behalf of Iranian entities and the alleged manipulation of LIBOR.
New York’s Superintendent of Financial Services, Benjamin Lawsky, last Tuesday announced a $340 million settlement with Standard Chartered to resolve allegations that the bank laundered $250 billion through its New York branch on behalf of the Iranian government, Iranian banks, and other Iranian corporate entities, in violation of U.S. anti-money laundering laws and OFAC Iran Sanctions regulations. As part of the settlement, the bank agreed to strengthen its AML and OFAC compliance with respect to overseas transactions. Ballard Spahr will conduct a webinar on September 5, 2012, to discuss what lessons banks and other entities with AML compliance responsibilities can learn from the enforcement action.
Mr. Lawsky had earlier issued an order requiring the U.K. bank to appear at a hearing to answer questions about "wire stripping," a procedure that removes client-identifying information from wire transfers. According to factual allegations in the order, Standard Chartered had, over an approximately 10-year period, routed nearly 60,000 different U.S. dollar payments through its New York branch "after first stripping information from wire transfer messages used to identify sanctioned countries, individuals and entities." According to the order, the transactions provided Standard Chartered with millions of dollars in fees at a time when such trade was restricted and left the U.S. financial system "vulnerable to terrorists."
New York Attorney General Eric Schneiderman has demanded documents from a number of large international banks as part of an investigation into whether there was any collusion to fix interest rates determined under LIBOR that could have injured New York borrowers or investors. The investigation is being conducted pursuant to a 1921 State statute, the Martin Act, which allows the investigation of anyone doing business in New York and permits authorities to bring a case without any need to show the intention to commit fraud.
Joining in this investigation is Connecticut Attorney General George Jepsen. Their efforts follow investigations initiated by federal regulators as well as law enforcement authorities in other countries, including Japan, Canada, and the U.K.
Criticism from the Feds
As in the Spitzer era, federal authorities have been critical of New York’s initiatives. New York can be expected to cooperate with federal authorities, but these recent developments suggest impatience with the lagging pace of those parallel investigations. Particularly interesting is the possibility that, if the documents sought in the New York probe should bear fruit, other state law enforcement officials might be emboldened to follow suit.
Ballard Spahr’s Bank Regulation and Supervision Group, Consumer Financial Services Group, and White Collar/Investigations Group include experienced lawyers who regularly assist clients in corporate investigations, responses to subpoenas, and civil investigative demands. For more information, contact Keith R. Fisher in the Bank Regulation and Supervision Group at 202.661.2284 or email@example.com, Beth Moskow-Schnoll in the Consumer Financial Services Group at 302.252.4447 or firstname.lastname@example.org, or Henry E. Hockeimer, Jr., in the White Collar/Investigations Group at 215.864.8204 or email@example.com.