UK bankers could face US prison for sanctions busting

IT IS American regulators that British multinationals must really fear. By alleging that Standard Chartered Bank is a “rogue institution”, the New York State Department of Financial Services has dunked the bank’s share price and caused it untold reputational damage. The investigation into breaches of the Iranian sanctions regime may be almost complete. But Standard Chartered’s fight to clear its name has only just begun, with the regulator also investigating its activities in Libya, Myanmar and Sudan.

There have been US sanctions against Iran since the Shah’s overthrow in 1979. But Standard Chartered is alleged to have fallen foul of specific rules that restricted transactions involving Iranian financial institutions, accusations that it strenuously denies. Breaching these rules was, and is, a crime in the US.

The bank is alleged to have abused U-turn transactions – which move money from non-Iranian foreign banks, via the USA, to other non-Iranian foreign banks – to systematically make forbidden money transfers. It was able to do this by removing information required by clearing banks by a process known as wire-stripping. Significantly, in November 2008, the US Treasury Department revoked all authorisation for U-turn transactions because it suspected Iran of using its banks to finance nuclear weapons and missile programmes. These allegations mainly pre-date this complete ban and the bank, in any case, says that 99.9 per cent of its U-turn transactions complied with US law.

As a bank incorporated in the EU, Standard Chartered is also subject to the UK and EU equivalent of US sanctions. A breach of any one of this complicated web of restrictions can lead to direct criminal liability for companies, and senior individuals could face up to seven years in prison. Today the regulatory landscape is even more severe. The Financial Restrictions (Iran) Order, which came into force in November 2011, directs UK financial institutions to cease all business with banks incorporated in Iran and all their branches and subsidiaries. A system of licenses is used to grant authorisation for specific transactions by the Treasury. This move mirrored the US ban in 2008.

The power of US regulators is demonstrated by the fact that individuals can face up to 20 years in prison for breaching Iranian transaction regulations. A policy of cooperation usually assists businesses who are under investigation.

Standard Chartered has stated that it initiated the review and have engaged with the regulator. So far, so good. But, instead of a negotiated settlement and order, Standard Chartered has had its reputation besmirched and been summoned to appear before the regulator to explain itself.

And, as if this weren’t worrying enough for the bank, it can be sure that, with strong US-UK cooperation on financial crime, UK regulators will now also begin to take an interest in their affairs.

Alex Odell is a barrister at Peters & Peters Solicitors. He co-wrote this article with David McCluskey, a partner in business crime at Peters & Peters.