Bankers in the UK have warned the
US probe into Iranian money laundering is set to get much
Branding the $250 billion of transactions at the heart of
the New York state Department of Financial
Services’ (DFS) case against Standard Chartered as
small fry, they claim US banks have been involved in a large
proportion of transactions.
DFS superintendent Benjamin Lawsky this month made public
allegations that Standard Chartered’s flagrantly
deceptive actions with regards to Iran had left the US
vulnerable to terrorists. The move led to a
$340 million penalty for Standard Chartered, and the
four European banks are also being investigated by US
authorities for alleged violations involving oil trading and
Market participants expect US banks to also be implicated,
however. One back office manager at a London-based bank said
past experience at two Iranian banks had made clear to him that
money laundering was a way of life.
"I have sent hundreds of millions of US dollars (USD) around
the world to help the Iranians, and I can tell you, Standard
Chartered was small fry," he said. "To wash the USD, you need
an American middle bank. [One US bank] was in on 90% of all my
transactions as I remember."
"I questioned my boss many times about these transactions,"
he continued. "He said not to worry as the governments were
aware what Iran was up to."
"There are many banks involved
in the Iranian pie," he continued. "US, German, French, UK and
Swiss; they all have to clear their USD through a US Bank
somehow. Otherwise, they wouldn't be in possession of USD." It
was the only viable way to pay for USD-pegged Iranian oil, he
He referred to it as 'doing the round houses’;
that is sending USD from one UK bank to another US bank and
then back to another UK bank, washed through the system via a
system of MT202 (SWIFT telegraphic transfers between
"How banks hid these
transactions was a different thing," he said. But he believed
many trading banks used their New York branches to do the work
It was, he said, therefore a joke that the US was fining UK
banks. He believed US authorities were aware that for over 20
years UK banks had to clean their laundered money through a US
conduit. "The US has had years to do something about this and
they did nothing," he said.
What’s more, he
warned that many loopholes remained to get around USD embargos
on Iranian business. Obtaining back-to-back letters of credit
was one such work around used, he said.
US/EU Iranian sanctions regime explained
Lawyers in the US hope the ongoing regulatory money laundering
investigations will encourage a broader tightening of Iranian
Felieu’s New York-based managing partner Raymond
Vandenberg said there was a perception in the US that some of
the regulators had accepted sanctions only ostensibly. "The US
has a fairly moralistic view of things, and has consequently
imposed a full-blown enforcement of sanctions against Iran
applicable to most individuals and businesses whatever the size
or type," he said. "Whereas in Europe, and other parts of world
geographically closer to Iran, there’s more of a
temptation not to impose sanctions so fully because of the
impact doing so will have on key business needs, for oil for
Shane Gleghorn said Switzerland’s approach in
particular had left scope for some Iranian oil transactions to
fall through a regulatory gap in Europe.
In July, the Swiss government
announced a ban on supplying equipment to the Iranian
petrochemical industry. But exempted transactions involving
Iranian oil and petrochemical products for foreign policy
reasons. Such deals are instead subject to a declaration
requirement and thereby do not jeopardise Geneva's significant
role in oil trading.
Gleghorn said there had been
quite a bit of criticism of the Swiss approach by commentators
in the US. "There are some commentators who suggest that there
is, in some EU states, a practical difference between the US
and EU approach because, from the US perspective, some of the
states in the EU fail to enforce the sanctions regime with
sufficient vigour," he said.
One Washington-based US law
firm partner, who wished to remain anonymous owing to the
sensitivity of the topic, said US sanctions against Iran were
much broader than the UK sanctions regime although both sets of
rules are fairly complex.
"The UK sanctions regime
applies to UK entities, UK-based persons and all UK nationals,"
"But US sanctions, in addition
to applying to US entities and all US nationals, also have an
extraterritorial component," he said. "This enables certain
sanctions to reach out to companies that have no US nexus but
are engaging in activities with Iran, that are considered to be
sanctionable under US law. That’s one big
recent US legislative changes will further expand the full
scope of US sanctions to entities outside the US that are owned
or controlled by US persons or US companies - a significant
The US regime also prohibits US
nationals and US companies from virtually all activities with
Iran. In contrast, sanctions are much more targeted under UK
law. "UK sanctions are more focused on designated persons and
certain designated activities. Not all business dealings with
Iran are prohibited, although there are broad restrictions in
oil and gas sectors," he said.
According to Gleghorn, the Standard Chartered case should
highlight how inextricably linked business is to reputation
management. "I am sure that the banks have had this in mind but
it does seem imperative, and commercially-sensible, that any
decision made with regards to sanctions regimes also pays
consideration to the reputation of a firm," he said. But one
UK-based law firm partner said such concerns were too often
ignored by today’s bankers’ counsel.
"The Standard Chartered case has revealed the endemic issues in
the global banking system today," he said. "There is too much
pressure on both external and internal bankers’
counsel to make commercially-focused decisions and far too
little focus on ethics." He believed there was need for a total
reboot of the global legal business. "The methodological
analysis of the law is no longer such a prized thing," he said.
"And that’s particularly notable with advisory
work." Too many banks regarded their in-house legal teams as
akin to operations, with general counsel reporting to the
firm’s chief administrative offer and not to the
board or chief executive. "In that environment, the lawyer
becomes no more than a facilitator on hand to help transactions
get done," he said. "It’s a problem
that’s created a whole generation of lawyers who
have risen through the ranks with the mindset that they must
get business done at all costs." Bloomberg reported this week
that federal regulators, including the US
Treasury’s Office of Foreign Assets Control, the
Federal Reserve, the Justice Department and the New York
District Attorney’s office are all involved in a
probe of Deutsche Bank and three other European banks.
RBS has also revealed it is facing a US-led investigation
into possible money laundering at the bank.
The US partner believed ongoing investigations into
banks’ money laundering activities should help
make clear how important it was for non-US financial
institutions to fully understand the full reach of US
restrictions and how they may have potential exposure to the US regime on non-USD