The US Department of Justice is tightening the screws on banks that knowingly or unknowingly circumvent US and international sanctions against Iran and several other countries. The settlements, according to analysts, highlight US prosecutors' firm stance on suspected violators.
When not using diplomacy, world powers resort to economic combat in the form of sanctions.
The US is the prime wielder of economic sanctions. It has restricted imports, exports, investments and other financial transactions on more than 110 occasions in the 20th century to try to change policies, end weapons programs or topple a government.
The US Treasury Department has become a prominent national security player since 2001. The department manages 37 sanctions programs, targeting governments, individuals, terrorist groups or criminal organizations in about 20 countries.
Meanwhile the US Justice Department is the one keeping tabs on infringements.
Recently it has put British lender Standard Chartered under new investigations. It is also negotiating over a settlement with German lender Commerzbank, adding to the long list of banks fined for breach of sanctions and other related financial violations.
Commerzbank AG’s fines over sanctions’ breach settlements may exceed one billion dollars and the bank is also being investigated for failing to comply with money laundering standards, the Financial Times reported.
On the British Isles, Standard Chartered may face yet another fine due to sanctions violations after years of oversight by the US Justice Department paying over $600 million in fines for two previous cases of breaching sanctions placed against Iran over its nuclear energy program, Bloomberg reported.
Sanctions on Iran’s oil and banking sectors by the US, EU, and UN intensified while nuclear talks were in process between Tehran and world powers back in 2012.
Commerzbank Settlement Tops $1b
Commerzbank is in talks to pay US authorities more than $1 billion in fines to resolve allegations that the German bank broke anti-money laundering and sanctions laws — at least $400m more than previously thought.
The settlement is in the final stages of negotiations, people familiar with the matter said, and could be announced by the end of the year, according to the Financial Times.
The Frankfurt-based lender’s share prices have declined about 3.3 percent this year.
Commerzbank had been in talks to pay more than $600m in penalties to state and federal authorities over the investigation into its dealings with Iran and other countries on the prohibited list, but a parallel money laundering probe by the US attorney’s office in Manhattan could nearly double that sum.
As part of the deal, the German bank is expected to agree to a deferred prosecution agreement, in which criminal charges are dropped after a set period of time if the bank does not break the rules again.
Commerzbank and officials for both government agencies declined to comment, reports said.
Commerzbank has disclosed the investigation into whether the bank breached US embargoes, “particularly with respect to Iran, Sudan, North Korea, Myanmar and Cuba”. It warned it “cannot rule out” paying a “considerable sum of money in order to settle the case”.
As Germany’s second-largest bank, Commerzbank, which is 17 percent owned by the German government following a bailout during the financial crisis, reported better than expected third-quarter earnings last month.
Standard Chartered Inspection
Standard Chartered Bank Plc. may have committed trade-sanctions violations beyond those covered by a 2012 settlement for doing prohibited business with Iran and will remain under investigation and US oversight for three more years, prosecutors said.
New information indicates that the bank “may have been unlawfully processing US dollar transactions for corporate and individual customers with possible ties to US-sanctioned countries after 2007,” according to a notice filed on Dec. 9th in a Washington federal court.
The US is analyzing more than 3.7 million documents and hundreds of recorded phone calls produced by London-based Standard Chartered “to determine whether violations did in fact occur, and if so, whether those violations were committed willfully and what the result should be,” prosecutors wrote in the notice.
The 2012 settlement, in which the bank agreed to pay $327 million, covered conduct from 2001 to 2007, and government oversight of Standard Chartered mandated under the accord was due to end on Dec. 10, according to Bloomberg.
Standard Chartered has declined 31 percent this year, the most among major UK lenders.
The extension of US oversight was the second time Standard Chartered ran afoul of conditions that would have allowed it to avoid further regulatory penalties for transactions with Iranian customers.
The bank also agreed in August 2012 to pay $340 million to resolve an Iran sanctions investigation by the New York Department of Financial Services.
In August 2014, the bank agreed to pay $300 million more to the New York regulator for failing to flag suspicious transactions as required by the 2012 settlement.
Fines Escalate
The troubles of European banks started around 2007, as the US Justice Department turned its eye towards banks that financed and processed transactions from sanctioned countries, including the Islamic Republic of Iran.
The increased scrutiny of foreign banks by US authorities has created tension with some European countries. One French official called the US case against BNP Paribas “economic warfare”.
Since 2009, over six foreign banks have settled lawsuits with US authorities for violating sanctions, mostly against Iran. Recently, BNP, the fourth largest bank in the world, arranged to pay a record $8.9 billion after pleading guilty to falsifying business records and conspiracy, having violated US sanctions against Cuba, Iran, and Sudan.
In 2012, ING Bank, an Amsterdam-based financial services firm, paid $619 million in fines, then the highest penalty for major banks.
Later in 2012, Standard Chartered paid $667 million. In August, Standard Chartered was fined again by $300 million, among other penalties, for negligence in its anti-money laundering mechanisms since the 2012 settlements.
Also in 2012, HSBC Holdings Plc., one of the largest banking and financial services organizations in the world with operations in over 80 countries, settled to pay $1.9 billion to resolve an investigation regarding violation of sanctions and allegations of being exploited by Mexican drug gangs for money laundering.
Probes Continue
The $8.9 billion fine levied against France’s BNP Paribas by the US prosecutors in June has driven foreign banks to cooperate with officials.
Credit Agricole SA, a French lender, is also likely to reach an agreement with US officials, with results similar to the case concerning Commerzbank. The lender is expected to pay around $600 million.
The German Deutsche Bank AG, the largest foreign exchange dealer in the world, the French Societe Generale SA and the Italian UniCredit SpA are among the banks under investigation by US prosecutors for violating sanctions against various countries, based on company filings.
These banks are required to abide by US restrictions on business with Iran because they clear dollars in the US and are subject to oversight by the Federal Reserve Board of Governors.
