Standard Chartered in Sanctions Trouble Again?

Posted on November 3, 2014 by Farhad Alavi — Leave a comment

Reuters carried a story Sunday about the Office of the U.S. Attorney in the Southern District of New York (SDNY) investigating London-based Standard Chartered bank (known by many as “StanChart”) for potential violations of U.S. sanctions against Iran. According to the report, the investigation is tied to information obtained by U.S. authorities in their investigation of French-based BNP Paribas for sanctions violations – a case which ultimately settled for a hefty $8.9 billion.

But wait, wasn’t StanChart recently fined for sanctions matters? Yes – if you recall, in 2012, the bank, which does quite a bit of business in emerging markets, settled for $667 million for alleged violations of the U.S. sanctions regime against Iran, including allegations that the bank engaged in so-called “wire stripping,” whereby references to the Iranian connection of a payment were stripped from the actual bank wire. Those fines were paid to a number of entities, including the New York Department of Financial Services, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), and the U.S. Department of Justice (DOJ).

Did StanChart not learn its lesson last time? Well, it looks like the potential violations happened a number of years ago, but were not revealed and have only been uncovered. It will have to be seen what comes of this.

What to Make of this Development

This story really highlights two important issues. First off, the U.S. has not lightened up on sanctions enforcement in light of the increased dialogue between it and Iran in the past year following the election of Iranian President Hassan Rouhani, and the November 2013 deal between Iran and the P5+1. While that agreement resulted in some sanctions being suspended, contrary to some belief, the Administration isn’t taking other violations lightly. This is a prime example. Iran sanctions are still very popular in the halls of government, and the government has made it clear that it will continue to enforce the existing laws. Notably, many have also emphasized that even if sanctions are lightened, meaning even if a deal is reached by November 24 over Iran’s nuclear file, they will not be lifted overnight. The common, conventional wisdom is that assuming there is a deal, it will still take a few years.

Second, the key (often mentioned on this blog) is that even if the Iran sanctions are lifted, we live in a world of compliance and a vigorous anti-money laundering (AML) culture. The U.S. and European Union (E.U.) are increasingly using sanctions as a tool of foreign policy and whether it’s Iran, Russia, Syria, Cuba, or anywhere else, thorough compliance is now the name of the game. Even outside sanctioned jurisdictions, banks and other businesses cannot turn a blind eye to U.S. law and will have to implement best practices (if they have not already). Be they financial institutions, manufacturers or trading companies, compliance programs featuring education on the laws, updating of policies, transparency, know your customer provisions and contractual clauses will continue to be important if not more vital.

Compliance Programs Are For Everybody

While StanChart is a huge bank of global proportions, any company doing business internationally should place careful emphasis on compliance. A good compliance program is one that is adapted to the needs of the company – what may work for a large UK-bank may very likely not be appropriate for a small trading company in the U.S. focused on Latin America or East Asia. That does not, however, mean that such a company should not worry about compliance. Rather, such a business should adopt policies that better ensure its own compliance. The key is to be proactive, knowledgeable, and willing to institute good practices that will keep the business on the right side of the law and minimize risk.