On Monday, the New York State Department of Financial Services
(DFS) accused London-based Standard Chartered PLC
( SCBFF ) of concealing transactions worth $250
million (£160 million) pertaining to Iran. According to the DFS,
these transactions, which took place in the last decade, were in
contempt of the U.S. laws and regulations, and would be dealt with
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As per the DFS, Standard Chartered had allegedly set up an
operation named Project Gazelle to funnel Iranian money through the
American financial system. The company duped regulators by removing
the codes of transfer and carried out nearly 60,000 transactions
with the Iranian government in the last ten years. This resulted in
huge fee income for the bank at the cost of the national security
of the U.S.
Since 1979, the U.S. regulators have put sanctions on all sorts of
financial transactions relating to Iran. The highly scrutinized
transactions, termed as 'U-turns,' were permitted to pass through
the U.S. financial system only if the funds transfer ended up in
The lawful compliance of these 'U-turns' was the lookout of the
banks. However, by 2008, it was proven beyond a doubt that the
system of transferring checks had been abused severely. In order to
safeguard national security, U-turns were banned as the regulators
suspected Iranian banks, at the behest of the Iranian government,
were providing funds for nuclear and missile programs as well as
The banks allegedly flouted the laws and carried out transactions
for countries having economic restrictions imposed by the U.S.
Consequently, the regulating authorities came down hard on such
unwarranted activities of these banks.
Misconducts by Other Banks
Recently, the top executives at HSBC Holdings plc
) faced a tough inquiry by the congressional committee for their
alleged involvement in money laundering during the period
2004-2010. The investigation revealed substantial lapses in the
bank's anti-money laundering compliance. This resulted in a
worldwide displacement of funds from riskier nations through the
bank. Controversial transactions pertaining to its Iranian
clientele and the illegal narcotics trade in Mexico have drawn
Earlier this year, the U.S. government held Netherlands-based
ING Groep NV ( ING )
responsible for transferring billions of dollars through the
American financial system to nations that were economically
restricted by the U.S. As a result, the bank ended up paying $619
million in penalties.
Moreover, Wachovia bank, acquired by Wells Fargo &
Company ( WFC ) in 2008, was accused of facilitating funds
transfer related to the Mexican Drug cartel. It ended up paying
$160 million as compensation.
Standard Chartered stands to lose its New York banking license if
the leveled charges are proven. Though the company has strongly
rejected all the accusations by the DFS, revoking of the banking
license would spell catastrophe for the foreign bank. It would mean
a complete isolation from the U.S. markets and billions of dollars
Shares of Standard Chartered currently retain a Zacks #3 Rank,
which translates into a short-term Hold rating.