London - For years, the United States struggled to get
foreign bankers to comply with its effort to throttle Iran’s economy - but a
couple of billion dollars in fines, not to mention lurid headlines and talk of
jail time, has suddenly got their attention.
A half-hearted shuffling forward to settle years-old claims
of busting US sanctions on Tehran is becoming a stampede since Washington
tightened rules to punish Iran’s nuclear programme and a new aggression among
regulators so alarmed many banks that shareholders will be paying out billions
more for years to come.
Deutsche Bank and Italy's Intesa San Paolo are among big names that may soon join the
still short list of foreign banks that have so far paid more than $2.3bn in
fines; some still protest their innocence but have regarded the cash as the
price of keeping access to the US market - and keeping executives out of court,
or even jail.
The drama played out last month between Standard Chartered
and the New York state supervisor who threatened to strip the august British
institution of its vital Wall Street banking licence was not entirely typical.
But StanChart’s about-face within days, from vigorously defending past deals
with Iranian clients to handing over $340m - 5% of its pretax profit - was
illustrative of an industry-wide shift in mindset.
“The acceleration in a sense is coming from (the banks’)
side defensively,” said Michael Malloy, a professor at the University of the
Pacific McGeorge School of Law in California.
“The notion being that it would be better to get out in
front of this and confront the difficulty and come clean rather than wait for
the authorities to ferret you out,” said Malloy, who previously worked for the
Clearly, it is not something all boards will shout about;
when another British bank, Royal Bank of Scotland, made mention of talks with
regulators on US sanctions regulations in its quarterly report last month, it
took another two weeks before many investors became aware of the issue via the
But, after Standard Chartered and June's record $619m fine
paid by Dutch bank ING, the list of European banks going public with warnings
about possible US payouts includes Germany’s Commerzbank and HVB, a unit of
Italy’s Unicredit, as well as HSBC in Britain.
And Chinese banks have become embroiled in the process too,
with the New York Times reporting on Wednesday that prosecutors said they had
found evidence in their investigations that they, too, may have flouted US
sanctions against Iran.
By contrast, US regulators long gave little opportunity to
domestic banks to deal with Iran at all, leaving American bankers now little
troubled by inquiries into past transactions.
Fined so far
It has taken time to reach this point; since Britain's
Lloyds TSB Bank became the first to settle, forfeiting $350m in January
2009 for masking the origin of payments to evade US sanctions on Iran, Libya
and Sudan between 2002 and 2007, others to pay penalties have included Credit
Suisse, in December 2009, Barclays, in August 2010, and ABN Amro - now part of
Yet, as disclosures by the regulator in the Standard
Chartered case made clear, bank executives were discussing among themselves the
risk of personal criminal liability as long ago as 2006, as they sought to
maintain profitable business despite confusion over exactly what was permitted
under US sanctions rules which had last been substantially altered in 1997.
Political heat over Iran’s nuclear programme grew as Tehran
defied UN resolutions in 2006 and denied Western accusations it was seeking
atomic weaponry, but only in late 2008 did the US Treasury ban a key element
of non-US banks’ business with Iranians, known as “U-turn” transactions, by
which they passed dollars for Iranian clients anonymously through the US system.
Since 2009, the US Justice Department (DoJ), the US Treasury
Department’s Office of Foreign Assets Control (OFAC) and the Manhattan District
Attorney’s office have clamped down on banks dealing with countries blacklisted
The sharp tightening of US sanctions late last year, while
not strictly relevant to past conduct, and the heightening of political drama
over threats by Washington’s ally Israel to bomb Iran’s nuclear facilities also
seems to have limited bankers’ appetite for defending in public their dealings
with Tehran, however strong many believe their legal cases would be.
“It is a very intense area of focus,” said Michael Zolandz,
an attorney with law firm SNR Denton in Washington.
“We’re certainly sensing from large international banks ...
that the pressure on them to disclose transactional information, to start
sharing account data and monitor payments ... is definitely increasing.”
"Price of doing business"
The rules for U-turn transactions in particular have long
been ambiguous at the least, legal experts say:
“Even after recent settlements there remained a need to
clarify how the sanctions regime would be interpreted and enforced, which
underlines how much uncertainty there is,” said Susannah Cogman, at London law
firm Herbert Smith.
But despite that lack of clarity over their previous
business dealings with Iran, few Western banks now seem ready to put up much of
a fight against the United States government.
“To an extent this is the price of doing business in - and
with - the US,” said Cogman, an expert on regulatory disputes.
Showing an early willingness to cooperate could also help
the banks limit the damage and avoid criminal charges.
“There is also the very real possibility of criminal
sanctions,” said Malloy at the University of the Pacific. “A showing of good
faith and attempt to cooperate once you’ve been made aware of the problem would
protect you in most cases.”
Deutsche Bank in 2007 stopped taking on new business with
counterparties in Iran, and, in a mark of the sensitivity to the risk to
employees of US legal action, a regulatory filing from March this year shows it
did not involve any American citizen in either a managerial or operational role
in Iranian transactions.
Commerzbank warned last month it faced a financial hit to
settle the US probes into violations of sanctions on Iran and other countries,
which could exceed provisions.
Also last month, Italy’s UniCredit said it was reviewing its
German unit HVB to check “historic compliance”, adding that the New York County
District Attorney’s Office, the DOJ and the OFAC were leading an investigation.
French banks BNP Paribas and Credit Agricole are conducting
inquiries into US dollar payments to check whether they are in breach of US
sanctions, they said late in August.
And Intesa Sanpaolo is still subject to an assessment by the
OFAC, which could lead to administrative sanctions, half-year financial
statements show. It has no further information on the timing or the size of any
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