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On Monday, the New York State Department of Financial Services (DFS) accused London-based Standard Chartered PLC (SCBFF) of concealing transactions worth $250 billion (£160 billion) 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 sternly.

As per the DFS, Standard Chartered had set up an operation named Project Gazelle to funnel Iranian money through American financial system. The company duped the 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 non-Iranian banks.

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 extremist activities.

The banks consumed by their own interests, 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 maximum attention.

Earlier this year, the U.S. government held Netherlands-based ING Groep NV (ING - Snapshot Report) 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 - Analyst Report) 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 losses.

Shares of Standard Chartered currently retain a Zacks #3 Rank, which translates into a short-term Hold rating.

(We are reissuing this blog to correct a mistake. The original article, released yesterday, August 7, 2012, should no longer be relied upon.)

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