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The Royal Bank of Scotland Group plc (RBS - Snapshot Report) is the latest bank to be investigated by U.S. regulators over possible violations of restrictions imposed on Iran. The Federal Reserve and Department of Justice are the agencies involved.

According to the Financial Times, the investigation was triggered 18 months after the Royal Bank voluntarily disclosed information to American and British regulators to discuss compliance with applicable laws and regulations. As the probe has not been made public, the related details are not available.

This is not the first time that Royal Bank has been charged with contempt of the U.S. laws and regulations. Earlier, in 2010, ABN AMRO Holding N.V. , bought by Royal Bank in 2007, was accused of money laundering. The regulators accused ABN AMRO of funneling the money of countries accused of sponsoring extremist activities through the U.S. financial system. This compromised national security, and thus the bank was asked to pay a fine of $500 million.

British Banks in Money Laundering Scam

Last week, Standard Chartered PLC (SCBFF) reached a $340 million settlement with the New York State Department of Financial Services (DFS) for its involvement in money laundering in Iran. The agreement came after the London-based bank was accused by New York’s top regulating authority of concealing transactions worth $250 billion (£160 billion) relating to Iran.

Earlier this year, the top executives at HSBC Holdings plc faced a tough inquiry by a 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 drew maximum attention.


Since the investigation is still in the initial stage, it would be too early to comment on the outcome. However, if penalized, the financials of Royal Bank could be affected to an extent.

Currently, Royal Bank retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term ‘Neutral’ recommendation on the stock.

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