Money laundering accusations leveled against a British bank by New Yorks top banking regulator are causing global banks to worry that their New York operations could make them public targets for processing transactions already deemed legal by federal regulators, according to federal authorities with knowledge of the concerns.
Benjamin M Lawsky, who leads the New York Department of Financial Services, upended the regulatory landscape on Monday by accusing Standard Chartered of scheming with the Iranian government for nearly a decade and hiding from regulators $250 billion in transactions through its New York branch. The bank, for its part, has said it strongly rejects the position and portrayal of facts by Lawskys department.
The accusations largely centre on transactions that the federal government permitted until 2008, namely the transfer of money with Iran through the United States from one foreign-based entity to another.
Until Lawskys case against Standard Chartered claimed that the bank cloaked these so-called U-turn transactions, there was virtual consensus among Treasury Department authorities, the Justice Department and the Manhattan district attorneys office that such transactions were legal, even if they violated the spirit of the law, according to people briefed on the matter.
A number of European banks, including Lloyds, Barclays and ING, that have already settled money laundering cases with the US Justice Department and the district attorneys office are concerned that they could be in the state banking regulators sights, according to federal authorities who spoke on the condition of anonymity.
Details in each banks case were different, with the international banks suspected of using their United States subsidiaries to process tainted money for clients that included Iran, Cuba, Sudan and sponsors of terrorist groups. But none of the cases took issue with U-turn transactions with Iran that occurred before November 2008, the officials said.
Some banks, the officials said, are trying to anticipate how they will navigate the apparent shifting terrain between state and federal law. The worry, the authorities said, is that the state banking regulator could decide that past transactions, which were legal under federal law, violate a state law. According to the federal authorities, one question continues to emerge: Will New York State take issue with these transactions?
With his move against Standard Chartered, Lawsky has created utter turmoil, said a federal official who insisted on anonymity because the conversations with the bank executives were private. Lawsky and a spokesman declined to comment.
Executives at HSBC,