The Obama administration is issuing a long-delayed rule requiring the financial industry to identify the real owners of companies and proposing a bill that would require companies to report the identities of their owners to the federal government, U.S. officials said on Thursday.

The Customer Due Diligence (CDD) rule, in the works since 2012, and the proposed legislation are meant to hinder criminals from using shell companies to hide ownership and launder money, finance terror, and commit other threats to the global financial system.

The use of shell companies to hide assets and avoid taxes is in the spotlight following a massive leak of data from the Panama-based law firm Mossack Fonseca, which embarrassed several world leaders and sparked government investigations around the globe into possible financial wrongdoing by the wealthy elite. The International Consortium of Investigative Journalists said it will release a searchable database of more than 200,000 offshore entities next week.

“Fundamentally our financial system should not provide the rich, the powerful, and the corrupt with the opportunity to shield their assets,” said Wally Adeyemo, the U.S. deputy national security advisor for international economics, in a call with reporters on Thursday. “Nobody should be able to hide in the shadows from their legal obligations.”

The final CDD rule will require banks, brokers, mutual funds and other financial institutions to collect and verify the identities of the real people, or “beneficial owners,” who own and control companies when those companies open accounts.

Financial institutions will have to verify the identity of any person or company who owns more than 25 percent of the company, and one live person who controls the company even if that person owns less than 25 percent.

Banks will have two years to get their systems into compliance, said Jennifer Fowler, the U.S. Treasury deputy assistant secretary for terrorist financing.

The U.S. Treasury said in 2012 it planned to propose a rule that would clarify and standardize financial institutions’ obligations to know the identities of their customers.

But the proposal generated opposition from the financial industry, which argued it would be costly, ineffective, and difficult to implement because the United States lacks a national database of corporate information.

To address one of those industry concerns, Treasury will propose legislation requiring companies to report to the Treasury the identity of beneficial owners when a company is incorporated. The legislation would create a central registry of beneficial ownership, something the U.S. currently does not have, Fowler said.

U.S. secretaries of state have lobbied against similar legislative action in the past, arguing that the Internal Revenue Service already has corporate ownership records that it could make available to law enforcement.

Adeyemo said the Obama administration had been “consulting actively” with secretaries of state. “This is a place where we need Congress to act,” he said.

Taken together, the measures would make the financial system more transparent and close loopholes that allow for abuse or illegal activity, officials said.

More than 1,000 prosecutions are brought each year in the United States for money laundering, Fowler said. “This is a record that no one in the world can match.”

But, she added, “there are vulnerabilities that we need to address in order to maintain an effective regime.”

The Treasury is also proposing a regulation that would increase requirements for some foreign-owned companies operating in the United States to report information to the government, which officials said would prevent the use of those companies for tax avoidance purposes.

In addition, the Justice Department is proposing amendments that would strengthen its ability to pursue foreign corruption cases, including issuing subpoenas for records in money laundering investigations, obtaining overseas records, and using classified information in civil cases.

Source: Channel News Asia

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The Dubai Financial Services Authority (DFSA) has fined two former bank directors for wilfully breaching the regulator’s anti-money laundering (AML) rules.

Raphael Lilla and Kapparath Muraleedharan were both licensed directors and members of the board of Hinduja Bank, a Switzerland-headquartered private bank.

In August 2014, Lilla and Muraleedharan instructed the bank’s senior executive officer and the compliance and money laundering (CML) reporting officer to open three accounts for clients who had been assessed as “high risk”.

Enhanced due diligence
Under the DFSA’s AML rules, Hinduja Bank was required to carry out enhanced customer due diligence on these clients before opening the accounts.

However, Lilla and Muraleedharan ignored advice from the senior executive officer and CML reporting officer that such action would contravene the rules.

The directors then used their senior positions as board members to instruct staff to open the accounts.

“The DFSA considers their actions to be serious and expects a higher standard of behaviour from persons in such senior positions.”

Investigation outcome
The DFSA’s investigation found that both men:

• received confirmation from external legal counsel shortly after the accounts were opened that the advice of the senior executive officer and the CML reporting officer was correct;
• were aware that opening the accounts in such circumstances did not comply with the bank’s account-opening policies;
• and attempted to control the senior executive officer and the CML reporting officer from reporting the opening of two of the accounts to the DFSA.

Early settlement
Lilla and Muraleedharan accepted responsibility for their actions and agreed to settle the matter at an early stage following the conclusion of the investigation.

The DFSA therefore reduced the fines by 20% under the DFSA’s policy for early settlement, meaning each man was fined $56,000 (£38,800, €49,097).

Were it not for discount, Lilla and Muraleedharan would have each been fined $70,000.

Both men resigned from the bank in August 2015.

No action against Hinduja Bank
The DFSA decided not to take any action against the bank. After the accounts were opened, it promptly notified the DFSA and other relevant authorities in the UAE that the accounts had been opened and also took steps to prevent the accounts from being used to receive funds.

Ian Johnston, chief executive of the DFSA, said: “Mr Lilla and Mr Muraleedharan were given clear advice that opening the accounts without completing the required due diligence would contravene the DFSA’s rules.

“They ignored this advice and caused the accounts to be opened, which put the firm in breach of its regulatory obligations. The DFSA considers their actions to be serious and expects a higher standard of behaviour from persons in such senior positions.

“The DFSA also commends the senior executive officer and the compliance and money laundering reporting officer for taking action to mitigate the risks to which the firm was exposed, and for notifying the DFSA.”

Source: Intl. Adviser

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Three months after a nuclear deal was implemented between Iran and western powers, the Islamic Republic has been unable to tap about $100 billion held abroad and is seeking access to the U.S. financial system to help pay its bills, Central Bank Governor Valiollah Seif said.

While Iranian deposits held abroad are supposed to be accessible, Seif said Friday that European banks are worried about running afoul of U.S. regulations. He wants the U.S. Treasury’s Office of Foreign Assets Control to issue guidelines encouraging European banks to be more receptive to Iran. Seif met Treasury Secretary Jack Lew Thursday on the sidelines of the IMF-World Bank meetings in Washington to discuss his concerns.

So far, Iran has gotten “almost nothing” from the accord, which was implemented on Jan. 16, Seif said in an interview with Bloomberg Television. “One of the needs that we definitely have goes back to converting currencies to pay our suppliers. It requires having access to the U.S. financial system.”

Seeking Investment

The nuclear accord, reached after nearly a decade of international sanctions, raised hopes in Iran of a wave of foreign investment and economic prosperity following years of negative or low growth, a weakening currency, and isolation from global markets. Airline companies including Airbus Group SE and Boeing Co. moved to help the country replace its aging fleet, yet many firms remained wary as U.S. sanctions put in place in the 1990s remained in effect.

Many European banks were fined for dealing with Iran when the country was under sanctions and signed settlement agreements not to deal with Tehran for a number of years. France bank BNP Paribas agreed to pay $8.9 billion in July 2014 for violating U.S.

sanctions against Sudan, Cuba and Iran. Germany’s Commerzbank AG agreed to pay $1.45 billion for moving funds through the U.S. financial system for Sudan and Iran. Seif wants OFAC to rescind those agreements.

“There is no reason for those obligations to continue,” Seif said. “OFAC should release the banks.”

Obama administration officials have repeatedly said they aren’t blocking access to Iran’s overseas deposits. Earlier this week, Adam Szubin, Treasury’s acting undersecretary for terrorism and financial intelligence, said he’d seen signs that non-U.S. banks weren’t aware of “the scope of U.S. sanctions with regard to Iranian funds that were formerly restrained.”

Szubin, however, also said that the U.S. won’t provide Iran with access to the U.S. financial system. There would be no restoration, he said, of “U-turn’’ authorization, where transactions priced in U.S. dollars are cleared through a U.S. financial institution even though the money doesn’t stay in the U.S. bank.

Source: Bloomberg

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The Bank of England has fined Qatar Islamic Bank’s UK, a subsidiary of Qatar Islamic Bank, for failings in reporting its financial resources to the regulator in 2011 and 2012. The Bank’s Prudential Regulatory Authority (PRA) imposed a fine of 1.385 million pounds ($1.95 million) on QIB for failing to undertake a regular assessment of its capital, the BoE said in a statement.

“In failing to assess, maintain and report on its financial resources for over a year, QIB failed to meet some of the most basic regulatory standards,” said Andrew Bailey, chief executive of the PRA.
Guy Priestley, QIB UK’s interim chief executive, said the problems identified by the PRA have been remedied.

“We now have a UK operation that is recognised for its quality of service, is fully compliant, profitable and, most importantly, is well-capitalised with a very strong risk-control framework to protect the interests of all stakeholders,” Priestley said.

Source: Pak Observer

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A billionaire businessman, philanthropist and former broker of arms deals has been told by Barclays that he can no longer bank with them.

Wafic Said, who was born in Syria, has also donated large sums to the Conservative Party.

The bank is understood to be concerned about holding accounts that are linked to what are described as “high-risk countries”.

Mr Said has been a customer of Barclays for many years.

The Said Foundation funds a renowned business school in Oxford, as well as many humanitarian causes, and counts a former private secretary to the Prince of Wales among its trustees. So why has he been shunned?

Mr Said and his foundation have strong financial links with Syria. His family is a major shareholder in one of Syria’s biggest banks and he has counted members of the family of Bashar al-Assad among his friends.

War-torn Syria is a complicated place to do business. There are a variety of US and EU sanctions regarding transferring money in and out of Syria and there are serious risks for banks that get it wrong.

Barclays concluded it was not sufficiently reassured they were in compliance with anti-money laundering and “know your client” rules.

Mr Said became well known as the broker of the UK’s largest ever export deal – and one that became mired in controversy.

The so-called al-Yamamah transaction involved the sale of £43bn worth of British fighter planes to Saudi Arabia.

There were accusations of bribery, which led to an investigation by the Serious Fraud Office. That probe was terminated by Tony Blair in 2006, as it was considered counter to the UK’s national interest.

There is no suggestion that Mr Said was guilty of any wrongdoing, either then or now. However, Barclays is understandably jumpy because last November, Barclays was fined £72m by the Financial Conduct Authority after it found they failed to carry out due diligence on a high-net-worth client in a transaction worth £1.9bn. But the real fear for banks is the US authorities.

In 2014, French bank BNP Paribas was fined almost $9bn for violating US sanctions against Sudan, Cuba and Iran, a severe punishment aimed at sending a clear message to other financial institutions around the world. Barclays heard it and has decided that people with Mr Said’s profile are not a risk worth taking.

Barclays insist that the decision was not part of a wider systematic culling of clients with links to territories posing high regulatory risk and that decisions are being made on a case-by-case basis.

In a statement on Friday, Mr Said said he was given no justification for the bank’s action and would be taking legal action against Barclays.
Source: BBC

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A printer error first tipped off Bangladesh’s central bank to one of the biggest cyber heists in recent history, according to a complaint filed to police that provided new details on the attempted theft of nearly $1 billion.

Zubair Bin Huda, a joint director of Bangladesh Bank, found the printer tray empty when he looked on the morning of Feb. 5 for confirmations of SWIFT financial transactions that are normally printed automatically overnight. He then tried and failed to print out the messages manually from the SWIFT system, according to his complaint to police, the first step needed to start an official investigation.

Because it was a Friday — a weekend in Muslim-majority Bangladesh — Huda left the office around 11:15 a.m. and asked his colleagues to help fix the problem. It took them more than 24 hours before they could manually print the receipts, which revealed dozens of questionable transactions that sent the bank racing to stop cash from leaving its account with the Federal Reserve Bank of New York to the Philippines, Sri Lanka and beyond.

The case has prompted central banks around the globe to examine cyber security measures. It has also led to the resignation of Bangladesh’s central bank governor and put money laundering in the Philippines under scrutiny.

File is Missing

Proloy Kumar Saha, an inspector of Motijheel Police Station where the complaint was filed, confirmed the details and said it was being transferred to the Criminal Investigation Department. Huda is not a suspect in the case and didn’t accuse anyone of wrongdoing in the document, known as a First Information Report. He didn’t respond to multiple phone calls.

On Saturday, Feb. 6, Huda noticed that the software on the terminal connecting to the SWIFT system wasn’t responding. When an attempt was made to restart the terminal, a message flashed: “A file is missing or changed,” according to the complaint.

By 12.30 p.m., Huda and his team had managed to get the terminal started. While the automatic printing system still didn’t work, they managed to print them manually. What they found surprised them: The receipts show the Federal Reserve Bank of New York sent back queries to Bangladesh Bank against 46 payment orders in different messages, according to the complaint.

Weekend Phone Calls

“At our end, we did not find any debit confirmation in our system against those payment orders,” Huda said.

Sensing a much bigger problem than a computer glitch, Bangladesh Bank contacted SWIFT to help them analyze the transactions. It also e-mailed and faxed the Federal Reserve Bank of New York, where it kept an account, with a stop order for all unauthorized payments until further notice, Huda told police.

Over Saturday and Sunday, Bangladesh Bank failed to reach officials in New York by phone. But by that time it was also a weekend in the U.S., and nobody was available.

By Monday, Feb. 8, the central bank’s connection to the SWIFT system was back up and running. Bank officials then discovered that four unauthorized SWIFT messages were sent indicating that $101 million was transferred to the Philippines and Sri Lanka.

Frantic Messages

Bangladesh Bank then frantically sent stop payment orders via the SWIFT system to the Federal Reserve Bank of New York, Rizal Commercial Banking Corp., Bank of New York Mellon, Citigroup Inc., Wells Fargo & Co. and Pan Asian Banking Corp. in Sri Lanka.

Huda said in the complaint that $81 million was sent to Rizal Bank via four messages and $20 million was sent to Pan Asia Banking via one message — all from the Federal Reserve Bank of New York. Another $850 million in transactions were halted.

On request from Bangladesh Bank, Pan Asia Banking canceled the payment of $20 million to its beneficiary and routed the funds back to Bangladesh’s account with the Fed in New York. But the $81 million that entered the Philippine banking system was credited to beneficiary accounts with Rizal Bank and eventually withdrawn.

The $20 million transfer to Pan Asia Banking raised alarms because of its size and a typo in the beneficiary’s name, according to Nalaka Wijayawardana, deputy general manager of marketing at the bank. Pan Asia Banking then remitted the funds back to Bangladesh Bank’s account in New York via Deutsche Bank around Feb. 17, he said.

Philippine Suspect

“We cannot divulge the beneficiary due to confidentiality policy, but we will support any investigation,” Wijayawardana said.

Most of the $81 million in the Philippines is missing. Maia Santos Deguito, the manager at Rizal Bank’s branch in the Philippine financial district accused of allowing the withdrawal of the funds, invoked her right against self-incrimination in a hearing on Tuesday.

The Philippine anti-money laundering agency said Deguito allowed the funds to be withdrawn on Feb. 5 and 9 despite requests from Bangladesh to stop the transfers. Only $68,305 of the funds remained when Rizal Bank put the accounts on hold, according to the complaint.

SWIFT Response

Deguito’s lawyer, Ferdinand Topacio, who was with her at the hearing, declined to comment, saying he hasn’t seen a copy of the complaint.

SWIFT said it was working with Bangladesh “to resolve an internal operational issue at the central bank,” according to a statement last week. “SWIFT’s core messaging services were not impacted by the issue and continued to work as normal.”

A Citigroup spokesman in Hong Kong had no immediate comment. Amy Chang, a spokeswoman at Deutsche Bank, declined to comment. Calls and e-mails to BNY Mellon and Wells Fargo weren’t immediately returned.

Malware Installed

Malicious software code, known as malware, had been introduced into Bangladesh Bank’s systems in January without the knowledge of the bank’s information systems staff, according to an official familiar with the Bangladesh Bank investigation. The hackers struck the systems on Feb. 4, said the official, who asked not to be named because he’s not authorized to speak about the probe.

Atiur Rahman resigned as Bangladesh’s central bank governor on Tuesday, saying he took moral responsibility after failing to immediately inform the Finance Ministry of the theft. He denied any wrongdoing, and said he had notified intelligence agencies of the crime. Two of his deputies were also removed. Bangladesh on Wednesday appointed career bureaucrat Fazle Kabir as his replacement.

Mohammed Farashuddin, former governor of Bangladesh Bank, will lead a three-member team to investigate the heist, Bangladesh’s Finance Ministry says in a notice on Tuesday. It will investigate how the funds where stolen, who received the cash and why the central bank waited to inform the government. They will have to submit an interim report in 30 days and a full report in 75 days, it said.

Source: Insurance Journal

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Business tycoon Vijay Mallya is in the news for failing to repay the nearly Rs. 7,000 crores to various banks and his subsequent fleeing from India.

It is still unclear whether Mallya will be returning to India, or how the banks will recover the huge amount he owes them if he does come back.

While the Mallya episode is being described as the biggest fraud in Indian history, we take a look at some of the biggest corporate scams in recent years.

1. Subrata Roy, Sahara
Sahara Group chairman Subrata Roy and Vijay Mallya had a lot in common. Both successful businessmen had a passion for sports. The two also had their own IPL teams, Sahara Pune Warriors and Royal Challengers Bangalore (after resigning as the chief of UB Group Mallya is technically not the owner of RCB). In fact, the duo jointly owns the Sahara Force India Formula 1 team.

Sahara Group was accused of failing to refund over Rs. 20,000 crore to its more than 30 million small investors which it collected through two unlisted companies of Sahara.

In 2011, SEBI ordered Sahara to refund this amount with interest to the investors, as the issue was not in compliance with the requirements applicable to the public offerings of securities.

Roy was arrested on 28 February 2014 and still remains behind bars as an under-trial. His proposal to settlement of the matter was rejected by the court and SEBI.

2. Ramalinga Raju, Satyam Computers
B Ramalinga Raju, the founder of Satyam Computers, got into trouble after he admitted to inflating the company revenue, profit and profit margins for every single quarter over a period of 5 years, from 2003-2008. The amount embezzled by him is estimated to be around Rs. 7,200 crore.

In April 2015, Ramalinga Raju and his brothers were sentenced to 7 years in jail, and fined Rs. 5.5 crore.

3. Sudipta Sen, Saradha Chit Fund
Saradha group which ran a chit fund in West Bengal had collected around ₹200 to 300 billion from investors with a promise of high returns for their investments.

The company which enjoyed strong political backings collapsed in April 2013. The amount investors lost is estimated to be between Rs. 2060 – 2400 crores.

4. Ketan Parekh
Parekh was involved in circular trading and stock manipulation through 1999-2001 in a host of companies. He borrowed from banks like Global Trust Bank and Madhavpura Mercantile Co-operative bank, and manipulated a host of stocks popularly known as K-10 stocks.

Parekh has spent only 1 year in jail but has been banned from trading in the Indian stock markets till 2017.

5. Ram Sumiran Pal, Speak Asia
Speak Asia was an online trading company founded by Ram Sumiran Pal and his brother. Pal and his associates duped at least 24 lakh investors for Rs 2,200 crore in the scam extending to Singapore, Italy, and Brazil, among others.

They took over or set up multi-level marketing companies registered in foreign countries attracting investments due to their global profile. There were some buyouts in Brazil as well. These were later used to launder money. One such company, Speak Asia, in Singapore, was introduced in India in 2010.

6. Jignesh Shah, NSEL
Jignesh Shah was one among the top billionaires list in Forbes in 2008. He launched National Spot Exchange Ltd. (NSEL), the country’s first electronic spot exchange for commodities, in 2008.

His empire unraveled in July 2013 when NSEL defaulted on payments to its investors and it came to light that customers of certain favored NSEL brokers had been allowed to take long-term, 30-to-40-day forward contracts in commodities like sugar and wheat despite the exchange being allowed only to handle spot contracts. It is believed to have affected 13000 investors and losses are estimated to be a Rs. 5600 crore.

Source: India Times

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The latest allegations by the Wall Street Journal (WSJ) against Prime Minister Najib Abdul Razak are extremely serious, pointed out Parti Amanah Negara Strategy Director Dzulkefly Ahmad in commenting on a ABC News Australia report on Thursday night.

“It destroys the good name, integrity and dignity of Malaysia as a sovereign nation.”

“The effects cannot be underestimated.”

On February 11, reminded Dzulkefly, BMR Research of the Fitch Group International Ratings Agency warned that investors would be wary of coming to Malaysia lest they be caught up in corrupt deals.

If Najib once again declines to drag WSJ to Court over the allegations, he added, the people should demand that he step down immediately as Prime Minister and Finance Minister “for the sake of the nation’s future and the welfare of the people”.

Dzulkefly was commenting on WSJ Finance Editor Ken Brown telling ABC News Australia in an interview that the RM2.6 billion in Najib’s personal accounts was not from the Saudi royal family. “He said the money came from various companies linked to 1MDB.”

Brown, he noted, hinted that there was a lot more information floating out there that will become public knowledge when various authorities abroad continue to investigate this in the months ahead. “This is the second time that WSJ has made such allegations.”

“Investigations are also underway in Switzerland, Singapore, Hong Kong and the US on 1MDB for offences under the Anti-Money Laundering Act and Exchange Control Act.”

He recalled that in July last year, the US newspaper had run an expose that RM42 million from SRC International and a separate RM2.6 billion (USD681 million), in two tranches, had entered Najib’s personal accounts. The two tranches, USD620 million and USD61 million, came from British Virgin Islands-registered Tanore Finance in March 2013. “The funds were transferred to Falcon Private Bank in Singapore, owned by Abu Dhabi’s International Petroleum Investment Company (IPIC), and from there to Najib’s accounts at AmBank Islamic Bank.”

Another question that arises, said Dzulkefly, was why Attorney-General Apandi Ali has yet to explain the RM53.7 million fine levied on AmBank by Bank Negara . “Najib, it’s said, did not know about the money from SRC but used it anyway to settle his credit card accounts.”

“Under Section 23 of the Anti-Corruption Act 1961, the receipt of any money (unexplained) by a public official is deemed a corrupt act.”

Apandi , stressed Dzulkefly, cannot take the position that there wasn’t enough evidence against Najib. “So many questions arise.”

“The Saudi Arabian Foreign Minister said on 6 February that the USD681 million received by Najib wasn’t a donation as claimed but investment.”

Again, international news organisations like WSJ, New York Times, Independent, Guardian, Bloomberg, BBC, CNBC and others have painted a negative picture of Apandi’s decision against throwing the book at Najib.

Source: Free Malaysia Today

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Putting aside the politics surrounding the Iran Nuclear Deal, the exchange of prisoners and other hot button political issues surrounding Implementation Day and the change in US-Iran relations, the new Iran sanctions create a new set of challenges for trade compliance officers. Talk about a headache.

The media has helped to raise expectations about major changes in the Iran sanctions program by making broad claims of sanctions relief. Business leaders and managers are reading these popular sanctions reports and then asking legal and compliance officials if they can now conduct business with Iran.

Unfortunately, the media descriptions are inaccurate. In general, United States businesses are still prohibited from dealing directly, or indirectly, with Iran businesses. Broad prohibitions against Iran because of Iran’s promotion of terrorism around the world remain in place. The basic US trade embargo against Iran remains in full force and effect.

Contrary to many media reports, US companies cannot start to engage in direct oil deals, financial transactions, and a host of other business transactions. One big exception, however, is the aviation industry that is authorized as of Saturday, January 16, 2016, to sell Iran jets, parts and services and other aviation industry products and services.

On Implementation Day, the United States lifted the nuclear-related “secondary sanctions” that were generally imposed through the years in response to Iran’s development of nuclear weapons. The “secondary sanctions” were directed toward non-U.S. persons for conduct that occurred entirely outside of the U.S. The relaxation of the secondary restrictions, however does not change the prohibition against foreign entities that facilitate or seek to assist US companies to circumvent the embargo by exporting US goods or services to Iran.

The thrust of OFAC’s major changes to the Iran sanctions program is the removal of “secondary” sanctions against foreign companies that engage in business with Iran business and the Iran government. Through the years, the US government has expanded sanctions against Iran to the maximum legal limit – imposing sanctions on foreign businesses that are subject to US jurisdiction. The limit of such sanctions depends on compliance with the Due Process Clause of the US Constitution.

The remaining OFAC sanctions appear to put US companies and persons at a disadvantage in comparison to foreign companies that are now authorized to conduct business with Iran businesses. To address this issue, OFAC adopted an interesting definition and a new General License H. All of these changes outlined below do not alter the basic obligation of US and foreign persons not to deal with Specially Designated Nationals and other prohibited persons.

The definition of a non-U.S. person means “any individual or entity excluding any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.”

However, the definition of a non-U.S. person includes “an entity that is owned or controlled by a United States person and established or maintained outside the United States (a “U.S.-owned or – controlled foreign entity) is eligible to participate in transactions or activities subject to the sanctions lifting” as authorized by OFAC to engage in such transactions or activities, including pursuant to General License H.

A foreign subsidiary of a U.S. company may engage in direct business with Iran businesses. General License H authorizes US foreign subsidiaries to rely on common US company infrastructure to support its foreign subsidiary, including “(1) activities related to the establishment or alteration of operating policies and procedures of a United States entity or a U.S.-owned or controlled foreign entity [for authorized transactions];” and (2) activities to make available to those foreign entities that the U.S. person owns or controls any automated and globally integrated computer, accounting, email, telecommunications, or other business support system, platform, database, application, or server necessary to store, collect, transmit, generate, or otherwise process documents or information [for authorized transactions].”

All of these means a new compliance world for US companies – a foreign subsidiary can engage in otherwise prohibited transactions when most of the activity relating to the business occurs outside the United States and is generally supported by a US company’s infrastructure as defined in General License H. Drawing lines here between permissible and impermissible activity is going to be challenging for companies, and in particular lawyers and compliance officers responsible for trade compliance.

Source: JD Supra

The post The Changes To Iran Sanctions And Compliance Challenges appeared first on NewsOnCompliance.

Asian banks are expected to be among the first institutions to venture into Iran once sanctions are removed, with Western financial players remaining cautious for some time to come, banking officials said on Thursday.

Iran and world powers reached a deal over Tehran’s nuclear programme in exchange for sanctions relief, which is expected to come into effect next year, pending the Islamic Republic meeting its obligations, known as “implementation day”.

Many Western companies, including European businesses, remain concerned about initiating trade with Iran, fearing that they could still fall foul of the complex layers of sanctions and potentially face fines or be cut off from the U.S. financial system. Existing U.S. sanctions will remain in place.

“We will see the Asian banks going back in,” said Justine Walker, of the British Bankers’ Association (BBA) lobby group, without giving further details.

“When that will be? When is implementation day?” she told a post-sanctions Iran conference in London.

Amr Aboushaban, of emerging markets investment bank Renaissance Capital, said that Western banks would tread carefully, having experienced multiple fines in recent years for sanctions violations.

Aboushaban said that smaller players and Asian banks are most likely to lead the return to the Iranian finance sector.

“The Gulf banks — a couple of countries — will be doing, especially, short-term lending (in Iran),” he added.

Iran is struggling with capital constraints after years of financial freezes. So far, no banks have publicly announced plans to return to Iran.

‘CAUTION AND HESITANCY’
Last week top U.S. Treasury official Adam Szubin told a briefing in London that there would be “caution and hesitancy” by international banks initially when approaching Iran.

Wider U.S. regulations, part of a tougher regime introduced since the financial crisis, include anti-money laundering rules.

The United Arab Emirates wants authorities in the United States to clarify regulations for U.S. banks doing business with UAE banks, which have held up transactions via the U.S. dollar clearing service.

The BBA’s Walker said that the key issue for members of the association — the chief executive of which visited Tehran as part of a UK trade delegation this year — involved arrangements with the Iranian financial sector.

“The first questions are who will give correspondent banking and who will facilitate trade finance and when that will happen,” Walker said.

“I would hope that some of that will start to happen in the summer … I just don’t know. It could be quicker.”

Nicola Bolton, managing director for trade at the UK Trade & Investment ministry, said it was working with the United States and the European Union over the issues but acknowledged the difficulties ahead.

“We understand that some in the financial services sector are concerned about the U.S. sanctions that will remain in place even after the first phase of sanctions relief,” Bolton told the conference.

“We have to also recognise that even after sanctions lift Iran is still going to be a really challenging place to do business.”

Source: Reuters

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Three top officials of Kolkata-based UCO Bank are alleged to be the main conspirators of the Indo-Iran trade scam, believed to be around Rs 20,000 crore.

The Enforcement Directorate (ED), which is investigating the case under the provisions of Foreign Exchange Management Act (FEMA), is working on a tip-off from external sources that officials who worked on Indo-Iran business scheme made provisions for anti-national elements and terror outfits to divert funds to Dubai and Hong Kong in the guise of advance remittance for export.

CBI is doing a preliminary enquiry in the case after ED wrote to the Special Investigation Team (SIT) on black money to look into a case where eight foreign nationals (seven from Iran and one from Azerbaijan) were found to have entered the country on student visas and set up 70-80 fake companies to gain access to funds held by Iran’s UCO Bank account.

The information received from the external sources highlights the role of three officials who were given the mandate to prepare modalities of the scheme. It was alleged that they had hurriedly prepared the same and circulated the circulars for implementation in the branches. It also alleged that they had manipulated the Iran fund figures for the window dressing in the balance sheet of UCO Bank.

The scheme had a lot of flaws, the reason why foreign nationals approached various branches of UCO Bank across the country. They also offered attractive business proposals with an assurance that they would maintain substantial deposits with branches once funds from Iran are credited in their accounts.

Knowing that the proposal was against various provisions of forex laws and know-your-customer (KYC) guidelines, an official offered additional interest rates for the deposits made out of Iranian fund that came as advance remittance for exports.

The information said that the advance inward remittances were credited to the accounts of said foreign nationals by producing receipts of fake remittances. Also, several consolidated statements submitted by the branches of the bank about irregularities in export remittances were neither taken seriously nor reported to any external agencies as mandated by the RBI.

According to the officials, the information is quite crucial to take the probe forward as bank has been reiterating that it has not suffered any financial loss. “The probe agency has now sought a forensic audit report from bank,” an ED source told dna.

UCO Bank has handled Iranian business to the tune of above Rs 1 lakh crore since 2012, when it got government permission. Bank started the rupee payment mechanism through which part-payment of oil imports were settled.

UCO Bank, to an email query from dna, said: “Our bank has not given any sort of credit facilities to the exporters under investigation. We do not have any information/knowledge with reference to the diversion of money to Dubai/Hong Kong as referred to in your email. All payments related to Iran were through proper banking channels and in Indian rupee only.”

The exporters involved in the scam include A&H General Exports, True Exports Services, Connect Export Traders, Centroid Exports (P) Ltd, Genius Exporters P Ltd, New Age Export Services, Star Elite Exports (P) Ltd and Elite World Trading. Under current norms, advances for exports, or for re-export of goods imported, should be covered within a year by proof that an actual delivery is made.

“So far, we have established that around Rs1,500 crore remittances were fictitious. While working on evidences showing around Rs 8,000 crore diverted by the fake companies were received by Gujarat-based firms, we stumbled upon their links with the Afroz Hasan Fatta case,” said an ED source. Fatta was the accused in a Rs5,000 crore hawala transaction, carried out through diamond trading firms.

At least 3-4 layers were created to divert the entire export proceeds. “In the third layer we found certain significant transactions to companies related to a big bullion trader. Some of these names may soon be out,” said the source.

“We are investigating the case under FEMA to bring in the provisions of anti-money laundering Act, and are waiting for the CBI to register case,” said another ED official.

dna was the first to expose the scam in January this year. Following the dna expose and ED probe, the Reserve Bank of India (RBI) told banks to exercise due diligence and ensure compliance with KYC (know your customer) and AML (anti-money laundering) guidelines so that only bonafides export advances flow into India.

Source: DNA India

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In a matter of a month, Ashok Vihar has gone from a run-of-the-mill neighborhood in India’s capital city to the center of a near $1 billion money laundering scandal that is threatening to ensnare some of the country’s largest banks.

Bank of Baroda, India’s second-largest state-owned bank by assets, has operated a local branch in the area for decades where local shopkeepers and families kept accounts. Now, that branch is being investigated for illegal foreign exchange transactions estimated at as much as 60 billion rupees ($922 million) with the trail of evidence spanning from the Middle East to Latin America.

The Central Bureau of Investigation (CBI), India’s main investigating police agency, reckons that 59 account holders at the Ashok Vihar branch and an unknown number of bank officials allegedly conspired to funnel money to 417 partners in Hong Kong and one in the United Arab Emirates under the guise of import payments for cashews, pulses and rice.

Except the food imports didn’t exist and the transfers were in violations of India’s Foreign Exchange Management Act.

The scandal is a source of embarrassment for Bank of Baroda, which was founded by Maharaja Sayajirao Gaekwad III in 1908 and survived a crisis during the First World War when as many as 87 banks failed in India, and comes at an uncomfortable time for the central government that has seen some of its popularity dented by stalling of crucial reforms.

Authorities have stepped in, with junior finance minister Jayant Sinha meeting state-run bank chiefs in New Delhi on Wednesday to discuss the matter.

Private banks have been impacted as well, with HDFC Bank—India’s second largest private lender—announcing the suspension of an employee in connection with the case last week.

What exactly happened

The illegal remittances occurred between May 2014 and July 2015, during which the 59 accounts were opened, Bank of Baroda said in a statement last week. In that period, around $576 million was transferred out of India, the bank added, which is much lower than the CBI’s estimated $922 million.
The majority of the funds in the 59 accounts were initially deposited via bank transfers from 51 different banks and each transaction out of India was less than $100,000, according to Bank of Baroda and the CBI.

Bank of Baroda said it first detected irregularities at the Ashok Vihar branch in July and then requested an internal investigation, which only began on September 22. Two days later, the matter was reported to the CBI as well as the central bank and the finance ministry.

Several arrests have already been made, including the assistant general manager and a foreign exchange officer at the Ashok Vihar branch, the CBI said last week. Searches at 50 locations on various companies suspected of involvement revealed that most of the addresses given were either false or the companies did not exist at all, the CBI added.

Meanwhile, local newspaper DNA reported that a South Korean citizen residing in Mexico City may also be linked to the case. Millions were reportedly remitted to a company called Jasco Ltd that was opened by a man named Kim Jun Hyung in 2008, DNA said. Kim transferred the company to two people in November 2014, a few months after the monetary transactions started from India, the report added.
Bank of Baroda has stated that it doesn’t anticipate any significant financial losses from the case.
The repercussions

While Asia’s third-largest economy is no stranger to financial crime, the scandal comes at a time of rising foreign investor impatience with Prime Minister Modi’s much-discussed fiscal and structural reforms, including those linked to state-run banks, many of whom are hobbling due to patchy loans.

However, analysts told CNBC that they weren’t too concerned about broader implications for India’s banking sector or investment.
“We think multinational corporations need to monitor this since public financial institutions are under scrutiny and many of their local partners do fund expansion through state-owned banks. But as always, the real essence is in the pace and thoroughness of execution,” said Pratima Singh, senior analyst at research firm Frontier Strategy Group.

This case is basically a reminder for tighter financial regulation, explained Pramod Gubbi, director of sales at Ambit Capital, an Indian financial services firm.

“At a time when New Delhi is going after black money, this will help clean up the system.”

The case has already sparked calls for the Indian central bank to impose stricter rules on banks, including reporting cases involving multiple transactions from a single account within a short period.

“My utmost priority is to examine the current situation and bring about the necessary changes within the bank to ensure such unfortunate incidents do not recur. This will include the appointment of an external accounting firm for full review of our Know Your Customer (KYC) norms and its effectiveness across all branches,” said Bank of Baroda CEO and managing director P.S. Jayakumar, in last week’s statement.

Source: CNBC

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Bankers point to fresh threat to industry as transactions leave system after big lenders end ties with smaller ones to lower compliance costs.

Something has got to give. That is the voice of the small bank in an era when large financial institutions are severing ties with them.

They call it derisking, banker parlance for wiping out relationships with smaller customers in high-risk countries, all with the hope of lowering compliance costs and dodging staggering fines for money laundering, or even the semblance of it.

But some players – smaller banks with international remittance networks, global ones that lend to other banks – are starting to push back against the growing risk of derisking, namely the threat of funds leaving the formal financial system and entering dark, untraceable channels.

“Who are we going to deal with?” Ferry Robbani, the head of international banking and financial institutions at Indonesia’s Bank Mandiri, asked of its disappearing correspondent bank network.

Indonesia was removed from the Financial Action Task Force’s money laundering blacklist in July. Still, over the past three years, Mandiri, Indonesia’s largest bank by assets, had seen global institutions drop some of the most basic services they once provided on cross-border transactions, Robbani said, from cheque clearing and export bill collections to the most basic payments made by customers who walked in off the street.

Those transactions have not stopped despite bigger institutions rejecting the business. Instead, they are moving down the hierarchy of banks to ones that may lack the experience, technology or will to stem money laundering. Many transactions will leave the banking system. The result, Robbani said, was a riskier financial landscape.

“We would be faced with second-tier banks, maybe third-tier banks, which in the end would, in my opinion, bring another set of risk to the industry,” he said last week at Sibos, a global conference organised by Swift.

If rapid expansion into high-risk markets defined the run-up to 2012, the year that HSBC Holdings was handed a landmark fine of US$1.9 billion for working with drug cartels in Mexico, then a pullout from those markets would characterise the industry today.

Between May 2013 and November last year, consulting firm Protiviti said regulators levied more than US$10 billion in fines on banks. The annual cost of due diligence and compliance staffing could easy match that in the coming years.

The slash-and-burn brand of derisking would not deliver the end results regulators were looking for, said Alex Manson, the global head of transaction banking at Standard Chartered.

“Flows still happen, they just go underground,” he said. “A central bank would go into the system without any of the information that a commercial bank may have been able to gather. This is not a good outcome for the safety of the financial system.”

Until now, the bank has been at the forefront of removing itself from riskier segments of the market, notably with the dropping of thousands of small business customers in the United Arab Emirates last year.

Manson told the South China Morning Post he expected far less derisking in future and more active engagement with existing clients with the hope of maintaining relationships.

Standard Chartered recently set up a compliance academy that has so far trained 700 customers on what it needs from them to continue doing business, Manson said on the sidelines of Sibos. The receptive clients might stay on; those asking “why do we need to do this?” were cases for derisking, he said.

Engaging smaller banks on how not to get expunged from the global financial system might very well be an emerging trend of its own, Michael Cho, the head of compliance for global financial institutions at Wells Fargo, told the Post. Banks and regulators might even be finding some common ground.

“I think the banks’ concerns and the regulators concerns are similar,” Cho said. “The US regulator is clarifying and saying ‘our goal is not for you to derisk your customers. Our goal is for you, if you’re going to bank a higher risk portfolio, that you have the controls to do it’.”

Cultivating those controls had largely played out on the ground with banks around the globe, Cho said. Despite fierce competition, compliance teams at big and small banks have been coming together to share expectations and strategies for catching the transactions that could potentially lead to heavy fines.

As banks begin to get a glimpse of what compliance will eventually cost them, some are making a pitch on profitability to bring smaller banks back into the fold. Smaller banks provided higher returns on equity, higher margins and less management time, said Andrew Yiangou, a managing director for global institutional banking at National Australia Bank.

Still, where billion-dollar fines and long-standing reputational risks were concerned, revenues to be won on banking high-risk markets were not part of Deutsche Bank’s strategy, Werner Steinmüller, the head of transaction banking for the German bank told the Post.

Like its peers, Deutsche wants to expand and deepen business with its current customers. For now, Werner said the bank had enough large clients in Asia with a relatively low level of risk.

Deutsche’s appetite for picking up smaller clients in higher-risk countries was low despite the potential for higher returns.

“Risk and compliance are the No 1 considerations. Revenues come second,” he said.

Source: SCMP

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India: The government reportedly wants the Serious Fraud Investigation Office (SFIO) to probe over 50 cases of wilful default in state-run banks. Nothing wrong. The rise in financial crime underscores the need for a specialised agency to do cutting edge investigation and ensure quick closure of cases. However, the SFIO’s track record has been dismal so far. It needs a complete makeover to take on new and complex investigation. A dedicated cadre for the SFIO will not guarantee results. It will only set a precedent for investigating agencies such as the Directorate of Revenue Intelligence or the Enforcement Directorate that do not have separate cadres.

All frauds are not alike, different crimes might require different specialists and experts, and different investigation tools. So, it makes sense for the SFIO to draw experts together as a team depending on the nature of the case. It can tap the resource pool from existing investigating agencies, and also laterally hire professionals such as accountants, forensic auditors, IT and cyber security experts. The UK’s Serious Frauds Office (SFO), for example, allocates every case to a specialist team and work with police squads, which have their own specialised expertise. India’s police need to acquire the wherewithal to probe complex frauds that include cyber crimes.

Set up in 2003, the SFIO’s functioning was suboptimal partly because it did not have the legal backing, and its functions overlapped with multiple agencies. However, the new Companies Act gives statutory backing to the agency and also arms it with more powers. This is welcome. However, to do its job, the agency needs to attract the best talent, and pay them market-linked salaries. So, course correction is warranted for a makeover of the SFIO.

Source: Economic Times

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Lifting of Iran sanctions in the future will significantly boost its economy and positively affect the neighbouring GCC economies, especially the UAE, due to its solid trading infrastructure, according to experts.

ICAEW members and guests recently gathered at Jumeirah Emirates Towers in Dubai, UAE to discuss the impact of lifting Iran’s sanctions.

Panellists included Dr Theodore Karasik, geo-strategic and political economic analyst; Parham Gohar, co-founder and partner at Frontier Partners; Ali Borhani, founder and chief welding officer at Incubeemea; and Sheila Shadmand, partner-in-charge at Jones Day. The discussion was moderated by Mo Farzadi, partner at PwC.

Following an introduction by Matthew Benson, Transaction Advisory Services partner at EY Mena, panellists and invited guests discussed the economic impacts of lifting Iran sanctions on the Islamic Republic and GCC countries.

Investors need to be aware that sanctions are not lifted yet nor expected to be until 2016 at the earliest. However, even if the deal is implemented, the US primary restrictions will still be in place, prohibiting US companies from doing business in Iran, since there is no specific or general licence from the American government that would allow otherwise.

As a result, it is critical for investors looking to do business in Iran to seek the necessary legal advice to understand what opportunities and risks may exist in a post-deal world. This should also include conducting due diligence on potential local partners – whether they are based in Iran or neighbouring countries – to ensure compliance with anti-money laundering laws. Doing business with sanctioned persons or companies could be subject to legal penalties, which can be in the range of $250,000 per violation.

Iran’s economy is expected to grow rapidly over the coming years. This should help the Islamic Republic to become an attractive destination for foreign investors in the medium to long term. GCC economies, particularly the UAE, would be positively affected by sanctions relief and are expected to play significant roles in terms of the investment and trade flows to Iran.

According to Iran Vision 2025, the Islamic Republic is expected to attract somewhere in the region of $1 trillion of investment between now and 2025. Investors would be wise to start assessing Iran from now to determine whether it is a ‘must have’ or a ‘nice to have’ market within their portfolios.

“Initially, the UAE could play a similar role to that which Hong Kong plays regarding China. It has the potential to become the gateway to the Iranian market thanks to its historical trade relations with Iran, world-class infrastructure and best-in-class logistics,” said Michael Armstrong, FCA and ICAEW regional director for the Middle East, Africa and South Asia (MEASA).

“Investor confidence would be boosted by the fact that the UAE has always been a trusted business partner. Although businesses will eventually go directly to Iran, without requiring any intermediary, this is unlikely to change the UAE’s position as a vital trade hub for the region.”

Oil and gas, mining, petrochemicals, infrastructure and manufacturing, will all be among the fast-growing sectors in Iran if sanctions are lifted.

Since Iran has been economically isolated in recent times, local business practices should be expected; however, this is unlikely to deter foreign investors from doing business there. Change and new transparency laws are unlikely to materialise in Iran without engagement between the government and the private sector as well as the active participation of multinational companies.

The event was attended by almost 100 ICAEW members and senior business representatives from the major global and regional financial organisations.

Source: Trade Arabia

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The expletive-laden exclamation attributed to a senior Standard Chartered executive in 2006 may well come back to haunt the British bank. “You f***ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”

For US authorities, who included the quote in a legal filing, the statement came to define StanChart’s “obvious contempt” for American banking regulations, including sanctions designed to cut Iran off from access to the US dollar.

Nine years on, after paying nearly $1bn in fines to US regulators and law enforcement agencies for sanction breaches and compliance failures, StanChart seems no closer to ending its legal problems.

A Financial Times investigation has identified transactions involving Iran that could put the bank at risk of severe penalties ranging from further fines to suspension or loss of its crucial dollar clearing licence.

Documents seen by the FT suggest that StanChart continued to seek new business from Iranian and Iran-connected companies after it had committed in 2007 to stop working with such clients. These activities include foreign exchange transactions that, people familiar with StanChart operations say, would have involved the US dollar. The documents suggest the bank — a few months after a costly settlement with US authorities in 2012 — was still internally reviewing its client list and was unable to determine in certain cases whether customers were Iranian or not.

For Bill Winters, the American former JPMorgan investment banker who took over as StanChart’s chief executive in June, the stakes could hardly be higher. The London-listed lender, that specialises in Asia, the Middle East and Africa, is already grappling with slowing growth in emerging markets and a slide in commodity prices.

While it has relatively small operations in the US, the loss of its dollar clearing licence would deal a crippling blow to StanChart’s ability to finance the trade, energy and cross-border activities that have become its main focus.

Suspending the dollar clearing rights for banks accused of breaching sanctions is a rare punishment. But US regulators have cracked down hard on institutions for breaching sanctions on Iran, amid concerns about money flowing to the country’s nuclear programme or to militant Islamist organisations such as Hizbollah in Lebanon or the Palestinian group, Hamas.

The US has mostly relied on levying heavy fines against non-US banks for using dollars to do business with Iran — frequently causing controversy in those banks’ home countries. BNP Paribas last year paid $8.9bn in fines and had some dollar clearing rights suspended temporarily for such breaches, prompting angry accusations from French politicians of US over-reach.

‘Rogue institution’
The US Department of Justice, the Manhattan district attorney, the Federal Reserve, the New York Department of Financial Services (DFS) and most recently, the New York attorney-general’s office, are all investigating StanChart for potential new sanctions breaches.

The probes, most of which became public late last year, are scrutinising whether StanChart breached sanctions after the period covered by its 2012 settlement, when the bank declared it had “ceased all new business with Iranian customers in any currency” five years earlier. A pivotal issue is whether senior executives condoned the bank’s continuing business with Iran, according to people familiar with the investigations.

StanChart — which closed its Tehran office in May 2012 — said, in a statement to the Financial Times, that it was co-operating with the investigation into “possible violations of US sanctions”. It added that “following its decision to exit the Iranian business in 2007 the group had a number of legacy obligations including dormant accounts, outstanding loans and trade-finance agreements. Those legacy obligations have been handled in an appropriate manner in non-US currencies and since 2007 it has been the group’s policy not to pursue any new business with known Iranian entities.”

The bank added: “While we have made progress on our controls, this is a multiyear effort that requires sustained investment and management attention.”

In 2012, the threat by US regulators to withdraw StanChart’s dollar clearing licence led it to agree to pay $667m to settle allegations of sanction breaches up to 2007. At the time, the DFS, then headed by Benjamin Lawsky, shocked the bank by accusing it of being a “rogue institution” whose actions left the US financial system “vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes”.

With shares in StanChart trading near 10-year lows, the latest investigations provide another big challenge for Mr Winters, who succeeded Peter Sands as StanChart’s chief executive. It also indicates that even as US President Barack Obama pushes for sanctions against Iran to be relaxed in return for curbs on its nuclear programme, there are no signs of US regulators losing their zeal for pursuing past transgressions involving the Islamic republic.

Tighter sanctions
The material reviewed by the FT depicts a bank — one of the few foreign lenders with a licence to operate in the country — determined to keep working with Iranian companies.

The status of numerous Iranian and Iran-connected entities was still being reviewed by StanChart as late as 2013, according to documents seen by the FT. These included entities that had internal “markers” and “blocks” placed against them, a way for the bank to flag up concern about links to Tehran.

Many accounts belonging to Iranian or Iran-connected entities were indeed closed by 2007, as StanChart promised. But some, like Bank Saderat — which had sanctions imposed in 2006, or Bank Sepah — still had open accounts with no markers against them. According to lawyers consulted by the FT, it is not illegal to hold accounts for entities under sanctions as long as they remain frozen.

Clients generating revenue included IFIC Holding AG, which in August 2010 was identified by the US Treasury as the German arm of an Iran government-owned entity and put under sanctions. An internal StanChart performance report, dated March 2012, that records transactions with Iran-connected companies — labelled “Iran Group” — cites revenue for IFIC Holding AG.

Non-US banks such as StanChart are allowed to conduct transactions with companies on the US sanctions list provided no US persons are involved and they do not involve the American financial system. However, in 2010 the US tightened its sanctions regime, introducing measures that gave US regulators the power to punish foreign banks engaging with Iran even if the contested transaction did not involve the US financial system.

The move was a warning to companies that by choosing to do business with Iran they risk being cut out of the US financial system. Given the dollar’s ubiquity, this risk has led many international banks to halt business with US-sanctioned entities altogether.

Top performing clients in the so-called “Iran Group” also included Mapna International FZE, a subsidiary of Mapna Group, a sprawling Iranian industrial conglomerate, according to documents seen by the FT.

Senior StanChart executives outlined one method to maintain the business in a note to staff dated October 2008, a day after the US placed the Export Development Bank of Iran on the sanctions list.

StanChart was keen to avoid “delay or financial loss” to its Iranian clients. “We are working with the Designated Parties [companies under US sanctions] to settle outstanding USD obligations in an alternative freely convertible currency”, the memo says.

It adds that any foreign exchange deal to “convert the alternative currency into USD must be for the account of and in the name of the beneficiary and not for the account of the Designated Party, and any FX risk will be for account of the beneficiary”.

While this technique — finding currencies other than the US dollar to conclude transactions with Iranian clients — may not have been a breach of US sanctions, a former member of the bank’s Dubai team says it was “against the spirit of the sanctions”.

An email written in 2009 by a senior StanChart manager in Dubai, seen by the FT, shows a list of potential target clients, including the National Iranian Oil Company, which at the time was under sanctions.

These potential new violations have angered a host of agencies, from the DoJ to the New York Fed and DFS. Although settlement talks have yet to begin, the bank is expected to be hit with harsh penalties — unless it can explain its conduct — because it is seen as a repeat offender, people familiar with the case say. In August 2014, New York’s DFS fined StanChart $300m for failing to resolve problems with its anti-money laundering compliance system. The regulator forced it to sell or shut as many as 8,000 small business accounts in the United Arab Emirates and banned it from clearing US dollar transactions for some Hong Kong clients.

Authorities are still in the process of obtaining information from the bank about the current probe, the people add. A deal, if it happens, could come at the end of this year or early in 2016.

A whistleblower emerges
The FT has found that the US investigation into StanChart did not close after the 2012 settlement. Shortly after the deal was agreed, a whistleblower came forward with information that gave US regulators and law enforcement new ammunition against the bank, according to people familiar with the matter.

An internal StanChart document seen by the FT shows that the bank is again facing questions from regulators and law enforcement about its dealings with Iran, reaching back to at least 2005 — a period that had already been reviewed as part of the prior investigation.

A separate line of inquiry emerged from the authorities’ investigation into BNP Paribas. Among the French bank’s violations were transactions with Caspian Petrochemical FZE, an Iran-owned company based in Dubai, which acted as a front for an Iranian based energy group in Tehran, and was engaged in shipping liquefied petroleum gas.

Evidence from the BNP probe led investigators to believe that StanChart may also have breached sanctions in its transactions with Caspian Petrochemical FZE.

By March 2013 high-ranking StanChart executives were in denial about the gravity of the bank’s alleged sanctions busting. At a press conference that month, Sir John Peace, who has chaired the bank for six years, called its actions “clerical errors or mistakes” and denied that the bank had “wilfully” breached sanctions. Shortly afterward he retracted his statement and apologised after a rebuke by the DoJ and the Manhattan district attorney’s office.

Standard Chartered and the US regulators

• October 2006Standard Chartered informs the
  New York Federal Reserve that it is ending US dollar clearing activity for all Iranian banks.
• August 2007Standard Chartered introduces a policy to suspend all new Iranian business in any currency.
• August 2012Standard Chartered agrees to pay a civil penalty of $340m to New York’s Department of Financial Services to settle allegations of sanctions breaches from 2001 to 2007. DFS claims it involved transactions worth at least $250bn, but StanChart insists the transactions that breached sanctions only amounted to $14m.
• December 2012StanChart settles with the Office of Foreign Assets Control and signs a deferred prosecution agreement with the US DoJ and the New York District Attorney’s office. The bank is fined an additional $327m.
• March 2013StanChart chairman Sir John Peace says the transactions that gave rise to fines worth $667m were ‘clerical errors’ and that the bank had not wilfully avoided sanctions. Shortly afterwards US authorities forced him to retract his statement.
• August 2014New York’s DFS fines StanChart $300m for failures in its anti-money laundering systems. As part of the agreement the bank is forced to suspend clearing activity for ‘high-risk’ Hong Kong business clients and end certain client relationships at its branches in the United Arab Emirates. StanChart is also required to obtain approval from the DFS before accepting new customers for dollar-clearing.
• June 2015Bill Winters, a former JPMorgan banker, takes over from Peter Sands as chief executive of Standard Chartered.

Around the same time, an internal StanChart team worked alongside experts from Promontory — the financial consultancy that was recently fined $15m in relation to its prior work with StanChart — to resolve a series of requests and subpoenas from US law enforcement authorities.

The teams also reviewed the due diligence done by the bank on clients at its Dubai branch — a particular focus of the US authorities’ continuing inquiry — and researched whether existing clients were Iranian or had Iranian connections. The emirate has long been a convenient hub for Iranians and those wanting to do business with Tehran.

Of particular interest to the authorities was the bank’s online trading system, known as OLT3 (On-line Treasury), according to documents seen by the FT. It allowed approved customers to conduct trades online, including foreign exchange transactions. As StanChart’s team gathered information to respond to US requests, it noted significant flaws in the system, to which Bank Saderat at one point had direct access.

The system did not record timing of logins by clients and provided no audit trail of client access, according to a document seen by the FT. It also indicates that a former Bank Saderat Iran employee with direct access to the OLT3 had left the bank and moved to a UAE company but kept the same user ID.

It is unclear whether StanChart reported this flaw to the authorities of its own accord. The document says: “all ‘Iranian’ clients who received direct access to the system were domiciled outside of Iran”.

A former senior executive at StanChart, speaking on condition of anonymity, described a number of failings at the bank that led to the repeated probes. He described a “cavalier” culture, where management encouraged the sales staff to go after new business aggressively in frontier markets such as Iran and Iraq. The bank also failed to invest enough in compliance, he says.

StanChart had sometimes been tricked into dealing with Iranian entities, such as by a client with three passports who only showed the two non-Iranian documents to the bank, he adds.

But StanChart was also often let down by its technology. “The bank really isn’t very good at technology and often the system really wasn’t performing.”

Former staff members of StanChart in Dubai have told the FT the bank had global policies in place and they had to turn down business because of those policies of not dealing with sanctioned entities.

But as he reported disappointing results in August, Mr Winters said he intended to overhaul the bank’s culture and bolster its compliance operations, while warning of difficult times ahead.

Source: FT

The post Standard Chartered: The Iranian Connection appeared first on NewsOnCompliance.

Standard Chartered is facing further heavy fines and possible criminal prosecutions over alleged breaches of US sanctions against Iran.

The bank is under investigation by the Department of Justice over allegations it violated the terms of a 2012 settlement.

Three years ago it paid $US667 million ($953m) in penalties to US watchdogs after admitting deliberately disguising transactions that could have broken US sanctions against Iran and other states. Under a deferred prosecution agreement signed at the time, the bank said it had ceased trading with Iranian clients in 2007.

But last year Standard Chartered paid a $US300m fine to a New York financial regulator after its anti-money-laundering systems were found to have been inadequate. In December the DPA was extended for a further three years, and the DoJ is now investigating whether sanctions were broken after 2007.

Last month the bank warned it may be on the hook for new “substantial monetary penalties” from the DoJ investigation.

The prospect of further heavy fines would further destabilise the London-listed bank, whose market value has tumbled 40 per cent over the past year.

New chief executive Bill Winters is considering tapping investors for billions in fresh capital to strengthen its finances, amid fears of a spike in losses on soured loans. He has vowed to demolish the “legacy” of his predecessor, Peter Sands, which he claimed favoured “growth over risk discipline”.

The bank’s office in Dubai was a key part of its expansion plans after the 2008 financial meltdown. The DoJ is probing allegations it employed a team of fluent Farsi speakers in the emirate between 2009 and 2011.

The bankers were allegedly tasked with drumming up business with Iranian clients. This would have been lucrative work because of the US embargo on the country.

An unnamed British lender was last year cited in legal filings related to a record $US9 billion fine for the French bank BNP Paribas over sanctions violations. The British bank had acted with BNP to conduct foreign exchange deals for an Iranian company until December 2011, when the British lender put a stop to the trades, according to the filings. Standard Chartered said it was “co-operating fully with US authorities”. “The group has taken a number of steps to comply with the requirements of the original agreements,” it said.

These include implementing “more rigorous US sanctions policies”, improving staff training and beefing up its legal and financial crime compliance teams.

It said it would “make additional substantial improvements to its US sanctions program to reach the standard required by the DPAs”.

Source: The Sunday Times

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GENEVA/NEW DELHI: At a time when it is under global pressure, including from India, on black money menace, the Swiss government has rejected the popular initiative to allow strict privacy in financial matters.

The decision also comes at a time when Switzerland is slowly shedding the veil of its famed banking secrecy practices amid global efforts being stepped to curb flow of illicit funds in the financial system.

Emphasising that the consequences for the fight against money laundering and the financing of terrorism depend on how the initiative is interpreted, the Swiss Federal Council today said it was rejecting it.

“The initiative interferes significantly in tax and prosecution procedures and, as a result, would endanger the accurate levying of federal, cantonal and communal taxes.

“In addition, the initiative could have a negative impact on the fight against money laundering and terrorist financing,” the Council said.

In a statement, the Council said it is “recommending that the popular initiative ‘Yes to the protection of privacy’ be rejected” and approved the corresponding dispatch for the attention of Parliament.

Switzerland, long known as a place with unbreakable banking secrecy, has come under intense global pressure, including from India, amid worldwide efforts to crack down on illicit fund flows.

The Council today said that protection of privacy against illegal state intervention is an important principle in the rule of law.

“It enjoys constitutional status today in Switzerland and is fleshed out in legislation. There are necessary limits to the protection of privacy in tax law,” it noted.

According to the statement, in order for income and wealth taxes to be correctly levied, taxpayers must disclose their income and asset situation to the tax authorities.

“However, privacy continues to be protected as the authorities are bound by tax secrecy and the information received may not be shared, aside from legally defined exceptions,” it said.

“The privacy of tax-compliant persons is sufficiently protected thanks to tax secrecy and would therefore not be affected by the initiative.

“However, if a person refuses to cooperate and thereby violates the relationship of trust between citizen and state, the tax authorities should continue to be able to obtain information from third parties,” the Council said.
The ‘Yes to the protection of privacy’ was submitted on September 25, 2014 and came into existence with 117,531 valid signatures.

As per the initiators, protection, in particular of financial privacy, should be enshrined in the Constitution by virtue of the initiative.
Acceptance of the initiative would result in a significant restriction of the current investigative measures, the Council said.

“The initiative covers domestic taxes only. It would thus have no impact on administrative assistance in tax matters and the exchange of information in favour of foreign partner countries.

“However, depending on interpretation, Switzerland’s options to obtain corresponding information from abroad could be restricted,” it added.

The Council stressed that consequences for the fight against money laundering and the financing of terrorism depend on how the initiative is interpreted.

“If the restricted obligations of third parties to provide information were also to apply to the Anti-Money Laundering Act, the initiative would have a significant impact on this area as a result.

“Moreover, the exchange of information between the Swiss and foreign reporting offices combating money laundering and the financing of terrorism could be compromised. All of the above would have a negative impact on Switzerland’s compliance with international standards,” the statement said.

Noting that the initiative calls for third parties to be allowed to give information to the authorities only under very restrictive conditions, the Council said such information on taxpayers should only be available within the scope of criminal proceedings and only in cases in which a court confirms the suspicion of a serious tax offence.

“As a result, tax authorities would only be able to obtain information from third parties in very exceptional cases.

“If taxpayers violate their duty to co-operate, it would no longer be possible for the authorities to obtain information from employers or from insurance companies. Accurate levying of taxes would no longer be guaranteed,” the statement said.

There is currently an obligation for banks to provide information in criminal proceedings concerning indirect taxes and in the context of special tax investigations by the Federal Tax Administration (FTA) involving serious tax offences.

Source: Economic Times

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The State Bank of India said it has fixed certain “control gaps” in its Hong Kong branch that led to a fine of Rs 6.17 cr by the local regulator.

‘”The control gaps related to the past and have since been remediated with appropriate enhancements in policies and procedures,” SBI said.

“HKMA (Hong Kong Monetary Authority) have also acknowledged the very positive and intensive remediation work undertaken by the Branch. This being so the development is not expected to have any impact on our future operations or profitability or financials,” India’s largest bank said.

News of the fine first appeared in the DNA newspaper on Aug 1.

SBI said investors were not informed of the fine as the amount was “very small considering the size of our balance sheet and profits.”

“Further, HKMA have very clearly stated in their order, hosted on their website, that there was nothing involving any actual money laundering transactions or breaches of sanctions by our Hong Kong operations,” it added.

Source: RTN

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U.K. authorities appear to be testing out what’s become a staple of American white collar prosecution: the deferred prosecution agreement.

The U.K.’s Serious Fraud Office has approached Barclays PLC with a DPA to resolve a probe into how the bank raised billion in pounds in emergency funding from Middle Eastern investors during the 2008 financial crisis, WSJ reported. DPAs, which allow companies to settled accusations without pleading guilty to criminal charges, were once almost of unheard of among the white collar bar. But over the last decade, the DPA has become a workhorse for U.S. prosecutors as they have sought to extract fines and admissions of wrongdoing from companies, without the risks involved in a guilty plea. The collapse of accounting giant Arthur Andersen after its 2002 conviction made prosecutors more reluctant to seek guilty pleas against large firms, experts say. Deferred prosecution agreements “enable cases to be resolved more quickly and provides for a resolution that is in the grey zone, where you’d don’t have something that is black and white,” said Michael Shapiro, a white collar specialist at Carter Ledyard & Milburn LLP. “[Complex white collar] cases are usually not that clear cut.”

But Brandon Garrett, a corporate crime expert at the University of Virginia School of Law, says the U.K. SFO is far behind its U.S. counterpart organizations, which have recently shifted to seeking guilty pleas from some corporate offenders. “For the U.K. to be only now experimenting with a more lenient approach…doesn’t seem like a very good development,” Prof. Garrett said.

Source: WSJ

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