By Karen Freifeld
NEW YORK (Reuters) - U.S. authorities are investigating London-based Standard Chartered Plc for potential U.S. sanctions violations connected to its banking for Iranian-controlled entities in Dubai, according to people familiar with the probe.
The latest investigation involving the bank is based, in part, from evidence that emerged during a separate probe of BNP Paribas, the French bank that pleaded guilty this summer to charges related to sanctions-busting and agreed to pay $8.9 billion in penalties, the people said.
During the course of the BNP case, U.S. federal and state investigators received evidence the French bank had done business with a Dubai-registered corporation that was a front for an Iranian entity, one source said. Investigators also learned that the company used to have an account with Standard Chartered, according to the source.
Such an account would have been covered by U.S. sanctions laws that ban dealings with Iran because activity in the account involved U.S. dollar transactions.
The sources did not want to be identified because the probe is ongoing and its ultimate outcome unknown.
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Spokesmen for the Manhattan District Attorney and U.S. Department of Justice, which are among the authorities investigating, declined comment, as did the New York Department of Financial Services, which oversees the bank's branch in the state. A spokesman for Standard Chartered also declined comment on the probe.
The New York Times reported on Wednesday that prosecutors were taking a new look at Standard Chartered over possible sanctions violations, but the focus of the investigation was not revealed.
News of the investigation comes on top of the bank's major settlements with authorities over U.S. sanctions-related violations in 2012, and again this year. Standard Chartered in 2012 paid $667 million to U.S. authorities and entered into deferred prosecution agreements with the Manhattan District Attorney and U.S. Department of Justice over violations stemming from Iran and other sanctioned countries.
In August of this year, New York's banking regulator fined Standard Chartered another $300 million after a monitor appointed in 2012 uncovered shortcomings in the bank's surveillance systems that caused a "significant number of potentially high-risk transactions" to go undetected, according to a consent order.
The new investigation, sources said, goes beyond the major findings in the 2012 agreements, in which Standard Chartered accepted responsibility for stripping information on wire transfers to the U.S. so they wouldn't be detectable as payments connected to Iran or other sanctioned entities.
The sources said the account at Standard Chartered discovered through the BNP probe was one example of potential additional violations, and that authorities are looking at other problematic small and medium-sized business accounts in Dubai that may have been controlled by Iran.
The investigation is "very active" but not at the point of discussing a resolution, one of the sources said.
It is unclear what action authorities may take, although sources said the deferred prosecution agreements, which were set to expire in December, are expected to be extended, and Standard Chartered could face another fine.
Prosecutors also have the option of pulling back the deferred prosecution agreements and negotiating a criminal guilty plea from the bank, one of the sources said.
The latest investigation is another headache for Standard Chartered Chief Executive Peter Sands. Standard Chartered remains profitable, but Sands is under pressure from investors to revive the bank and cut costs after a 31 percent slump in its share price this year.
CLEARER DISCLOSURES
U.S. authorities believe Standard Chartered should have disclosed their Dubai accounts linked to Iran during the course of the prior years-long investigation, although the British bank had closed the account in question before authorities confronted it about a year ago, the sources said.
According to documents in the BNP case, from 2006 through 2012, the French bank processed payments on behalf of an Iranian-controlled company that helped facilitate providing liquid petroleum gas to an entity in Iraq.
The company was registered as a corporation in Dubai, but it was a front for an Iranian energy group based in Tehran, the court papers say.
In December 2011, a U.K. bank blocked a payment involving the company and told BNP it would no longer do business with the firm because of its ties to Iran, the documents show.
Yet for nearly a year longer, BNP continued to process payments for the company, transactions involving over half a billion dollars, the documents noted.
The U.K. bank is not named in the BNP documents, but one source identified it as Standard Chartered. The Dubai company also is not named, though it is described in other documents as a "petrochemical" company.
Standard Chartered agreed to end small- and mid-sized business client relationships in the United Arab Emirates within 90 days, as part of the August settlement, and is currently winding them down.
(Reporting by Karen Freifeld in New York, with additional reporting by Aruna Viswanatha in Washington and Steve Slater in London; Editing by Karey Van Hall, Bernard Orr)