* New rules, regulators' push have driven negotiations
* String of European banks warn of possible U.S. payouts
By Douwe Miedema and Edward Taylor
LONDON/FRANKFURT, Sept 2 For years, the United
States struggled to get foreign bankers to comply with its
effort to throttle Iran's economy - but a couple of billion
dollars in fines, not to mention lurid headlines and talk of
jail time, has suddenly got their attention.
A half-hearted shuffling forward to settle years-old claims
of busting U.S. sanctions on Tehran is becoming a stampede since
Washington tightened rules to punish Iran's nuclear programme
and a new aggression among regulators so alarmed many banks that
shareholders will be paying out billions more for years to come.
Deutsche Bank and Italy's Intesa San Paolo
are among big names that may soon join the still short
list of foreign banks that have so far paid more than $2.3
billion in fines; some still protest their innocence but have
regarded the cash as the price of keeping access to the U.S.
market - and keeping executives out of court, or even jail.
The drama played out last month between Standard Chartered
and the New York state supervisor who threatened to strip the
august British institution of its vital Wall Street banking
licence was not entirely typical. But StanChart's about-face
within days, from vigorously defending past deals with Iranian
clients to handing over $340 million - 5 percent of its pretax
profit - was illustrative of an industry-wide shift in mindset.
"The acceleration in a sense is coming from (the banks')
side defensively," said Michael Malloy, a professor at the
University of the Pacific McGeorge School of Law in California.
"The notion being that it would be better to get out in
front of this and confront the difficulty and come clean rather
than wait for the authorities to ferret you out," said Malloy,
who previously worked for the U.S. Treasury.
Clearly, it is not something all boards will shout about;
when another British bank, Royal Bank of Scotland, made
mention of talks with regulators on U.S. sanctions regulations
in its quarterly report last month, it took another two weeks
before many investors became aware of the issue via the media.
But, after Standard Chartered and June's record $619-million
fine paid by Dutch bank ING, the list of European banks
going public with warnings about possible U.S. payouts includes
Germany's Commerzbank and HVB, a unit of Italy's
Unicredit, as well as HSBC in Britain.
And Chinese banks have become embroiled in the process too,
with the New York Times reporting on Wednesday that prosecutors
said they had found evidence in their investigations that they,
too, may have flouted U.S. sanctions against Iran.
By contrast, U.S. regulators long gave little opportunity to
domestic banks to deal with Iran at all, leaving American
bankers now little troubled by inquiries into past transactions.
FINED SO FAR
It has taken time to reach this point; since Britain's
Lloyds TSB Bank Plc became the first to settle,
forfeiting $350 million in January 2009 for masking the origin
of payments to evade U.S. sanctions on Iran, Libya and Sudan
between 2002 and 2007, others to pay penalties have included
Credit Suisse, in December 2009, Barclays, in
August 2010, and ABN Amro - now part of RBS.
Yet, as disclosures by the regulator in the Standard
Chartered case made clear, bank executives were discussing among
themselves the risk of personal criminal liability as long ago
as 2006, as they sought to maintain profitable business despite
confusion over exactly what was permitted under U.S. sanctions
rules which had last been substantially altered in 1997.
Political heat over Iran's nuclear programme grew as Tehran
defied U.N. resolutions in 2006 and denied Western accusations
it was seeking atomic weaponry, but only in late 2008 did the
U.S. Treasury ban a key element of non-U.S. banks' business with
Iranians, known as "U-turn" transactions, by which they passed
dollars for Iranian clients anonymously through the U.S. system.
Since 2009, the U.S. Justice Department (DoJ), the U.S.
Treasury Department's Office of Foreign Assets Control (OFAC)
and the Manhattan District Attorney's office have clamped down
on banks dealing with countries blacklisted by Washington.
The sharp tightening of U.S. sanctions late last year, while
not strictly relevant to past conduct, and the heightening of
political drama over threats by Washington's ally Israel to bomb
Iran's nuclear facilities also seems to have limited bankers'
appetite for defending in public their dealings with Tehran,
however strong many believe their legal cases would be.
"It is a very intense area of focus," said Michael Zolandz,
an attorney with law firm SNR Denton in Washington.
"We're certainly sensing from large international banks ...
that the pressure on them to disclose transactional information,
to start sharing account data and monitor payments ... is
"PRICE OF DOING BUSINESS"
The rules for U-turn transactions in particular have long
been ambiguous at the least, legal experts say:
"Even after recent settlements there remained a need to
clarify how the sanctions regime would be interpreted and
enforced, which underlines how much uncertainty there is," said
Susannah Cogman, at London law firm Herbert Smith.
But despite that lack of clarity over their previous
business dealings with Iran, few Western banks now seem ready to
put up much of a fight against the United States government.
"To an extent this is the price of doing business in - and
with - the U.S.," said Cogman, an expert on regulatory disputes.
Showing an early willingness to cooperate could also help
the banks limit the damage and avoid criminal charges.
"There is also the very real possibility of criminal
sanctions," said Malloy at the University of the Pacific. "A
showing of good faith and attempt to cooperate once you've been
made aware of the problem would protect you in most cases."
Deutsche Bank in 2007 stopped taking on new business with
counterparties in Iran, and, in a mark of the sensitivity to the
risk to employees of U.S. legal action, a regulatory filing from
March this year shows it did not involve any American citizen in
either a managerial or operational role in Iranian transactions.
Commerzbank warned last month it faced a financial hit to
settle the U.S. probes into violations of sanctions on Iran and
other countries, which could exceed provisions.
Also last month, Italy's UniCredit said it was reviewing its
German unit HVB to check "historic compliance", adding that the
New York County District Attorney's Office, the DOJ and the OFAC
were leading an investigation.
French banks BNP Paribas and Credit Agricole
are conducting inquiries into U.S. dollar payments to
check whether they are in breach of U.S. sanctions, they said
late in August.
And Intesa Sanpaolo is still subject to an assessment by the
OFAC, which could lead to administrative sanctions, half-year
financial statements show. It has no further information on the
timing or the size of any possible fine.