Years of U.S. fines over Iran loom for foreign banks

Douwe Miedema and Edward Taylor

* New rules, regulators' push have driven negotiations

* String of European banks warn of possible U.S. payouts

LONDON/FRANKFURT, Sept 2 (Reuters) - 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.


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

definitely increasing."


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.

By using Yahoo you agree that Yahoo and partners may use Cookies for personalisation and other purposes