Accusations Against Bank on Iran Deals Surprised U.S. Regulators, Too

They were not the only ones caught off guard.

The regulatory order also stunned other authorities investigating the bank, namely officials at the Federal Reserve and the Justice Department, according to several people close to the case.

The agencies involved, including the Treasury Department, are debating just how expansive the suspected wrongdoing was at Standard Chartered. Benjamin M. Lawsky, a former prosecutor who now leads the state banking regulator, claimed the bank had processed $250 billion in tainted money while cloaking the identities of its Iranian clients by stripping their names from paperwork. Some federal authorities, though, believe that the amount is much smaller, perhaps in the millions. Standard Chartered, for its part, said that only $14 million did not comply with regulations.

The wide disparity stems from different interpretations of how many Standard Chartered transactions violated a federal rule that governs the way money from abroad moves through the American financial system.

Before 2008, the rule did not require foreign banks to disclose much detail to their American subsidiaries as long as the banks overseas thoroughly vetted the transactions to detect suspicious activity. Since 2008, though, all transactions with Iran and other sanctioned countries, are banned.

Standard Chartered maintains that “99.9 percent” of the transactions under scrutiny complied with that rule and involved legitimate Iranian banks and corporations. Further, the bank argued that it had examined the transactions and found that they had nothing to do with terrorist activities.

Some Treasury Department officials, while still reviewing the transactions, suspect that Mr. Lawsky has taken too broad a view, according to people briefed on the matter. The officials think that some of the transactions, though perhaps questionable, were not necessarily illegal.

However, Mr. Lawsky said that Standard Chartered’s deliberate effort to mask the identity of its clients points to wrongdoing and further suggests that the bank had not fully scrutinized the transactions. One Iranian client, for example, was told to use “NO NAME GIVEN” in paperwork to transfer money, according to an order Mr. Lawsky sent to the bank on Monday outlining the apparent violations of law. That way, the money transfer could escape scrutiny and “not appear to N.Y. to have come from an Iranian bank,” said a 2003 e-mail from a Standard Chartered official cited in the order.

The Fed, which has been investigating the bank since 2010, still is not sure how vast the scheme was. For that reason, it has not yet pursued an action, according to people briefed on the matter who spoke anonymously because the investigation was not public. Similarly, the Justice Department is still determining whether to bring a criminal case.

Before Monday, these authorities were not expecting Mr. Lawsky to act. In money laundering cases, authorities almost always move in concert. Mr. Lawsky’s order against Standard Chartered irked many of the other regulators, who questioned whether he had moved too quickly.

Some people close to the case note that Fed officials had been investigating Standard Chartered since 2010 — a year before Mr. Lawsky’s Department of Financial Services was created by merging the existing state banking and insurance departments.

Standard Chartered, in a statement rejecting Mr. Lawsky’s claims, said that it “voluntarily approached” agencies in 2010 including the Department of Financial Services, the Justice Department, the Federal Reserve Bank of New York and the New York district attorney, and that it is engaged in discussions with them.

“Resolution of such matters normally proceeds through a co-ordinated approach by such agencies,” the bank said, adding that it “was therefore surprised to receive the order from the DFS, given that discussions with the agencies were ongoing.”

“It seems like it’s grandstanding,” said Richard L. Scheff, a white-collar lawyer and the chairman of the law firm Montgomery, McCracken, Walker & Rhoads. “There’s little benefit of approaching things in that way,” and “you’d want the enforcement community to be working cooperatively.”

Some, however, have praised Mr. Lawsky’s aggressiveness in this case and others as a refreshing change from the days when cozy regulators had a soft touch with Wall Street. He has drawn comparisons to other hard-charging New York prosecutors, notably Eliot Spitzer and Andrew M. Cuomo.

“Ben Lawsky wouldn’t take a job where it wasn’t expected of him to move quickly, make changes and be a force,” said Steven Cohen, a lawyer with Zuckerman Spaeder, who worked with Mr. Lawsky at the attorney general’s office under Mr. Cuomo, now the governor of New York. Neil M. Barofsky, the former inspector general for the Treasury’s bank bailout fund, lauded Mr. Lawsky’s speed in contrast to what he called the “passivity of federal regulators.”

Mr. Lawsky, who vowed to shake up the banking establishment when Mr. Cuomo appointed him in 2011, is unapologetic.

“The very serious and indisputable conduct described in the order speaks for itself,” David Neustadt, a spokesman for Mr. Lawsky said. “We have and will continue to work with our state, local and federal partners.”

As main deputy to Mr. Cuomo, Mr. Lawsky helped bring many headline-grabbing cases against big names like Bank of America and Ernst & Young.

In 2011, shortly after taking the reins of the newly minted banking regulator, Mr. Lawsky set his sights on Standard Chartered.

The bank turned over a battery of e-mails and other internal bank documents that detailed the scheme, according to people briefed on the matter. The documents outlined projects with code names like “Project Gazelle,” money flowing to Iran’s central bank, United States executives warning of “criminal liability,” and a manual that told employees how to hide the wave of questionable transactions.

Senior executives at the bank, the order said, also quashed internal complaints. In 2006, according to the order, the bank’s chief executive for the Americas warned his superiors that the illicit activity with some Iranian companies had “the potential to cause very serious or even catastrophic reputational damage to the group.”

In response, another executive asked: “Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”

After reviewing some of the documents, Mr. Lawsky’s office regularly checked in with the New York Fed as the regulator further examined the extent of potential wrongdoing at Standard Chartered.

In a meeting this April, some of Mr. Lawsky’s deputies told New York Fed officials that they were going to move forward, according to a person who attended the meeting. Another person familiar with the meeting, however, said that the scope and timing of his actions were not clearly communicated.

On Sunday, Mr. Lawsky informed Cyrus R. Vance Jr., the Manhattan district attorney who is also investigating the bank, that he was filing the order, according to a person with knowledge of the matter.

It was not until Monday morning that Mr. Lawsky’s office informed federal officials, some of whom were disappointed with the late notice, according to people briefed on the matter.

The order outlined nearly a decade of wrongdoing that, Mr. Lawsky said Monday, “left the U.S. financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity.“

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