Standard Chartered Plc is bracing for a potential penalty of around $1.5 billion from US authorities for allowing customers to violate Iran sanctions, people familiar with the matter said.
That amount is a preliminary assessment based on some of the communications between the bank and the regulators, the people said. Final discussions to resolve the matter have not yet begun, they said. The allegations relate to breaches dating from at least five years ago.
The shares sank after the potential fine exceeded some analysts’ expectations. American authorities have been keeping an eye on Standard Chartered since 2012, when the lender entered into a deferred prosecution agreement to resolve US allegations that the bank facilitated business with Iranian parties. The US extended the DPA in 2014.
“As previously disclosed, we continue to cooperate fully with the investigation regarding our historical sanctions compliance and are engaged in ongoing discussions with the US authorities,” the bank said in a statement.
A coalition of enforcement and regulatory agencies, including the Justice Department, New York’s Department of Financial Services and the Manhattan District Attorney have finished their investigation and may announce the resolution by the end of the year, people with knowledge of the talks told Bloomberg in August.
The bank’s shares extended their decline, closing 3.3 per cent lower in London trading Monday. They’ve tumbled 21 per cent this year.
A $1.5 billion fine would be triple the $500 million penalty forecast by analysts at Keefe, Bruyette & Woods. Analysts Edward Firth and Richard Smith lowered their 2018 forecast for Standard Chartered’s common equity Tier 1 ratio, a measure of financial strength, to 13.3 per cent from 13.7 per cent. They reiterated their market perform rating in a note to clients.
The potential new penalties relate to whether the emerging-markets lender also allowed Iranian-linked entities to move money through a Dubai unit, one of the people said. The authorities are examining whether “conduct and control failures permitted clients with Iranian interests to conduct transactions through Standard Chartered Bank after 2007, and the extent to which any such failures were shared with relevant US authorities in 2012,” the company said in a filing earlier this year.
The bank is still active in emerging markets across Asia, Africa and the Middle East.
Scrutiny of international companies including Standard Chartered comes as US President Donald Trump has taken a hard line on Iran, viewed by the administration as a state sponsor of terrorism.
A DOJ spokesman declined to comment.
The London-based bank in 2012 was found to be secretly moving billions of dollars through the US on behalf of Iranian clients, in violation of sanctions. As part of the DPA, the bank agreed to have an outside, independent monitor to scrutinise its business practices and the US agreed to eventually dismiss charges once the bank has complied. A failure to comply would typically allow prosecutors to reopen the case.
The DPA has been extended multiple times, including as recently as this summer, and will now run until the end of 2018. Authorities said the bank’s sanctions-compliance program “has not yet reached the standard required.”
A number of European banks have been targeted by the Justice Department and other American enforcement agencies for doing business with countries on the US sanctions list.
In addition to the record BNP Paribas SA fine for $9 billion in 2014, Commerzbank AG agreed to pay $1.45 billion in an investigation into whether it breached US sanctions against countries such as Iran in 2015.