Nine banks hoodwinked by IRISL

June 27, 2011

Iran, the grand Shia deceiver, managed to trick nine New York bank houses into making transactions on behalf of their shipping industry in violation of U.S. sanctions laws.  Iran is known to use its own banks and international banks to funnel money back into its nuclear programs.  At least this time they were eventually discovered, $60 million later…

From MoneyLaundering.com on June 21:

Banks Receive Praise and a Warning in Press Conference Announcing Indictments Tied to Iranian Shipper

By Brian Monroe and Kieran Beer

Banks were the subject of praise and a warning at a press conference on Monday unveiling a 317 count indictment against 11 corporations and five individuals for their alleged participation in a conspiracy involving an Iranian shipping company.

Manhattan District Attorney Cyrus R. Vance characterized nine banks as victims of deception when they processed more than $60 million of payments for the Islamic Republic of Iran Shipping Lines (IRISL) in violation of U.S. sanctions.

The banks “were not complicit in any way, but on the contrary have been very helpful” during the 14-month investigation that culminated in the indictments, said Adam Kaufmann, who is chief of the investigative division in the district attorney’s office.

And, the efforts of the nine large clearing banks to aid the district attorney’s investigation were “very aggressive and very sophisticated,” according to Adam Szubin, director of the Office of Foreign Assets Control (OFAC), the U.S. Treasury Department agency tasked with managing U.S. economic sanctions, who also took part in the press conference.

But Vance added that “to the extent there are banks that are banking sanctioned entities or not paying enough attention, this indictment is a continuing indication that our office and OFAC are watching carefully and will take action when we see intentional, pervasive efforts to violate federal and state law.”

IRISL and 15 others set up shell companies in Singapore, the United Kingdom and the United Arab Emirates in order to fool major New York-based dollar clearing banks into processing about $63 million in transactions, according to the indictment.

That so many U.S. banks were deceived by IRISL speaks to the broader issue that creating, managing and fine-tuning a sanctions compliance program is “really tough, all the way around,” said a bank compliance officer in the western part of the United States.

Compliance entails juggling “dozens of U.S. and international economic sanctions lists” and running them against new and existing customers, accounts and transactions and trying to properly tune the system so it doesn’t spit out so many false positives that global commerce is hampered nor have it so open that key connections aren’t found, said the person, adding it can take two or three years to implement robust sanctions screening software and controls and “by then the expectations have changed.”

Nine banks are named in the indictment as having been deceived into completing transactions, they are HSBC, Deutsche Bank Trust Company, Standard Chartered Bank, ABN AMRO (now part of the Royal Bank of Scotland,) Bank of New York Mellon, JPMorgan Chase & Co., Bank of America, N.A., Citibank, N.A., and Wachovia Bank (now Wells Fargo Bank, N.A.).

Some correspondent banks discovered and blocked some transactions from IRISL or its shell companies, according the indictment, the banks aren’t identified nor is it clear whether some of the banks that on one occasion blocked transactions might have been among the nine banks that at other times failed to do so.

In at least two instances in the143-page indictment, prosecutors noted that unnamed banks in Singapore and the United Kingdom opened up accounts for shell companies that had the same addresses as Iranian shipping entities blacklisted by OFAC just months before.

The banks named in the indictment have “some of the tightest and most compliant programs around,” in terms of anti-money laundering and sanctions compliance, said Cari Stinebower, a former Treasury Department general counsel who worked with the Office of Foreign Assets Control (OFAC).

Stinebower characterized the move by New York authorities as an attempt to push any foreign banks still doing business with Iran to stop and as a warning to banks in Asia that may be picking up the slack. The indictment will be hard, if not impossible, to enforce because those named have little if any concrete ties to the United States, she added.

Vance said that his office pursued the indictments because he views it as part of his mission to uphold the integrity of the banking system in New York, where the accounts used by front companies of IRISIL were domiciled.

Both Vance and Kaufmann said that while the individuals and assets involved were beyond their immediate reach, extradition was always a possibility as were successful negotiations with foreign law enforcement officials to seize IRISL-related assets.

“The point of this indictment is that sanctions exist and have been in place a number of years and to make sanctions work they have to be enforced,” said Vance. “The New York District Attorney’s office, has a strong history of protecting New York banks from misuse by foreign entities and individuals and the threats of global proliferation and terror financing,” he said.

Entities named in the indictment are charged with falsifying business records in the first degree under New York State law.

Despite the fact the charges were based on state law, Szubin took pains to characterize the effort to enforce sanctions against Iran as increasingly international. Both the United Nations and the European Union have issued sanctions against Iran over the past two-and-a half years and Szubin credited international action with beginning to cripple IRISL.

IRISL has had to self-insure its own ships, eight of which have been seized, and the shipping line is increasingly avoiding foreign ports for fear more vessels will be forfeited, Szubin said…

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