Lloyds TSB Bank PLC was graciously allowed to pay a fine of $350,000 for falsifying wire transfer records and enabling Iranian and Sudanese banking clients to access the United States banking system – a violation of clear and unambiguous financial sanctions against the two countries.

According to the Manhattan District Attorney …

“Manhattan District Attorney Robert M. Morgenthau announced today a Deferred Prosecution Agreement with the British bank, Lloyds TSB Bank plc (“LLOYDS”) in settlement of a ‘stripping’ scheme in which the Bank caused the falsification of the records of New York financial institutions and enabled its Iranian and Sudanese banking clients to access the U.S. banking system in violation of federal sanctions prohibiting such conduct.  As a result, LLOYDS will pay fines and forfeiture totaling $350,000,000. 

“In the agreement LLOYDS admits that from 2001 – 2004, LLOYDS falsified the business records of banks in Manhattan by engaging in a systematic process of altering wire transfer information to hide the identity of its clients.”

“This process allowed the illegal transfer of more than $300 million on behalf of Iranian banks and their customers; the Iranian banks involved included Bank Melli, Bank Saderat, Sepah Bank and others. While LLOYDS voluntarily exited the Iranian business by 2004, the Sudanese business, which resulted in the illegal transfer of over $20 million, continued into 2007, after the beginning of the investigation.

Support military purchases, dual purpose technology, terrorism?

“The transfers were made to buy goods and services from U.S. companies and to finance the purchase of goods and services from foreign vendors that sought payment in dollars.”

Question: Did the United States companies know who they were dealing with? 

What is a deferred prosecution agreement?

“Mr. Morgenthau said that today’s settlement was the result of a joint investigation undertaken by the District Attorney’s Office and the Asset Forfeiture and Money Laundering Section of the United States Department of Justice (“DOJ”).  As a result of the settlement and Deferred Prosecution Agreementwith both the District Attorney’s Office and DOJ, LLOYDS has agreed to adhere to best practices for international banking transparency, to cooperate with ongoing law enforcement investigations, to conduct an internal review of past transactions, and to pay the fines and forfeiture.”

Deferred Prosecution: “Legal deal where in response for public acknowledgement and/or payment of a fine/restitution and/or co-operate in ongoing investigations, corporations can escape prosecution. Should the corporation comply with the conditions in the agreement for a specified period, the indictment is dismissed.”  Source>

Background …

“The United States government prohibits certain countries, entities and individuals from accessing U.S. financial institutions and the U.S. banking system.  These sanctions are administered and enforced by the United States Department of the Treasury’s Office of Foreign Assets Control (‘OFAC’).”

“New York banks use sophisticated computer systems to monitor and screen all wire transfer activities to ensure that the banks do not engage in prohibited transactions.  The banks depend on these automated systems to prevent sanctioned entities from accessing the United States banking system.”   

“The investigation revealed that LLOYDS engaged in a systematic practice of ‘stripping’ wire transfer information.  Stripping is the practice of removing wire transfer information that would identify that the transfers originated from a prohibited source.  By stripping out the originator information, the wire transfers could pass through the screening software used by New York banks that would otherwise have rejected or frozen them for further inquiry.  The stripping of wire transfer information in this manner made it appear that the transactions originated at LLOYDS in the United Kingdom rather than the sanctioned banks.”

Our allies?

It is unclear whether or not this prohibited activity was perpetrated in the United Kingdom, and if so, I would expect the British government to sanction the individuals involved. However, if it happened in New York, I would expect our government to sanction those who created, implemented and supervised the scheme.

“The investigation of LLOYDS focused primarily on its handling of accounts for financial institutions from two designated countries: Iran and Sudan. Knowing that they could not legally access U.S. banks, Iranian and Sudanese banks with accounts at LLOYDS sought to evade U.S. sanctions.”

“Beginning in the mid-1990s, LLOYDS began removing any information from Iranian and Sudanese wire transfers that would trigger the detection systems at New York correspondent banks.  To execute this policy, LLOYDS personnel removed any information that identified the payment messages as originating from Iranian, Sudanese or other sanctioned countries.  The falsified wire transfers would then be processed undetected by the OFAC filters in place at the U.S. banks.” 

The trigger …

“Mr. Morgenthau said that the investigation into LLOYDS’ stripping activities grew out of an investigation into the suspicious movement of money by alleged Iranian front companies and charities.  Specifically, the District Attorney’s Office began an investigation in 2006 into the relationship between the Government of Iran and two New York entities, the Alavi Foundation and Assa Corporation, which jointly owned an office building located at 650 Fifth Avenue in Manhattan. During the course of this investigation, the District Attorney’s Office uncovered evidence that LLOYDS was engaged in the illegal transfer of funds into Manhattan on behalf of sanctioned Iranian banks.  At about the same time, the District Attorney’s Office learned that DOJ was engaged in an investigation of similar stripping activity at other banks. 

According to Bloomberg News …

“Last month, federal prosecutors in the U.S. sued to gain control of a 36-story Manhattan office tower they claim belongs to the Iranian government’s Bank Melli. Farhsid Jahedi, President of the Alavi Foundation that owns a 60 percent stake in the tower, also was arrested for destroying documents.”

Strong deterrence would be a few jailed banking executives  …

“Mr. Morgenthau said that the Deferred Prosecution Agreement is designed to send a strong message of deterrence to other banks.”

Whoop-de-do …

“Important mitigating factors that led to the agreement were that LLOYDS exited the Iranian business voluntarily before being contacted by the District Attorney’s Office, provided full cooperation with the investigation from the time it was contacted by prosecutors, readily admitted its criminal wrongdoing, and agreed to conduct an extensive internal look-back at its misconduct to identify the real parties in interest in the stripped transactions.”

Why we need vigilance ...

"The Iranian businessman was looking for high-quality American electronics, but he had to act stealthily: The special parts he coveted were denied to Iranians, especially those seeking to make roadside bombs to kill U.S. troops in Iraq. With a few e-mails, the problem was solved. A friendly Malaysian importer would buy the parts from a company in Linden, N.J., and forward them to Iran. All that was left was coming up with a fake name for the invoice. Perhaps a Malaysian engineering school? "Of course, you can use any other company as end-user that you think is better than this," the Iranian businessman, Ahmad Rahzad, wrote in an e-mail dated March 8, 2007."

"The ruse succeeded in delivering nine sensors called inclinometers to Iran, the first of several such shipments that year and the latest example of what U.S. officials and weapons experts describe as Iran's skillful flouting of export laws intended to stop lethal technology from reaching the Islamic republic."

"Despite multiple attempts by the Bush administration to halt illegal imports -- including sanctions against several Dubai-based Iranian front companies in 2006 -- the technology pipeline to Tehran is flowing at an even faster pace. In some cases, Iran simply opened new front companies and shifted its operations from Dubai to farther east in Asia, the officials said".  (For the rest of the story, click here.)

Our enemies walk among us …

Facilitated by lawyers, lobbyists, public relations firms and sham United States companies or divisions of foreign-registered companies, our enemies are often allowed free and easy access to our banking system, media for the purposes of propaganda and to purchase goods and services which they procure on behalf of some “neutral” transfer agent in a neutral country.

What can YOU do?

While programmatic systems can trap some of those who wish the United States harm, like most criminal activities, it often takes an informed tip to create official interest in he case. If you know or suspect that foreign nationals from hostile countries appear to be operating inside the United States, let your friendly FBI know about it by contacting your local field office.

Demand that the government prosecute the people who designed, implemented or enabled the prohibited practice as well as the organization. Like they say: guns don’t commit crimes, people do! The same applies to corporations: the corporation cannot be jailed, only people can be jailed. While these deferred agreements are money-makers, the perpetrators of financial crimes are often allowed to skate free; and thus send the wrong message to the financial community: getting caught and paying a fine is just another cost of doing business.

And let us not forget, that if you are rich enough and have political connections, you might be able to buy a pardon after the fact. See Bill Clinton’s last day in office pardon of Marc Rich and Pincus Green who allegedly traded oil from Iran during the Iranian hostage crisis and evaded United States taxes. Both fled to Switzerland. <Source>

Eric Holder …

Consider a Department of Justice employee who ignored the procedures of his own agency and went directly to the White House with a pardon request that was likely to be denied by the Department of Justice.

Do you want this man as our next Attorney General … and what did he get for his efforts on behalf of those seeking pardons?

Not so coincidentally, Barack Obama’s nominee for Attorney General, Eric Holders, allegedly facilitated the pardon of both Rich and Pincus. You may wish to read the New York Times article, “Panel Says Top Justice Dept. Aide Held Information on Rich's Pardon” which states: “The most controversial pardon went to Mr. Rich, a commodities trader who fled the country in 1983 rather than face trial on charges of tax evasion, racketeering and trading with the enemy [IRAN]. The report says that Mr. Rich's lawyers tried to circumvent prosecutors, who would oppose the pardon, and take their case straight to the White House.”

“Mr. Holder, the report says, played a major role, steering Mr. Rich's lawyers toward Jack Quinn, a former White House counsel. Mr. Rich hired Mr. Quinn, whose Washington contacts and ability to lobby the president made the difference, according to the report. It says that Mr. Holder's support for the pardon and his failure to alert prosecutors of a pending pardon were just as crucial.”

“The report says Mr. Holder became involved through a chance encounter with Gershon Kekst, a prominent public relations strategist who has advised Mr. Rich since 1997.”

-- steve

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Reference Links:

Lloyd's Bank Deferred Prosecution|New York County District Attorney's Office