Regulator in New York Sets Tough Bank Fine

It took just $8.6 million for Japan’s largest bank to settle with federal regulators in Washington who accused it of routing tainted money through the United States.

A regulator in New York proved harder to satisfy.

On Thursday, the state’s top financial authority, Benjamin M. Lawsky, imposed a $250 million fine on the Bank of Tokyo-Mitsubishi UFJ — nearly 30 times what the federal government extracted last year.

The bank, which agreed to settle the New York case, was accused of routing 28,000 payments worth about $100 billion on behalf of Iran and other countries blacklisted from doing business in the United States. In contrast, federal authorities at the Treasury Department cited the bank for processing 97 fund transfers, worth about $6 million.

The disparity stemmed partly from the wider latitude that Mr. Lawsky has to dole out punishments on the banking industry; the Treasury Department is somewhat hamstrung by a quirk in federal law that permitted certain transactions with Iran until 2008.

But the action on Thursday also underscored the gulf between the two regulators. Mr. Lawsky, a former terrorism prosecutor known for his aggressive style, has at times clashed with the more staid philosophy entrenched at the Treasury Department.

Mr. Lawsky, who was born on a naval base in San Diego, has drawn additional ire from Wall Street. Some white-collar defense lawyers have privately complained that his office is overreaching its authority.

In the Bank of Tokyo-Mitsubishi UFJ case, the bank initially proposed settling with Mr. Lawsky’s agency for roughly $20 million, according to several people briefed on the matter. But Mr. Lawsky balked, the people said, pushing for a bigger fine and additional requirements, like an independent third party to keep an eye on the bank’s activities.

“We have and will continue to take a hard line in rooting out misconduct at banks that threatens our national security,” Mr. Lawsky said in a statement announcing the Bank of Tokyo-Mitsubishi UFJ deal.

Statements like that have inspired comparisons to Eliot L. Spitzer. Like Mr. Spitzer, who during his tenure as New York’s attorney general antagonized peers in Washington and many firms on Wall Street, Mr. Lawsky has increasingly rankled his federal counterparts.

Tensions first flared last year when Mr. Lawsky’s agency, the New York State Department of Financial Services, moved alone to penalize a British bank for illicit money transfers. In August, Mr. Lawsky reached a $340 million settlement with the bank, Standard Chartered, which he accused of transferring hundreds of billions of dollars in tainted money for Iran and lying to regulators.

At the time, the Treasury Department appeared agitated at the upstart regulator, whose agency was created in 2011.

“Unfortunately,” an internal Treasury Department memo said, Mr. Lawsky’s office notified federal authorities “only hours before its public announcement.”

Federal authorities were slower to act against the bank, reaching their own deal in December for $327 million. That fine, according to people close to the case, was larger than federal authorities initially planned. It swelled after Mr. Lawsky announced his penalty.

For its part, the Treasury Department said on Thursday that it “has been relentless in its pursuit of illicit activity by banks in the U.S. and around the world.”

“We have led the international community in both creating and enforcing powerful sanctions against rogue regimes, terrorist groups and proliferators of weapons of mass destruction, with crippling effects on the government of Iran in particular,” said a statement from the agency.

The Treasury Department, along with the Justice Department and Manhattan prosecutors, has brokered a series of settlements with foreign banks accused of allowing illicit funds to swirl through the American financial system.

Last June, the ING Bank agreed to pay $619 million to resolve claims that it had transferred billions of dollars through its American branches for countries like Cuba and Iran that are under United States sanctions.

Despite the complaints from Wall Street and Washington, consumer advocates and some lawmakers have cheered Mr. Lawsky’s tougher tactics, noting that he might goad federal regulators into action.

“I don’t think Lawsky is running ahead of Washington. He is simply running, while Washington sits,” said Bart Naylor, a policy advocate at Public Citizen, a nonprofit group critical of the federal government for not taking a harder line with Wall Street.

Consumer advocates have similarly complained that federal prosecutors at the Justice Department declined last year to indict HSBC, the giant British bank, deciding instead to levy a $1.9 billion fine to settle accusations that it had transferred billions of dollars for nations like Iran and enabled Mexican drug cartels to launder money. The decision not to indict raised concerns in Washington that some banks, having grown so large and interconnected, were too big to indict.

Mr. Lawsky, while lacking criminal authority, has used state law as a cudgel against financial institutions that have run afoul of the law.

In the Bank of Tokyo-Mitsubishi UFJ case, he seized on the bank’s attempts to disguise the transfers from Iran. To avoid detection, Mr. Lawsky said, the bank told employees to omit information from wire transfers that could have exposed how the bank was working with an “enemy country.”

The bank, Mr. Lawsky said, approved the illegal transfers over at least five years, ending in 2007. The transfers involved “government and privately owned entities” in Iran.

Additionally, the bank had dealings with Sudan and Myanmar. At the time, those countries were all operating under United States sanctions.

In a statement, the Bank of Tokyo-Mitsubishi UFJ said it was “committed to conducting business with the highest levels of integrity and regulatory compliance.” The bank also noted that it voluntarily alerted regulators to its activity and has since moved to bolster its internal controls.

The action against the Japanese bank capped a busy week for Mr. Lawsky. On Tuesday, he took aim at the financial consulting industry, leveling a $10 million fine and one-year ban against Deloitte, one of the nation’s most prominent consultants. Mr. Lawsky accused Deloitte of watering down recommendations “aimed at rooting out money laundering” at Standard Chartered. It did so, he said, “based primarily on Standard Chartered’s objection.”

In a statement, Deloitte noted that it was not accused of intentionally aiding and abetting the bank.

In the case against the Bank of Tokyo-Mitsubishi UFJ, Mr. Lawsky ordered the bank to hire an outside consultant to examine its operations. The consultant will have to abide by a new set of standards that Mr. Lawsky announced this week.