Standard Chartered is living the Wall Street version of “Groundhog Day.”
Two years after state and federal authorities punished the British banking giant for doing business with countries like Iran, Standard Chartered has once again landed in the government’s cross hairs for failing to weed out other risky transactions flowing through its American operations.
This time, New York State’s financial regulator is preparing an action against the bank over breakdowns in a computer system that was supposed to detect transactions vulnerable to money laundering, according to people briefed on the matter.
The regulator, Benjamin M. Lawsky, is discussing a potential settlement with the bank, but has warned that he could file an enforcement action if talks fall apart.
The suspected computer breakdowns, a potential case of corporate recidivism, came to light as an independent monitor sifted through Standard Chartered’s records in recent months. The monitor, the people briefed on the matter said, detected millions of transactions that Standard Chartered should have flagged for further review, though it was unclear whether any of the wire transfers were actually illegal.
As part of the potential settlement with Standard Chartered, the people said, Mr. Lawsky is seeking to extend the duration of the monitor’s oversight.
Mr. Lawsky, who fined Standard Chartered $340 million for the original violations in August 2012, is now seeking a nine-figure penalty that would be smaller than the original fine.
Standard Chartered is expected to disclose the investigation when it announces its earnings on Wednesday — two years to the day that Mr. Lawsky first took action against the bank.
Aiming to contain the damage, the bank’s chief executive made several trips to New York in recent months to meet with Mr. Lawsky’s office, the people briefed on the matter said. The chief executive, Peter Sands, argued that the computer errors were technical problems rather than deliberate attempts to flout the law.
The personal appeals from Mr. Sands reflect the importance of the investigation, given that the looming action by Mr. Lawsky presents a rare threat to Wall Street. After many big-money settlements, banks have returned to business as usual without drawing a rebuke from regulators.
Take the case of HSBC, which in 2012 reached a $1.92 billion settlement and deferred-prosecution agreement for what federal prosecutors called “stunning failures” in guarding against money laundering. Yet after a monitor found lingering issues in the bank’s compliance, the Justice Department, while concluding that there was “much work to be done,” did not penalize the British bank.
The Standard Chartered and HSBC cases are part of a broader crackdown on banks that facilitate money laundering and do business with countries blacklisted by the United States, like Iran and Sudan.
In June, that effort yielded its biggest target yet when BNP Paribas, France’s largest bank, pleaded guilty to criminal charges and paid a record $8.9 billion penalty for processing billions of dollars on behalf of Sudan. As part of the deal, Mr. Lawsky temporarily suspended the bank’s ability to process payments in dollar denominations, a function known as dollar clearing, which is essential to doing business with international clients.
Assuming a settlement is reached with Standard Chartered, the people said, the bank is unlikely to face a dollar clearing suspension. Still, it will serve as a painful reminder of the bank’s 2012 run-in with American law enforcement.
At the time, Mr. Lawsky startled the bank and even some of his law enforcement peers when he released a regulatory order outlining his accusations against the bank. In the action, he called the bank a “rogue institution,” accusing it of illicitly processing billions of dollars of payments on behalf of Iran.
The case thrust the bank — and Mr. Lawsky — into the international spotlight. Mr. Lawsky, whose agency was less than a year old at the time, threatened to revoke the bank’s license to operate in New York. The bank reached a settlement deal just hours before Mr. Lawsky had planned to hold a hearing to discuss revoking the license.
Months later, Standard Chartered reached agreements with other state and federal authorities. The bank agreed to pay more than $300 million to those authorities.
As part of its pact with Standard Chartered, Mr. Lawsky’s office installed a monitor in the bank’s New York operations. The monitor, Ellen Zimiles, a former federal prosecutor in Manhattan who is now head of the consulting firm Navigant’s global investigations and compliance practice, meets each week with Mr. Lawsky’s staff to discuss the bank’s compliance.
The weaknesses cropped up during one of the weekly updates, the people briefed on the matter said. Scrutinizing reams of transactions, Ms. Zimiles found that the bank’s computer systems did not flag wire transfers flowing from areas of the world considered vulnerable to money laundering.
A number of potentially high-risk transactions were not flagged at all, the people said.
The discovery, and ensuing investigation, posed a test to Mr. Sands and the bank’s management. At times during the 2012 case, Standard Chartered appeared less than contrite about its misconduct. John W. Peace, the bank’s chairman, once referred to the illicit transactions as “clerical errors,” a statement he later retracted.
Regulatory investigations are not the only problem weighing on the bank’s management. As earnings have struggled, some media speculation has grown that the bank was preparing a succession plan for Mr. Sands.
But the bank denied the reports, saying two weeks ago that its board was “united” in support of Mr. Sands and Mr. Peace.