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US scrutiny for banks shifts to Commerzbank and Germany

A trail of illicit money led the American government on a hunt through the European financial system, generating criminal cases against banks in Britain, Switzerland and most recently, France.

Now the crackdown is bound for another European financial center: Germany.

State and federal authorities have begun settlement talks with Commerzbank, Germany's second-largest lender, over the bank's dealings with Iran and other countries blacklisted by the United States, according to people briefed on the matter. The bank, which is suspected of transferring money through its American operations on behalf of companies in Iran and Sudan, could strike a settlement deal with the state and federal authorities as soon as this summer, said the people briefed on the matter, who were not authorized to speak publicly.


Thomas Lohnes | Getty Images

The contours of a settlement, which the authorities have only begun to sketch out, are expected to include at least $500 million in penalties for Commerzbank, the people added. Although prosecutors were still weighing punishments, the people briefed on the matter said that the bank would most likely face a so-called deferred prosecution agreement, which would suspend criminal charges in exchange for the financial penalty and other concessions.

A potential deal with Commerzbank — which is expected to pave the way for a separate settlement with Deutsche Bank, Germany's largest bank — would pale in comparison to the case announced last week against France's biggest bank, BNP Paribas. The French bank agreed to pay a record $8.9 billion penalty and plead guilty to criminal charges for processing transactions on behalf of Sudan and other countries that America has hit with sanctions, a rare criminal action against a financial giant.

BNP is not the only French bank under the spotlight. Crédit Agricole and Société Générale also face investigations into whether they violated United States sanctions.

But those investigations are not expected to be completed until after the anticipated settlement with Commerzbank, the people briefed on the matter said. Commerzbank and Deutsche Bank, which have both previously disclosed the existence of the investigations but not the status or terms of settlement talks, declined to comment on Monday.

Collectively, the deals will provide a capstone to the decade-long investigation into banks that opened the American financial system to tainted money. The investigations into the European banks, which funneled billions of dollars through their New York offices on behalf of foreign clients, underscored the reach of the United States sanctions laws as well as the global demand to do business in dollars.

The investigations have involved both state and federal authorities. In the Commerzbank investigation, the Manhattan district attorney's office and New York State's banking regulator, Benjamin M. Lawsky, are collaborating with the Justice Department's criminal division in Washington, the United States attorney's office for the District of Columbia and the Federal Reserve, the people briefed on the matter said.

The BNP case involved Preet Bharara, the United States attorney in Manhattan, rather than the prosecutor for the District of Columbia.

The Commerzbank investigation features an added twist: The bank is 17 percent owned by the German government. It is unclear whether — as in the BNP case, which led French authorities to intervene on the bank's behalf — the settlement talks could inflame diplomatic tensions between Washington and Berlin.

Some critics have questioned why American authorities have set their eye on European banks. The answer, authorities say, is that American banks by and large avoided processing transactions for Iran and Sudan.

But American banks are not immune from touching dirty money. Citigroup's Banamex unit is under investigation for processing money linked to a drug cartel. And in January, JPMorgan Chase reached a roughly $2 billion deal with the authorities over ignoring signs of the Ponzi scheme orchestrated by Bernard L. Madoff, who held accounts at the bank for over two decades.

The criminal sanctions cases spreading through Europe began in 2009, when the British bank Lloyds struck a deferred prosecution agreement. Credit Suisse came months later. And by the end of 2012, HSBC, Standard Chartered and Barclays of Britain, as well as ING of the Netherlands, had struck settlements of their own.

The $8.9 billion penalty for BNP was by far the largest. It was more than triple the amount that the six other banks had collectively paid to resolve their sanctions cases.

The BNP deal also carried some added sting, as the bank was forced to plead guilty, unlike the other banks that reached deferred prosecution agreements. In addition, Mr. Lawsky took aim at a core business for BNP, partly suspending its ability to process payments in dollar denominations, an important function known as dollar clearing.

The extra punishments, authorities say, reflected the amount of wrongdoing at BNP.

"Together, we have helped to hold accountable France's largest bank for perpetrating what was truly a Tour de Fraud," Mr. Bharara said at a news conference announcing the deal last week, adding that BNP had done business with Sudan, Cuba and Iran, "a hat trick of sanctions violations."

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