Federal and state prosecutors are investigating Deutsche Bank and several other global banks over accusations that they funneled billions of dollars through their American branches for Iran, Sudan and other sanctioned nations, according to law enforcement officials with knowledge of the cases.
But the recent clash between New York’s top banking regulator and federal authorities over how to handle a similar case against the British bank Standard Chartered could complicate the investigations.
The United States prosecutors worry that the $340 million settlement between the New York regulator, Benjamin M. Lawsky, and Standard Charteredsends a message to international banks and regulators that American authorities are uncoordinated and torn by divisions — since Mr. Lawsky acted alone in leveling the charges and settling the case. They also worry that foreign banks and regulators will no longer readily cooperate in turning over valuable transaction data that reveal the parties behind the global movement of tainted money, according to the federal and state prosecutors who were not authorized to publicly discuss the investigations.
Now the authorities in the Justice Department and the New York County district attorney’s office are debating how deeply involved Mr. Lawsky’s office should be in the investigations. A spokesman for Mr. Lawsky said the department “will continue to cooperate and work with our law enforcement partners both federal and state.”
The Deutsche Bank investigation is the latest in a series of cases against global financial firms since 2009 that suggests the practice of transferring money on behalf of Iranian banks and corporations flourished under a loophole in United States policy that ended in 2008.
A spokesman for Deutsche Bank declined to comment, but noted that the German bank decided in 2007 that it would “not engage in new business with counterparties in countries such as Iran, Syria, Sudan and North Korea and to exit existing business to the extent legally possible.”
Since 2009, the Justice Department, the Treasury Department and the Manhattan district attorney’s office, working largely in concert, have brought charges against five foreign banks, contending they moved billions of dollars through their American subsidiaries on behalf of Iran, Cuba and North Korea, sponsors of terrorism and drug cartels.
The cases against the five banks all included deferred prosecution agreements and required the banks — ABN Amro, Barclays , Credit Suisse , Lloyds and most recently ING — to forfeit a substantial amount of assets.
The cases typically have not involved United States banks. Unlike foreign institutions, American banks were prohibited from originating or receiving such transactions from Iran. That enabled them to largely sidestep the conduct that has helped ensnare foreign banks.
Mr. Lawsky, who claimed Standard Chartered plotted with Iran for nearly a decade to secretly process $250 billion through its New York branch, has been unwavering in his decision to move against Standard Chartered. He has found support among those who think federal prosecutors have been too lenient on big banks.
Rather than undermine the policing of global banks, Mr. Lawsky’s actions strengthen regulation, said Senator Carl Levin, Democrat of Michigan, who held hearings last month exposing HSBC money laundering violations with Iran, Mexico and others.
“New York’s regulatory action sends a strong message that the United States will not tolerate foreign banks giving rogue nations like Iran hidden access to the U.S. financial system,” Mr. Levin, who heads the Senate’s Permanent Subcommittee on Investigations, said in a statement this week.
The investigation into Deutsche Bankis still in its very early stages, according to the law enforcement officials. So far, there is no suspicion that the bank moved money on behalf of Iranian clients through its American operations after 2008, the officials said.
In the earlier cases, the banks agreed to financial settlements with prosecutors for as much as $619 million with ING bank in June. The cases are also valuable, the prosecutors said, as a result of the trove of transactions typically unearthed. The information, including the identity of clients who sent money through the banks, can then be passed on to the Federal Bureau of Investigation and the Central Intelligence Agency.
Until 2008, foreign banks were allowed, in a sanctions loophole, to transfer money for Iran through their American subsidiaries to a separate offshore institution while providing the scantiest information about the client to their United States units as long as they had thoroughly vetted the transactions for suspicious activity. As a result, American law enforcement agencies generally have to push for more information from foreign banks.
To get uncensored data, authorities work closely with international regulators and global banks to navigate European privacy and bank secrecy laws. The laws can fundamentally hinder a case, as they did during tax-evasion investigations against Swiss banks. Data on transactions, in some earlier global bank cases, had been so redacted that authorities joked that they looked like “Swiss cheese.”
The speed of obtaining the data, the prosecutors said, depends on a level of trust and cooperation.
In the Credit Suisse case, for example, regulators from the Federal Reserveand prosecutors worked for months to persuade the Swiss bank and its regulators to release full data, an especially delicate proposition because of Swiss laws that fiercely guard client information, according to the law enforcement officials. Without that, the investigation — resulting in a $536 million settlement and deferred prosecution agreement — could have dragged on much longer, the authorities said.
Neil M. Barofsky, the former inspector general for the Treasury’s bank bailout fund, said fears that banks would not cooperate were overblown because it was “in their best interest to cooperate to avoid criminal prosecution and to keep their license.”
In the case of Standard Chartered, which is still being investigated by the Justice Department and the Manhattan district attorney, among others, cooperation started nearly from the beginning when in 2010 the bank gave officials a battery of e-mails and other internal bank documents detailing transactions with Iran from 2001 to 2007.
The prosecutors have not yet found any money transfers that went to so-called specially designated nationals, the term assigned by the Treasury Department to terrorists, drug cartels or individuals or companies owned or operated by sanctioned countries, the law enforcement officials said.
In his Aug. 6 order against Standard Chartered, Mr. Lawsky claimed the bank “left the U.S. financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes.” The order said the bank transferred money on behalf of Iranian state-owned banks — including the Central Bank of Iran/Markazi, Bank Saderat and Bank Melli. American officials suspected Iran was using those banks to finance nuclear weapons and missile programs.
So far, prosecutors said that they had not yet discovered transactions with those banks after the Iranian banks were added to the specially designated nationals list. Mr. Lawsky pointed out in his order that it was impossible to know how the money was used because Standard Chartered deliberately stripped identifying information from the transactions.
As they continue to pursue investigations against global banks, federal and state prosecutors are still deciding how they want to work with Mr. Lawsky, who took the reins of the revamped banking agency in 2011. In the past, the New York banking department worked alongside federal and state prosecutors, but did not get a share of the forfeited money.