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Prosecutors Link Money From China to Iran

Jessica Silver-Greenberg | The New York Times
Thursday, 30 Aug 2012 | 1:11 AM ET

Prosecutors say they have unearthed evidence in recent international money-transfer investigations that Chinese banks may have flouted United States sanctions against Iran.

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Digital Vision | Getty Images
Bank Vault

Now, as they investigate global banks suspected of funneling billions of dollars through their American branches to Iran and other sanctioned nations, the prosecutors are looking for transactions that could offer more information on the banks’ dealings with Iran.

Information on how Chinese banks may have routed money on behalf of Iranian banks and corporations is more valuable than any monetary settlement the authorities could win from the global banks, law enforcement officials with knowledge of the cases said, because the United States could use the information to strengthen its efforts to choke off economic dealings with Iran.

The United States has been ratcheting up its sanctions as Iran’s nuclear ambitions raise the risk of military action from Israel and shocks to the global economy. The investigations of two London-based banks, HSBC and Standard Chartered

, could prove especially fruitful, said the law enforcement officials, who declined to be identified because the cases are continuing.

As part of their broader investigations, prosecutors are examining whether any money transfers originated from Chinese banks and moved through the British banks before being routed through their American branches.

HSBC and Standard Chartered have extensive branches and business throughout Asia. Prosecutors hope that the banks’ executives, as part of settlements, will shed more light on Chinese banks’ independent relationships with Iran.

Despite clues gleaned from the prior cases, officials in the Justice Department and the Manhattan district attorney’s office have not yet accumulated enough evidence to open a formal investigation into the Chinese banks, the officials said. The Chinese embassy in Washington did not respond to requests for comment on Wednesday.

The prosecutors are in the early stages of examining a handful of Chinese banks with operations in New York. They are concerned that the banks may allow clients suspected of financing weapons development to open accounts in China, and then get access to dollars through money transfers from a foreign bank by way of its American subsidiary.

The investigations are playing out as United States officials work to stanch the flow of money to Iran — part of an effort to hobble the nation’s ability to develop its nuclear program. China has openly supplied Iran with nuclear materials and was a major economic partner to the nation from 1985 to 1997, when pressure from the Clinton administration hampered the business.

Last month, the White House announced sanctions against Bank of Kunlun, part of the state-owned China National Petroleum Corp, saying that the bank had “facilitated transactions worth millions of dollars on behalf of Iranian banks.”

(Read more: There has been widespread frustration that American sanctions are undercut by nations, including China, that continue to do business with Iran.) “The Chinese business community has not shown any sign that they accept US sanctions against Iran,” said John Moscow, a New York lawyer who investigated international bank fraud and money laundering with the Manhattan district attorney’s office from 1988 to 2004.

Law enforcement officials worry that Chinese banks “will attempt to structure their legal affairs so that they can do business with America and Iran, which means keeping secrets from the U.S.,” Mr. Moscow said.

Since 2009, as part of a broad-based crackdown, the Justice Department, the Treasury Department and the district attorney’s office have brought cases against five European banks, contending that they moved billions of dollars through their American subsidiaries on behalf of Iran, Cuba, North Korea and other sanctioned nations.

Some of the cases against the banks — ABN Amro, Barclays , Credit Suisse, Lloyds and, most recently, ING — yielded valuable information about Chinese banks’ relationships with Iran, law enforcement officials said.

An investigation into one bank can help prosecutors reach their next target. In the Credit Suisse case, for example, prosecutors discovered an e-mail that named other European banks with Iranian business, according to law enforcement officials with knowledge of the investigation. The Swiss bank settled with United States authorities in late 2009 for $536 million and a deferred prosecution agreement.

Standard Chartered entered the public spotlight this month when Benjamin M. Lawsky, superintendent of the New York Financial Services Department, broke with federal and local prosecutors to accuse the bank of scheming with Iran for nearly a decade to hide from regulators 60,000 transactions worth $250 billion. The British bank, which reached a $340 million settlement with New York’s top banking regulator, is still under investigation by federal and state prosecutors.

In July, a Senate panel issued a report that accused HSBC of being used by Mexican drug cartels that wanted to funnel cash back into the United States, by Saudi Arabian banks with terrorist ties that needed access to dollars, and by Iranians who wanted to circumvent United States sanctions. The bank is in talks with the Justice Department and other authorities about a settlement and could face $1 billion in penalties, law enforcement officials with knowledge of the investigation said.

Part of the problem with Chinese banks, the officials said, is that unlike their European counterparts, the banks and their regulators have largely ignored American authorities’ requests for information.

Standard Chartered officials, by contrast, voluntarily turned over reams of documents in 2010 to American authorities, including the Federal Reserve, detailing the bank’s transactions with Iran.

Concerns about China’s connections to Iran’s weapons program came into focus in 2009 when the Manhattan district attorney’s office charged a Chinese businessman and his company with conspiring to sell tungsten, high-strength steel and exotic metals, which can be used to develop long-range missiles and nuclear weapons, to an arm of the Iranian military from 2006 to 2008. Some of the transactions were routed through Manhattan, according to court documents. At the time, prosecutors were investigating two Chinese banks to determine their roles in the scheme.

Until 2008, foreign banks were permitted to transfer money for Iran through their American subsidiaries to separate offshore institutions. Such transactions were banned in 2008 amid escalating suspicions that Iran was using its banks to finance its nuclear weapon and missile programs.

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