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Moving Money Laundering Investigations Into Top Gear

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Standard Chartered Bank, headquartered in the UK, has agreed to settle charges brought by New York's banking regulators that it engaged in as much as $250 billion of illicit banking transactions on behalf of Iran in recent years. The bank is paying $340 million to end this legal fracas, but this is not the end of its troubles. It's just the beginning.

The core claim against the bank is that it violated U.S. sanctions on financial dealings with Iran by enabling the Iranians -- oil companies, the central bank and others -- to deposit money in the United States. We do not know where the money went and how the Iranians used their cash.

I know Mr. Sands and have a great deal of respect for his intellect. When it comes to understanding the enormous complexity of international banking regulation then, and I know this from first hand personal experience, he is as sharp as a razor. While the UK establishment may well strive to assert that the new settlement had to be made for the bank to keep its U.S. business license, there will be a great deal of questioning behind the scenes about how someone as smart as Peter Sands could have let this happen on his watch.

This is just the kind of question that investigators at the U.S. Department of Justice and other U.S. authorities may well be asking right now. They are all looking closely at Standard Chartered. Moreover, the New York case signals a major increase in efforts by the U.S. banking and justice authorities to investigate banks that may have been engaged in money laundering -- breaking U.S. laws by illicitly enabling foreign customers, from Mexican drug lords to Iranian government officials, to get cash into this country.

In almost every such case the names of the real owners of the cash are hidden, dummy companies are established to hide their identity and so many complex financial games are played that it is very tough to determine whose cash it really is and how it has been used. Only recently, a U.S. Senate report alleged massive illicit transactions on behalf of the Central Mexican drug cartels, perpetrated in the U.S. by another U.K. headquartered bank, the giant HSBC.

Make no mistake, there is a lot of profit to be made in handling this "dirty" cash; there are a lot of clever lawyers around who strive to find legal loopholes that give the appearance that the transactions are legitimate; and there are auditors around who do not ask too many questions.

With Standard Chartered now in the firing line, HSBC having just got hit and the UK's Barclays Bank accused of manipulating interest rates, the British banks are having a rough time. So much so that there are British politicians and bankers keen to spread the word that the allegations are hyped and mostly motivated by New York's envy of London's success as a global financial center. This is errant nonsense. Real crimes are involved, which is exactly why Standard Chartered is still under serious investigation, despite its New York settlement.