HSBC and Standard Chartered (both of which declined to be interviewed for this article) were heavily criticized over the summer for stripping Swift payment messages to conceal the origins of transactions from banks in countries subject to US sanctions. HSBC acted as a correspondent to a number of Iranian banks and Saudi Arabias Al Rajhi Bank (for which it received cash deposits of around $1 billion from 2006 to 2010) while Standard Chartered was also charged with illegal transactions relating to Iranian banks.
On the face of it, the stripping of details from transactions appears indefensible. However, as Ed Shorrock, director of regulatory services at Jersey-based law firm Baker & Partners, notes, the details of the case against Standard Chartered in relation to stripping Swift messages of details reveal the complexities of compliance. "Standard Chartered said the payments were mostly, save $14 million, within the U-turn exemption (now withdrawn) and were not illegal."
The U-turn exemption allowed US banks to process payments from overseas banks provided they were initiated offshore and entered the US only for dollar clearing before returning to offshore banks. "Standard Chartered said that because the payments involved Iranian banks it knew they would be unnecessarily blocked by regulators and would then have to be resolved in a bureaucratic, manual process," says Shorrock. "In order to circumvent this process, Standard Chartered decided to strip the details."
Equally, while an outside observer might question why any bank would have anything at all to do with Iranian business, Frédéric Boulier, director of compliance, EMEA, at financial crime, compliance and risk management solutions provider NICE Actimize, points out: "Its important to remember that, for example, not all Iranian banks are banned from transacting with western financial institutions only those that are connected to the regime (which constitutes around two-thirds of the countrys banks) are."