Years of U.S. fines over Iran loom for foreign banks

Sun Sep 2, 2012 11:47am EDT
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By Douwe Miedema and Edward Taylor

LONDON/FRANKFURT (Reuters) - For years, the United States struggled to get foreign bankers to comply with its effort to throttle Iran's economy - but a couple of billion dollars in fines, not to mention lurid headlines and talk of jail time, has suddenly got their attention.

A half-hearted shuffling forward to settle years-old claims of busting U.S. sanctions on Tehran is becoming a stampede since Washington tightened rules to punish Iran's nuclear program and a new aggression among regulators so alarmed many banks that shareholders will be paying out billions more for years to come.

Deutsche Bank (DBKGn.DE: Quote) and Italy's Intesa San Paolo (ISP.MI: Quote) are among big names that may soon join the still short list of foreign banks that have so far paid more than $2.3 billion in fines; some still protest their innocence but have regarded the cash as the price of keeping access to the U.S. market - and keeping executives out of court, or even jail.

The drama played out last month between Standard Chartered and the New York state supervisor who threatened to strip the august British institution of its vital Wall Street banking licence was not entirely typical. But StanChart's about-face within days, from vigorously defending past deals with Iranian clients to handing over $340 million - 5 percent of its pretax profit - was illustrative of an industry-wide shift in mindset.

"The acceleration in a sense is coming from (the banks') side defensively," said Michael Malloy, a professor at the University of the Pacific McGeorge School of Law in California.

"The notion being that it would be better to get out in front of this and confront the difficulty and come clean rather than wait for the authorities to ferret you out," said Malloy, who previously worked for the U.S. Treasury.

Clearly, it is not something all boards will shout about; when another British bank, Royal Bank of Scotland (RBS.L: Quote), made mention of talks with regulators on U.S. sanctions regulations in its quarterly report last month, it took another two weeks before many investors became aware of the issue via the media.

But, after Standard Chartered and June's record $619-million fine paid by Dutch bank ING ING.AS, the list of European banks going public with warnings about possible U.S. payouts includes Germany's Commerzbank (CBKG.DE: Quote) and HVB, a unit of Italy's Unicredit (CRDI.MI: Quote), as well as HSBC (HSBA.L: Quote) in Britain.   Continued...

An exterior view of the Standard Chartered headquarters is seen in London August 7, 2012. REUTERS/Olivia Harris