Lloyds TSB to Pay $350 Million to Settle Prove of Transfers

By Karen Freifeld

Jan. 10 (Bloomberg) -- Lloyds TSB Bank Plc, accused of allowing Iran and Sudan illegal access to the U.S. financial system, will pay $350 million to settle an investigation by Manhattan District Attorney Robert Morgenthau.

Lloyds admitted it altered wire transfer information to hide the identity of its clients, Morgenthau said. The bank must provide financial information on the transactions, according to a deferred prosecution agreement. Charges can still be pursued if the bank knowingly transmitted funds to or from terrorists.

“This is the largest penalty by far for a violation of U.S. sanctions,” Morgenthau told reporters in his offices yesterday.

U.S. banks have software filters that look for entities barred from doing business in the states, prosecutors said. Lloyds stripped out identifying features on the wires so the filters wouldn’t catch them. The transactions appear to be from Lloyds rather than, for example, Iranian Bank Melli and its customers.

He said $350 million in the funds sent by Lloyds terminated in the U.S. and “several billion” dollars went through U.S. banks in violation of U.S. law.

“Why would Lloyds do this?” he asked. “I think the answer is banks want deposits.”

Morgenthau said nine other major foreign banks have been using the same technique to disguise illegal money transfers. He declined to name the banks. The investigation is continuing.

Lloyds cooperated with Morgenthau’s office and the U.S. Justice Department, which joined in the probe, according to a Lloyds statement. Lloyds is in talks with the U.S. Office of Foreign Assets Control about the matter and doesn’t expect it will have to make any additional payments, according to the statement.

Compliance Programs

“We are committed to running our business with the highest levels of integrity and regulatory compliance across all of our operations and have undertaken a range of significant steps to further enhance our compliance programs,” Lloyds said in the statement.

The prosecution of the bank will end if Lloyds fulfills all requirements of the agreement, as well as a separate one with the federal government, over the next two years.

In the New York agreement, Lloyds admitted that from 2001 to 2004 it allowed Iranian banks and their customers to move more than $300 million by stripping information. The Iranian banks included Bank Melli, Bank Saderat and Sepah Bank, according to a statement by Morgenthau.

Sudanese Clients

Lloyds later allowed Sudanese clients to illegally transfer more than $20 million dollars, ending in 2007, according to Morgenthau.

In addition to the Sudanese and Iranian transactions, Lloyds between 2002 and 2004 processed $20 million for a Libyan customer, according to the agreement.

In one internal document, Lloyds said transactions from the London branches of Iranian banks should be processed in “the normal way,” which meant removing information that would tie them to Iran, according to the agreement. Lloyds eventually dedicated specific employees to scrubbing the Iranian transactions, the agreement said.

Over 12 years, “about $350 million was allowed to move through the U.S. financial system that at a minimum should have been scrutinized,” Matthew Friedrich, acting assistant attorney general of the Justice Department’s Criminal Division, told reporters yesterday in Washington.

Nine Months

Over the next nine months, Lloyds has agreed to provide financial information on the transactions, Friedrich said. The vast majority of information already has been turned over, the Justice Department said.

“We can look at where did this money go, where was it sent from and we can do the scrutiny that should have been performed in the first place,” he said.

One of the main questions U.S. authorities will focus on is whether any of the money funded terrorism, Friedrich said.

Most of the money was sent from accounts from a blacklisted country to a U.S. account, he said.

This is the first criminal action the Department of Justice has taken to address “stripping,” DOJ spokeswoman Laura Sweeney said in an e-mail, though she said in 2005 Dutch bank ABN Amro was fined by the U.S. Department of Treasury for similar conduct.

According to the agreement, Lloyds falsified or deleted information on outgoing U.S. dollar messages that involved sanctioned countries from the mid 1990s through January 2007.

Heightened Efforts

In 2002, bank officials became concerned with these practices because of heightened U.S. efforts to enforce financial sanctions and ended them with regard to Iranian banks in 2004.

Lloyds had relationships with the biggest Iranian banks and their UK units, including Bank Melli, Bank Sepah, Bank Tejerat, Bank Mellat, Bank Saderat and the Iranian Overseas Investment Bank.

U.S. laws bar the transfer of funds from Iran and other sanctioned countries without authorization by the U.S. Treasury Department. Assistant District Attorney Adam Kaufman said the bank’s conduct didn’t necessarily violate laws in the U.K., where Lloyds is based.

Last month, federal prosecutors in the U.S. sued to gain control of a 36-story Manhattan office tower they claim belongs to the Iranian government’s Bank Melli. Farhsid Jahedi, President of the Alavi Foundation that owns a 60 percent stake in the tower, also was arrested for destroying documents.

To contact the reporter on this story: Karen Freifeld in New York at kfreifeld@bloomberg.net.