Lloyds TSB group deceived US financial authorities

Iranian banks illegally shifted billions of dollars through American financial institutions in recent years, and authorities suspect some of the money may have been used to finance Iran’s nuclear and missile programs. 

Details of the illicit transfers came to light on Friday when New York State and federal authorities announced that a large British bank had agreed to pay $350 million to settle accusations that it had helped the Iranian banks hide the transactions.

The British bank, the Lloyds TSB Group, “stripped” information that would have identified the transfers in order to deceive American financial institutions, which are barred from doing business with Iranian banks, Robert M. Morgenthau, the Manhattan district attorney, said. Lloyds acknowledged its conduct and agreed to turn over detailed records of the transactions.

“They went to great lengths to obliterate any identification,” Mr. Morgenthau said.

The district attorney’s office was still investigating nine major banks that might be engaging in similar conduct, but prosecutors declined to name them. Mr. Morgenthau said, however, that money in one transaction was used to buy a large amount of tungsten, an ingredient for making long-range missiles. He said he suspected that other funds might have been used to finance Iran’s nuclear program.

In the current case, investigators were unsure what the money was used for, said Daniel J. Castleman, the chief assistant district attorney. The stripping made it impossible to determine where the money was going, he said. “We don’t know of any money that has gone to any terrorist organizations, individuals or anything like that,” he said.

Lloyds has agreed to examine all of the transactions it stripped to try to determine where the money was headed. In all, Lloyds hid the source of billions of dollars that passed through the United States, prosecutors said. Lloyds also hid transfers from banks in Sudan, which are also banned from doing business with American institutions.

Half of the $350 million Lloyds has agreed to pay will go to the federal government and the rest to Mr. Morgenthau’s office, which will divide the money between the city and the state.

Mr. Morgenthau said he hoped the money, the largest financial penalty his office has ever collected, would provide a boost to tight city and state budgets.

Although prosecutors did not identify specific individuals at Lloyds responsible for the fraud, Mr. Castleman said, “It was a systemic, wide-ranging scheme." The training manual given to employees of Lloyds even included a section on how to strip transactions, prosecutors said.

Banks in several nations are banned from doing business with American institutions, but the United States is particularly concerned about Iran, which it says finances terrorists and runs an illicit nuclear weapons program. Iran denies those accusations.

The investigation into Lloyds goes back to 2006. It was conducted jointly by Mr. Morgenthau’s office and the Justice Department, with the assistance of the Treasury and banking regulators.

According to a deferred prosecution agreement, Lloyds handled $300 million of Iranian transfers and $20 million of Sudanese transfers that ended at American banks. Mr. Morgenthau said billions of dollars of transactions went through American banks but ended outside the country.

Several employees in Lloyds’ international payment processing unit in London removed from the bank’s central system orders from certain foreign banks, according to the agreement released Friday by Mr. Morgenthau’s office. Employees struck out identifying information about the originating banks on printed copies of the payment instructions, which someone then re-entered into the payments system. When American banks received the transfers, they seemed to have originated at Lloyds.

Worried that they might be violating American law, senior officials at Lloyds stopped the stripping operation for Iranian banks in 2004, but transfers from Sudan were stripped as recently as 2007.

Under the agreement between Lloyds and Mr. Morgenthau, no employees, officers or the bank will be charged with a crime unless evidence emerges that the bank or its employees and officers knew that specific transfers were sent to or by terrorist groups or “proliferators of weapons of mass destruction.” The agreement lasts for two years.

In recent years, officials in the Treasury have stepped up a campaign to have foreign banks sever links with Iranian banks, which they accuse of providing support for groups like Hezbollah and Hamas, in addition to financing Iran’s own nuclear ambitions.

In November, the Treasury barred American financial institutions from handling certain money transfers for Iranian interests that had been previously allowed, closing what it described at the time as the “the last general entry point for Iranian banks.” Certain exceptions are still allowed for humanitarian aid and remittances.

In December, federal authorities moved to seize the assets of the Assa Corporation, which the Treasury says is a front for Bank Melli, Iran’s largest bank. Assa owns a stake in a Midtown Manhattan office tower.

Mr. Morgenthau’s office had been investigating ties between the Iranian government and Assa and a related entity, the Alavi Foundation, since 2006. Mr. Morgenthau said evidence unearthed in that investigation led his office to inquire about money transfers made through Lloyds.