- Prosecutors said to be asking if firms gave improper advice
- Sullivan & Cromwell, Slaughter and May e-mails said requested
U.S. prosecutors are asking whether two law firms gave Standard Chartered Plc improper advice as they steered the bank through a sanctions-violations investigation, according to people familiar with the matter.
The Justice Department has requested a review of e-mails and other documents related to the bank’s communications with New York-based Sullivan & Cromwell LLP and London-based Slaughter and May, according to the people familiar with the matter. The prosecutors haven’t accused the law firms of wrongdoing.
In 2012, federal and New York state authorities penalized Standard Chartered $667 million to resolve allegations that the bank illegally helped move money through the U.S. financial system for clients linked to sanctioned countries. The bank acknowledged past criminal conduct and said it had upgraded compliance efforts. But its troubles didn’t end there: U.S. investigators reopened the probe in 2014, people familiar with the situation have said, to determine whether the bank had withheld evidence of Iran sanctions violations.
What prosecutors want to know now is whether the law firms improperly advised the London-based lender on the submission of certain information during the investigation that led to the 2012 settlement, the people said.
Spokesmen for law firms and the Justice Department declined to comment. A spokeswoman for Standard Chartered, which hasn’t commented on the recent investigation, also declined to comment.
The inquiry into what kind of advice the banks received on its disclosures could prove embarrassing for two of Wall Street’s go-to white-collar law firms. While phalanxes of lawyers have guided global banks through Justice Department scrutiny in recent years, law firms themselves have largely remained on the sidelines.
The law firms aren’t the first outside advisers to draw scrutiny in the Standard Chartered matter. Consulting firm Promontory Financial Group LLC paid $15 million last year to settle allegations by New York’s banking regulator, the Department of Financial Services, that it had “softened” some of its reports to regulators about Standard Charter’s compliance efforts, at times by request of the bank or its counsel.
Promontory agreed its actions hadn’t always met current agency requirements, the DFS said. The consulting firm said in a statement at the time that it was glad to have resolved the matter and remains committed to the quality and integrity of its work. A Promontory spokesman declined to comment for this article.
Standard Chartered hired the U.S. and U.K. law firms to represent it in the sanctions matter. That work led to the 2012 settlements over accounts it handled for clients linked to blacklisted parties in countries including Iran, Sudan and Libya.
The settlement included an agreement that deferred prosecution against the bank in exchange for cooperation with investigators, including terminating relationships with sanctioned firms and banks. New York’s regulator fined the bank another $300 million in August 2014 for not disclosing accounts that were considered vulnerable to money laundering. The bank, in a statement at the time, said it regretted deficiencies in controls at its New York branch and had begun remediation efforts. Around that time, U.S. and New York authorities extended the bank’s monitoring period by three years.
Banks rely on law firms for guidance on what they can and can’t do in how they run their business. Law firms often provide letters to companies outlining the legal limits of what can be done, which companies rely on to show they acted in good faith should a business decision come under scrutiny.
Encouragement to Disclose
As guilty pleas have proliferated across Wall Street for criminal misconduct ranging from sanctions violations to colluding to manipulate interest rates, firms have become more transparent with their disclosures to authorities. These disclosures are an important part of the settlement process, where the banks are encouraged to disclose any information about conduct that could be considered illegal before prosecutors discover it through their own investigations.
Rarely are lawyers and law firms taken to task for their opinion letters or advice. Even when a corporate decision is found to be at fault, the company may be able to minimize the penalty with the advice of counsel as a shield.