By Jessica Hodgson
LONDON--U.S. and U.K. authorities are talking to Royal Bank of
Scotland Group PLC (RBS) about the possibility that it breached
sanctions on Iran, a person familiar with the matter said
Wednesday, days after the U.K.'s Standard Chartered PLC (STAN.LN)
settled with a New York regulator amid allegations that it broke
U.S. money-laundering rules on Iran.
The person said that RBS, which is 82%-owned by the U.K.
taxpayer, was in negotiations with the U.S. Federal Reserve and
Department of Justice on whether it had complied with economic
sanctions on Iran. The person stressed that the discussions had
been initiated by RBS' current management, as opposed to the
authorities. Two people familiar with the matter said the U.K.'s
Financial Services Authority was also talking to RBS.
An RBS spokeswoman pointed to disclosures made alongside the
bank's half-year results earlier this month--which she said had
first been disclosed 18 months ago--that the bank "has initiated
discussions with U.K. and U.S. authorities to discuss its
historical compliance with applicable laws and regulations,
including U.S. sanctions regulations."
RBS "may become subject to formal and informal supervisory
actions and may be required by its U.S. banking supervisors to take
further actions and implement additional remedial measures," the
half-year statement continued, warning that these actions "could
have a material adverse effect on the group's net assets, operating
results or cash flows in any particular period."
The statement didn't name Iran, but the person familiar with the
matter confirmed that many of the questions on historical
compliance relate to whether RBS complied with Iran sanctions.
RBS' disclosure raises the possibility that it may ultimately
face a fine, adding to a long list of issues the Edinburgh-based
bank is grappling with as it seeks to pare back a previously
bloated balance sheet and restore a reputation that was damaged by
its near-collapse in the aftermath of the financial crisis. The
bank was bailed out by the U.K. government in 2008.
The bank has pledged to get rid of the bulk of the remnants from
a troubled history of acquisitions and ill-fated expansions by the
end of 2013. Earlier this month, RBS said that noncore assets had
shrunk to GBP72 billion ($112.3 billion) from the peak of GBP258
billion reached in 2008, just after RBS had to be saved by U.K.
taxpayers.
It also comes against a backdrop of a wave of scandal that has
hit British banks this summer, setting back their attempts to
recover from the financial crisis.
Barclays PLC (BCS) in June said it had settled with U.K. and
U.S. regulators to the tune of GBP290 million amid accusations its
traders had deliberately rigged a benchmark interest rate, the
so-called London Interbank Offered Rate.
That scandal, which led ultimately to the departure of bank
Chairman Marcus Agius, Chief Executive Bob Diamond and Chief
Operating Officer Jerry del Missier, followed a political uproar
that saw senior executives hauled in front of a committee of
lawmakers. A number of other major world banks--among them
RBS--remain under investigation by authorities over alleged Libor
manipulation.
Shortly after the Barclays scandal, a U.S. Senate committee
attacked HSBC Holdings PLC (HBC) for allegedly handling money for
drug gangs and terrorist groups. In a statement accompanying the
U.S. Senate hearing, HSBC said it recognized "that its controls
could and should have been stronger and more effective in order to
spot and deal with unacceptable behavior."
Standard Chartered weeks ago agreed to pay $340 million to a New
York regulator to settle allegations that the bank broke U.S.
money-laundering laws in handling transactions for Iranian
customers, after a weeklong, transatlantic regulatory drama.
The person said that the New York regulator that made the
accusations against Standard Chartered, the Department of Financial
Services, isn't talking to RBS.
-Write to jessica.hodgson@dowjones.com
(Max Colchester contributed to this article.)