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The Rise and Fall of Rajat Gupta

Dear Member/s,

This is not good news, information article (that I normally share) that I would want to send it out to all. Nevertheless, nothing will stop it – this will be on every media websites, blogs, newspapers/publications, TV News you name it with everyone from politicians (both placed India, US) to business titans (globally) to analysts and finally ordinary individuals (incl. me) will be talking on justice or rather injustice that has happened in Mr Rajat Gupta case. Legal eagles will continue to scout around for some or the other loop-holes etc.. to save the day (rather face) and of-course Mr Gupta.

Keep aside law, business, relationships..etc..etc; The Truth is very simple – Mr Gupta slipped up heavily on “Ethics and Moral” part and this is to say in legal parlance “beyond a reasonable doubt” as described by Judge in-spite of all his good deeds and contributions till date.

The other thing that will be remembered in this lawsuit will be that - in far of land it was and Indian who brought down another Indian although they may be US citizens.

(P.S. – These views are personal)

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(Source: The Wall Street Journal)

Rajat Gupta's impending journey into the federal prison system for criminal insider trading ends a remarkable success story and punctuates his swift fall from grace.

A native of Kolkata, Mr Gupta, 63 years old, moved at a young age to New Delhi. His father, Ashwini, a disciple of Mohandas Gandhi, was jailed for years in the fight for independence from the British and later was a journalist. His mother, Pran, was a Montessori schoolteacher and principal.

Both died by the time he was in his teens, his father of tuberculosis contracted in an Indian prison, according to one of Mr Gupta's daughters. Still, Mr Gupta thrived both academically and as an anchor for his family. He studied engineering at the Indian Institute of Technology in New Delhi, where he was a "a big man on campus, bright, talented, popular," and head of student government, according to his wife, Anita, who met him there taking part in a one-act play in 1968. He wrote his essays to apply to Harvard Business School in a local coffee shop.

"It seemed like such a dream," Anita Gupta wrote in a letter last month to the judge who sentenced him Wednesday for giving a hedge-fund manager inside information about Goldman Sachs Group Inc., where he was a director. Mr Gupta agonized when he was accepted to Harvard about leaving his siblings, his wife added, but "decided it was an opportunity he could not afford to miss."

He came to the U.S. in 1971, delivering newspapers at Harvard to help support himself. Two years later, in New York, he broke into McKinsey & Co., a top-tier consulting firm for America's most powerful corporations, and rose through the ranks. At 45, in 1994, Mr Gupta became the first Indian-born chief of a U.S. international corporation. He served in that role until 2003.

Besides breaking ground in the U.S., Mr Gupta's success inspired people in his home country. McKinsey was one of a few global companies in which many Indians made their careers, but Mr Gupta blazed the trail for other Indians who joined the small club of multinational CEOs, including former Citigroup Inc. Chief Executive Vikram Pandit and PepsiCo Inc. Chairman Indra Nooyi.

He routinely visited India and maintained close ties with senior business leaders in India and was consulted by the Indian government on policy issues.

"He was a hero from an Indian perspective," said Richard Rekhy, head of advisory services for consulting firm KPMG in India.

Mr Gupta lived in Chicago for a time and eventually moved to Connecticut, where he and his wife live in Westport, on the Long Island Sound. They have four daughters and two grandchildren.

Having the ears of corporate chieftains, Mr Gupta became active in philanthropic and academic endeavours, serving in advisory roles at Harvard and the Kellogg School of Management. Mr Gupta worked with former President Bill Clinton in leadership roles at the American India Foundation and as chairman of the Global Fund to Fight AIDS, Tuberculosis and Malaria.

He was viewed as a master networker, establishing relationships through his philanthropy with Mr Clinton, Microsoft Corp. co-founder Bill Gates and Hank Paulson, the former Goldman CEO and Treasury Department secretary. Mr Gupta and his wife were among the list of invited attendees to President Barack Obama's first state dinner, according to a list released by the White House.

It was through the creation of the Indian School of Business in Hyderabad in the late 1990s that Mr Gupta met the man who would help bring about his downfall. A mutual friend, Anil Kumar, asked for donations from Raj Rajaratnam, founder of the Galleon Group hedge fund, who pledged $1 million, according to testimony at Mr Gupta's trial. Mr Rajaratnam was convicted of insider trading last year and sentenced to 11 years in prison.

Mr Kumar, who was Mr Gupta's protégé at McKinsey, pleaded guilty to giving the Galleon chief unrelated tips, testified at both men's trials and recently received a sentence of probation.

Messrs’ Rajaratnam and Gupta became friends. The ability to cultivate contacts, along with their South Asian heritage, was a quality Mr Gupta shared with the 55-year-old Mr Rajaratnam, a Sri Lankan native.

Messrs’ Gupta and Rajaratnam had vastly different personal styles. The square-jawed Mr Gupta was quiet and distinguished; Mr Rajaratnam was rougher around the edges and enjoyed practical jokes, people who know them said. Though Mr Gupta had a more public persona, the billionaire Mr Rajaratnam was far richer.

Mr Gupta often would have lunch with Mr Rajaratnam in the hedge-fund manager's office, ordering Indian or Chinese food.

Starting around 2003, he and Mr Rajaratnam began investing millions of dollars together, according to court documents from his trial, both in vehicles related to Galleon and in an Asia-focused private-equity fund Mr Gupta had helped to start.

In the ensuing years, Mr Gupta leaked Mr Rajaratnam inside information, both because of their friendship and business dealings, prosecutors said.

They said Mr Gupta became a "secret pipeline" to Mr Rajaratnam from 2007 until early 2009 for inside information on the boards of Goldman and Procter & Gamble Co. He provided advance tips about, among other things, a $5 billion investment in Goldman by Warren Buffett's Berkshire Hathaway Inc. at the height of the financial crisis and the investment bank's first quarterly loss as a public company, the government said.

After the conviction of Mr Rajaratnam in May 2011, friends said, Mr Gupta seemed worried and nervous about his own future. "He was distraught. He seemed upset," Anand "Bill" Julka, a childhood friend, previously told The Wall Street Journal.

Six months later, Mr Gupta was indicted, surrendering to federal agents. He decided to go to trial instead of pleading guilty as many other defendants have, hoping to beat back the largely circumstantial case, sitting straight-backed through the month long proceedings, his wife and daughters right behind him. Unlike in the case against Mr Rajaratnam, prosecutors had only one substantive wiretapped phone call of Mr Gupta and pieced together the case through phone and trading records.

Mr Gupta's lawyer, Gary Naftalis, told the jurors who convicted him on four of six counts that Mr Gupta had no idea about Mr Rajaratnam's "secret world" of insider trading and argued unsuccessfully that a falling out over a failed investment had negated his motive to leak. Nor did he personally trade on inside information, although prosecutors said he benefited from his business relationships with Mr Rajaratnam.

Mr Gupta, despite his desire to testify in his own defense, took his lawyers' advice and remained silent. Jurors, some of them shedding tears, ultimately convicted him on three counts of securities fraud and one count of conspiracy. He was acquitted of two counts of securities fraud, including the only one relating to P&G.

"We wanted him to walk, go home to his family, live a very prosperous life," juror Ronnie Sesso, a 53-year-old youth advocate in New York, said in an interview after the verdict. "I struggled with everything…but looking at the evidence made it clear."

Since then, Mr Gupta has spent time trying to console his family, helping one daughter rearrange her Boston home. His lawyers sent more than 400 letters seeking leniency to District Judge Jed Rakoff, from the likes of Mr Gates, former U.N. Secretary-General Kofi Annan, and many others. Mr Kumar's 25-year-old-son, Aman, who had called Mr Gupta "Rajat uncle" growing up, wrote one, too.

"Often these days, I see my father and notice an unfamiliar look of fear on his face," wrote his daughter Megha. "I'll put my arm on his shoulder and say, 'Don't worry, Baba.' He moves quickly to compose himself: 'I'll be all right, baby. Are you all right?' "

Harvard University probes largest mass cheating scandal

NEW YORK: About 125 Harvard University undergraduates are being investigated for cheating in a final exam last year, the largest academic misconduct scandal in the prestigious institution's history.

The Harvard College administrative board is reviewing the allegations of "academic dishonesty," ranging from "inappropriate collaboration to outright plagiarism, on a take-home final exam," dean of undergraduate education Jay Harris said in a note sent to students.

A comprehensive review of every exam from the class found that nearly half of the 279 enrolled students may have worked together in groups to develop and share answers.

Harris said the magnitude of the case is "unprecedented in anyone's living memory."

The students whose work is under review have been contacted by the board, which will meet with each student separately seeking to understand all the relevant facts and to determine whether any faculty rules were violated.

Students found responsible of academic dishonesty could face disciplinary actions including withdrawal from the college for a year.

"We take academic integrity very seriously because it goes to the heart of our educational mission," said Michael Smith, dean of the Faculty of Arts and Sciences, who sent a letter to the FAS faculty to outline actions the faculty can take to reinforce Harvard's academic policies.

"Academic dishonesty cannot and will not be tolerated at Harvard."

While neither the course nor the name of students allegedly involved was revealed, Harvard Crimson, the university's student newspaper, said the students were enrolled in the 'Introduction to Congress' class taught by assistant professor Matthew Platt.

"These allegations, if proven, represent totally unacceptable behavior that betrays the trust upon which intellectual inquiry at Harvard depends," said Harvard University president Drew Faust.

"We must deal with this fairly and through a deliberative process. At the same time, the scope of the allegations suggests that there is work to be done to ensure that every student at Harvard understands and embraces the values that are fundamental to its community of scholars."

The allegations surfaced last semester when the faculty member teaching the course questioned the similarities between a number of exams and referred them to the board.

After reviewing the exams and interviewing students who submitted them, representatives of the board initiated the broader review in consultation with the faculty member.

The board has not come to any judgment about specific cases.

Smith cautioned that the allegations should not lead people to draw broad conclusions.

"We must also not forget that the vast majority of our students complete all their assignments honestly, diligently, and in accordance with our regulations and practices," Smith said.

"Allegations of inappropriate collaboration or plagiarism in a single class should not be allowed to diminish the good work or reputation of our outstanding student body."

The administrative board is responsible for evaluating requests for exceptions to academic policies and review of students' academic performance.

Forensic accounting is a career to count on

Source: By Laura Raines, For the AJC

They don’t carry guns or engage in car chases, but forensic accountants are among this century’s greatest crime fighters.

U.S. News & World Report listed these financial watchdogs as one of eight “careers to count on” in 2002. A rise in white-collar crime, an increase in oversight regulations and the globalization of business continue to give this occupation staying power.

“I wouldn’t have dared consider a career in law enforcement, but an investigative career that fights the kind of crime that stays on the books and papers, I thought sounded interesting,” said Jenna Green, assistant associate with Porter Keadle Moore, LLP (PKM), an Atlanta-based, full-service accounting firm.

Green was headed for a degree in marketing when she took Accounting 101 at Georgia Southern University as an undergraduate.

“My professor told me I’d be a good candidate for the university’s new forensic accounting program, so I looked into it,” said Green. She graduated with a Master of Accountancy degree with a concentration in forensic accounting in December 2008 and began work as an auditor at Porter Keadle Moore in January 2009.

“Besides the normal accounting skills, forensic accountants need that extra critical eye to look at financial records and be able to see suspicious activity [like embezzlement, theft, financial misappropriations or money laundering],” said Green. “Surprisingly, the other skill they need is an ability to read people. It’s all about interviewing and client interaction. You’d be surprised at how many people skills it takes.”

At this stage in her career, Green is doing less investigating and more prevention of fraud when she audits her clients’ books. She identifies areas where fraud could be perpetrated.

“All executives are more aware of white-collar crimes because of high-profile cases like [Bernard] Madoff’s [multibillion-dollar Ponzi scheme]. It’s important for all accountants and managers to be aware of potential fraud,” said Green. “I enjoy working with clients to help them make their company environments stronger.” She’s learned that if small-scale fraud is left unchecked, it usually escalates.

Statistics show that white-collar crimes are on the rise. The Treadway Commission has examined corporate fraud for three decades. Its study, “Fraudulent Financial Reporting: 1998-2007,” saw a rise in the number of alleged accounting fraud cases investigated by the U.S. Securities and Exchange Commission.

There were 347 cases, compared with 294 in the decade before. But the real growth was in the dollar amount involved per case. With high-profile, high-cost cases like Enron, Tyco International and WorldCom, the mean dollar figure rose to nearly $400 million per case, as compared with $25 million in the prior 10 years.

Almost all companies are susceptible to risk, according to the Association of Certified Fraud Examiners, which publishes an annual report. Its global study, the “2010 Report to the Nations on Occupational Fraud and Abuse,” estimated that the typical organization loses 5 percent of its annual revenue to fraud. Based on the 2009 gross world product, that figure translates to potential fraud loss of more than $2.9 trillion.

“Financial fraud impacts everyone by increasing the cost of living, raising the costs for goods and services and adding the need for corporate procedures to prevent and detect fraud to the cost of doing business,” said Don Berecz, director of the Center for Forensic Studies in Accounting and Business at Georgia Southern University.

Many universities offer one or two forensic courses now in their accountancy programs. “Few have a program as extensive as ours,” said Berecz. Georgia Southern offers a 10-course forensic accountancy program with two tracks. Undergraduates from a variety of majors can take five courses to complete the fraud examination track. Accounting majors can take an additional five courses as part of their Master of Accountancy degree with a specialization in forensic accounting.

The center and PKM also sponsor a Fraud and Forensic Accounting Education Conference each year. Experts from the field will gather in Savannah on June 2-4 this year.

Berecz, a former financial investigator with the FBI, said that students who want to learn the investigative process need to be curious, pay close attention to detail, and have a never-give-up attitude and good people skills.

“The fraud examiner track is interdisciplinary, and we’ve drawn students from criminal justices, IT, political science, even hotel and restaurant management, because fraud permeates all areas of society,” he said.

His graduates go on to work at accounting firms, corporate security and risk management divisions, law firms, financial consulting firms and government agencies such as the FBI or IRS.

“Forensic accountants and fraud examiners have a tangible and practical skill set that makes them very valuable in today’s market,” said Greg Esslinger, an Atlanta managing director with FTI Consulting, a global business and economic advisory firm.

A lawyer with financial skills, Esslinger spent almost six years with the FBI working in international counterintelligence and financial-related investigations.

“These skills are needed because corporations have a growing legal responsibility towards the public, their employees and shareholders to police themselves and their financial records,” said Esslinger. “Corporate accountability has grown, and the government has gotten more sophisticated about what it requires through financial reform legislation.”

The Sarbanes-Oxley Act in 2002, passed to prevent future Enron debacles, and the more recent Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 have spurred growth in accounting and auditing fields. Demand is projected to grow by 22 percent through 2018, according to the Bureau of Labor Statistics. The U.S. Sentencing Guidelines for fraudulent crimes have standardized penalties in the court system, encouraging prosecutors to go after more fraud offenders.

“As companies become more global, their obligation to ferret out fraud expands exponentially, and it creates greater challenges to be accountable across global markets,” he said.

“That means that forensic accountants and fraud examiners are going to be around for a long time and have an increasingly wide choice of career paths. Consulting firms, like ours, and accounting firms are hiring. The pay straight out of college is respectable, and the opportunities for advancement are significant,” said Esslinger.

He advises anyone interested in the field to talk to someone working in it, learn the trends and tailor their education accordingly. “This industry is complex and rapidly changing,” he said, “but I enjoy it a lot. There’s rarely a dull day.”

Fines paid by global banks helps US Regulators a revenue of USD 3 Bn since 2009 - A snapshot

Sr. No	Bank Name	Description
1.	ING Bank NV	The bank was accused of covering up billions of dollars in fund transfers that violated U.S. sanctions against Cuba and Iran by concealing the source of the transfers in a process known as stripping. The investigation centered on an ING subsidiary at the time, the Netherlands Caribbean Bank.   This was the largest money settlement record in US by the Dutch bank agreeing to pay 619 Mn
2.	Lloyds TSB Group PLC	The U.K. bank reached an agreement with the Manhattan district attorney’s office and the U.S. Department of Justice in January 2009 to pay $350 million in fines and forfeiture for allowing Iranian and Sudanese clients access to the U.S. banking system. Later in December 2009, it reached another $217 million settlement with the U.S. Treasury.
3.	Credit Suisse Group	In December 2009, U.S. regulators fined Credit Suisse $536 million, ending a five-year investigation in which the U.S. said the Swiss bank helped clients in Iran, Libya, Sudan, Myanmar and Cuba conduct financial transactions in secret between 2002 and April 2007. Half of the total fine was divided between New York City and New York state. “In both its scope and its complexity, the criminal conduct perpetrated by Credit Suisse in this case is simply astounding,” U.S. Attorney General Eric Holder said at the time, adding that the fine would had been even higher had Credit Suisse not cooperated in the investigation.
4.	ABN AMRO Holding NV/Royal Bank of Scotland Group PLC	The Dutch bank agreed to pay $500 million in April 2007 to regulators after an investigation found ABN conducted transfers for Libya and Iran through New York. ABN’s settlement came just as the Dutch bank was the target of a bidding war involving Barclays PLC and a consortium led by RBS. ABN had already agreed in 2005 to pay $80 million over laundering laxity. The $500 million fine was settled by RBS, which later acquired ABN Amro, in May 2010.
5.	Barclays Bank Plc.	In August 2010, Barclays agreed to pay $298 million to settle charges by U.S. and New York prosecutors relating to client payments from Cuba, Sudan and other places under U.S. sanctions for a roughly 11-year period until September 2006. Barclays was accused of using opaque methods of payment messages, known as cover payments, to obscure transfers. The deal included an agreement that allowed the bank to escape prosecution for two years if it cooperated with government investigators and implemented new training and compliance programs.   Separately, in June of this year, Barclays settled a probe by U.S. and U.K. regulators that its traders rigged the London interbank offered rate benchmark, or Libor. Barclays paid $452 million to the U.K. Financial Services Authority and the U.S.’s Commodity Futures Trading Commission and Department of Justice Fraud Section
6.	HSBC Holdings PLC	The U.K. lender said it has set aside $700 million to cover potential fines following a U.S. Senate report alleging that some of HSBC’s global operations were used by money-launderers and potential terrorist financiers. HSBC’s Mexico unit paid $27.5 million in fines to the country’s regulator after the Senate probe found it shipped billions in bank notes by car or aircraft to the U.S.
7.	Standard Chartered Plc.	Standard Chartered PLC has reached a settlement to pay $340 million to U.S. regulators over money-laundering allegations involving Iranian customers

HSBC's BSA Violations Set Example

OCC's Message: 'It's Absolutely Critical to Be Fully Compliant'
By Tracy Kitten, October 8, 2010, Bankinfo Security

HSBC Bank North America (USA) says it's taking seriously the cease and desist order filed against it earlier this week by the Office of the Comptroller of the Currency. The $186 billion institution says it has already launched ongoing efforts to address its non-compliance with certain requirements set forth by the Bank Secrecy Act. "We've taken a number of actions and we will continue to focus on improving," says Rob Sherman, HSBC North America's vice president of public affairs. "The key areas of action we are taking include staffing, systems and advisory services."

The OCC on Thursday announced that it had issued a cease and desist order against HSBC USA for violating the BSA. Regulators issued the order with the bank's parent company, HSBC North America Holdings Inc., to ensure compliance within the overall holding company's risk-management program. At the heart of the order is the OCC's finding that HSBC's BSA compliance program had deficiencies in the areas of suspicious-activity reporting, the monitoring of bulk-cash purchases and international funds transfers, customer due diligence relating to foreign affiliates and risk assessment.  Sam Ditzion, CEO of Boston-based Tremont Capital Group, a financial-services consultancy, says the OCC is sending a message that non-compliance with the BSA and other regulations is not going to be taken lightly. "The OCC's announcement sends a loud and clear message to all other institutions with domestic operations that it's absolutely critical to be fully compliant with all aspects of the Bank Secrecy Act and similar regulations that mitigate money-laundering risk," Ditzion says.

Cease and Desist: What It Means for HSBC

Kevin Sullivan, a former investigator with the New York State Police and director of the New York-based Anti-Money Laundering Training Academy, says the OCC's cease and desist order means HSBC is now mandated to address inefficiencies that financial regulators discovered within the bank's anti-money-laundering program. "This can have some dramatic economic effects on the bank in several ways," Sullivan says. "Reputation damage, the cost of making the repairs and bringing the program up to the satisfaction of the regulators, and any potential fines that could be levied against it."
 Moving forward, the OCC's order requires HSBC USA to implement corrective actions and be subject to periodical reviews - reviews to be conducted by a Compliance Committee put in place by the bank's board of directors.  According to the OCC, HSBC's oversights resulted in violations of statutory and regulatory requirements. Between mid-2006 and mid-2009, the OCC found that HSBC did not monitor so-called bulk-cash transactions with its foreign affiliates - affiliates in which HSBC North America's parent, England-based HSBC Group, holds a majority interest. The bank also reportedly conducted bulk-cash wire transfers and purchases without due diligence, which limited the bank's assessment of customer risk and the identification of suspicious activity. Ultimately, because of those oversights and others, the bank was unable to "disposition its alerts appropriately or to comply fully with its obligation to report suspicious activity on time," the OCC found.

'We Are Accountable'

The order is not an unusual one, Sullivan says, but when news of a cease and desist order against a bank of HSBC's size is made public, it gets attention. "Some banks are victimized by their own size and popularity," he says. "You rarely hear of an action against a small bank in the national media. However, when HSBC, Wachovia or the Vatican Bank is subjected to some type of action, it tends to make headlines."
 Sullivan is quick to note that the case is one every banking institution should take to heart. "Any good AML (anti-money laundering) compliance director should be reviewing these types of enforcement actions, and then take the time to analyze their own program to make sure that they are compliant and not making similar mistakes."
HSBC says it has been reviewing and improving its anti-money-laundering practices since August, when internal investigations were already underway. "Regulatory complexity is an interesting back-story, but doesn't change our view that we fell short of the expectations of our regulators, and we fell short of our own expectations," Sherman says. "We are accountable, and we take full ownership for putting things right, now, and keeping them right going forward."

SCB's $340MM Penalty Signals Change

London Bank Settles with N.Y. for Loose Bookkeeping
By Tracy Kitten, August 22, 2012, Bankinfo Security

A $340 million settlement reached last week between a New York regulator and London-based Standard Chartered Bank should serve as a wake-up call to all financial institutions. The settlement illustrates how state regulators can impose hefty penalties for failure to comply with state-mandated bookkeeping practices tied to foreign transactions in cases that also involve alleged violations of the Bank Secrecy Act.

The claims made by the New York regulator against SCB mark the first time a state agency has reached a settlement with a federally regulated institution for alleged violations tethered to BSA compliance.

While some observers say state regulators acted appropriately in enforcing their requirements, others say they overstepped their authority in an investigation that largely involved alleged violations of federal law.

One expert with a legal background that touches on Office of Foreign Assets Control programs and BSA compliance, who asked not to be named, says demanding that a bank pay $340 million to a state agency is unprecedented.
 "That's certainly not a small amount, considering that this is an action by a state regulatory body," when other enforcement agencies also are involved, the expert says.
In an Aug. 6 order, the New York State Department of Financial Services asked SCB to answer a number of questions about alleged violations to its state charter, including failure to maintain accurate books and records, falsifying books and reports, obstructing governmental administration and failure to report crimes and misconduct. The order, which asked the bank to appear before the department on Aug. 15, also accused SCB of conducting about $250 billion worth of unauthorized transactions with Iran, in violation of BSA.

On Aug. 14, the bank opted to enter the settlement agreement. In addition to paying a hefty civil penalty, the bank agreed to hire an independent monitor who will report directly to the state for the next two years about SCB's money-laundering risk controls and corrective measures. State examiners also will be placed onsite at the bank. And SCB agreed to hire permanent personnel at its New York branch to oversee and audit offshore money-laundering due diligence and monitoring.

The Allegations

In its order, the department accused SCB of moving at least 60,000 secret transactions worth about $250 billion through its New York branch for Iranian financial institutions - institutions that were subject to U.S. economic sanctions. The department claims the bank covered up its transgressions by falsifying records, and that the external auditing firm, Deloitte LLP brought in to review SCB's BSA practices, assisted with the cover-up.

SCB has denied the allegations, and in a response said it does not believe the order presents a full and accurate picture of the facts.

Deloitte also has denied the conspiracy allegations, according to a statement provided earlier this month to Reuters.

Was the State's Action Fair?

Some financial-fraud experts have suggested Benjamin Lawsky, who's heading up New York's newly created State Department of Financial Services, overstepped his bounds.

For example, the legal expert who asked to remain anonymous contends the state was failing to coordinate with other agencies when it filed its order against SCB, especially considering federal regulators have not yet completed their investigation into the alleged sanctions violations related to financial transactions with Iranian banks.

"Let's remember, this is for violations to New York state laws, based on incomplete books and records," the expert says. "This has nothing to do with the payments from Iran, which are subject to federal regulation, not state regulation. And there is no evidence so far from the federal regulator or the Treasury Department that there was a violation in that area."

But Charles Intriago, the president and founder of the Association of Certified Financial Crime Specialists, disagrees.

"Nothing says Lawsky has to be subservient to federal regulators when state interests are at risk," says Intriago, a former federal prosecutor who in 2001 also founded the Association of Certified Anti-Money Laundering Specialists. "Personally, I say more power to him."

Sign of the Times?

Intriago says the state had every right to issue an order against SCB for questionable transactions, and he believes the bank got off easy.

"There were a number of items that the state cited in its order, and the amount the bank paid is chump change, especially for a bank like SCB," he says. "Banks need to know, when they try to hide information or make false statements, criminal actions could be brought against them."

The bottom line, Intriago says: Banking institutions going forward will have to honor obligations to federal regulators as well as regulators who oversee financial transactions in the states where they are chartered.

"Especially for banks that come to the U.S. to operate from overseas, when they get a federal charter, they have to realize that the state charter carries just as much importance," Intriago says.

Similar claims against other foreign-based institutions, such as HSBC Holdings, which since 2003 has faced a number of compliance violations for lax BSA practices, illustrate the breadth of the problem, experts say

One AML expert closely involved with the HSBC case, who would not speak for attribution, says more enforcement is going to have to come from governmental agencies before banks' make serious strides to comply with federal sanctions and AML requirements.

"Ultimately, it's a problem with the culture of compliance," the expert says. "International banks' culture of compliance is typically very poor. It just comes right down from the top, and it goes back a long time. And the fines handed out by the Feds aren't enough."

This expert says international institutions can expect to see more scrutiny from all regulators. "The money of the world still runs through the U.S., and that's why we have to take this seriously," the expert says. "And if you are not going to follow the rules of this country, then don't do business here. It's that simple."