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A woman walks past a display board outside a branch of the Standard Chartered Bank in Hong Kong on Aug. 7. Standard Chartered Bank rejected allegations from U.S. regulators that it hid US$250 billion in transactions with Iranian banks for almost a decade in violation of U.S. sanctions. (Philippe Lopez/AFP/GettyImages)
On the surface, it looked like a simple game of “Gotcha,” when New York Bank regulators blew the whistle on London’s Standard Chartered Bank for laundering money. The fact that the money was allegedly tied to Iran cast a major shadow on the allegations, given the Islamic Republic’s “bad guy” image in American policy circles.
Big money was said to be involved when a New York state regulator, Benjamin Lawsky, considered a publicity-seeking cowboy in banking circles, made the explosive charge that Standard Chartered bank abetted $250 billion of money-laundering transactions with Iran.
The bank lost $16 billion after the unproven allegations hit the press.
On the surface the case was open and shut and headline-making, even though other federal regulators didn’t immediately jump in with guns blazing.
Lone Regulator
Then, as Reuters reported, it all became even murkier when Britain’s Central Bank governor portrayed Lawsky as marching to his own tune, and out of step with federal regulators in Washington.
“One regulator, but not the others, has gone public while the investigation is still going on,” the Bank of England’s Mervyn King said at a news conference in London.
Suddenly, the plot thickened, even as the media tide carried with it the assumption that the bank was guilty as sin. With the regulator calling Standard Chartered a “Rogue Institution,” its shares began dropping in value. In one morning’s trading, on the basis of accusations in a press release and uncontested legal charges, the bank lost $16 billion after the unproven allegations hit the press that U.S. sanctions on Iran had been violated.
Bank officials initially contested the scale of the transgression indicating that only a small part of its business with Iran was involved, no more than $14 million. Federal regulators also implied that New York state was exaggerating the scale of any potential problem and that Lawsky’s language was unnecessarily “strident.”
But it is strident language that gets attention in a media that rarely bothers to investigate issues like these.
Not mentioned in the first stories was that Standard Chartered had met Lawsky’s office months earlier, but nothing was said then about any high crimes and misdemeanors.
They coughed up $340 million in a case that smacks of official extortion dressed up as high principles.
They coughed up $340 million in a case that smacks of official extortion dressed up as high principles.
That would change when the opportunity for a big media story materialized. Now, Lawsky was treating this case as a major violation of national security, saying, “This is a case about Iran, money laundering, and national security.”
“We will continue to work closely with our law enforcement partners, both federal and state, in this effort. No bank, big or small, foreign or domestic, is above the law,” Lawsky said.
Sounds dramatic, doesn’t it? But the British were furious because their investigation was not complete, but, whatever the truth, the perception of wrongdoing began killing the bank’s stock price. An auditing firm accused by Lawsky of fudging the numbers also adamantly denied it.
Off-The-Record Comment
Bank critics in the United States lashed out at the British regulators who criticized a lack of protocol by the New York regulator. Wrote James Kwak on BaselineScenarioo.com, a leading economics blog:
“Standard Chartered almost certainly conspired to evade U. S. sanctions? Why are they mad at Benjamin Lawsky instead of at Standard Chartered? And when you think a violation of inter-regulator ‘protocol’ is worse than a systematic plan to defraud the U.S. government and break sanctions against Iran, of all countries—it’s hard to imagine how you could be more captured, without knowing it.”
Is this true? No court has agreed with the accusation, and now none will because there has now been a settlement with no admission of guilt.
Standard Chartered initially said it would fight back. CEO Peter Sands issued this statement, “(We) fundamentally reject the overall picture, and believe there are no grounds for them to take this action,” he told reporters. The threat to cancel the bank’s license to operate in New York would be “wholly disproportionate,” he said.
It turns out that the pressure to punish the bank was partly due to fury at a colorful comment allegedly made by a Standard Chartered executive who challenged the arrogance of New York regulators in a conversation way back in 2006.
Bank executive Richard Meddings allegedly said then: “Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”
