Latest British banking scandal: Standard Chartered

[Sheilbh]

Again, exposed in the US

Standard Chartered Bank accused of scheming with Iran to hide transactions
British bank named in scathing report by regulators which claims SCB helped Iranian clients skirt US financial sanctions
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Dominic Rushe in New York and Jill Treanor in London
guardian.co.uk, Monday 6 August 2012 18.44 BST

Standard Chartered Bank ran a rogue unit that that schemed with Iran's government to hide more than $250bn (£160bn) in illegal transactions for nearly a decade, according to a scathing report by New York regulators.

According to the report filed by the New York state department of financial services (NYSDFS), when challenged a US colleague, a Standard Chartered executive caustically replied: "You fucking Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians."

About 60,000 transactions were involved and the bank was "apparently aided" by its consultant Deloitte & Touche in hiding details from regulators.

The bank could lose its license to trade in New York, a potentially devastating blow, and has been summoned to a meeting with the regulator on 15 August.

Shares in the London-listed bank dropped sharply in the final seconds of trading when the report was published just as London's stock market was closing. The shares had been higher before they slumped 6% to £14.70 to the biggest faller in the FTSE 100.

The attack on Standard Chartered – accused of "willful and egregious violations of law" – is a severe blow to the reputation of the bank, which until last night had been regarded as the most solid of any of the London-listed banks after the 2008 taxpayer bailouts, the more recent Libor rigging scandal at Barclays, and the money laundering offences at HSBC.

Its top management team – chief executive Peter Sands and finance director Richard Meddings – have been held in such regard that only last week they were fending off questions about their potential candidacies for governor of the Bank of England or joining Barclays in the wake of the Libor scandal.

The 27-page report claims Standard Chartered bankers helped Iranian clients skirt US financial sanctions against their country for close to a decade.

Benjamin Lawsky, superintendent of the NYSDFS, said a Standard Chartered subsidiary in New York had also sought to do business with other US sanctioned countries including Libya, Burma and Sudan.

Financial transactions with Iran have been subject to US sanctions since 1979. Limited, highly scrutinised transactions known as "U-turns" were allowed as long as the money ends up in non-Iranian banks.

In 2008 the US treasury revoked authorisation for U-Turn transactions because it suspected Iran was using its banks to finance its nuclear weapons and missile programmes and to finance terrorist groups, including Hezbollah and Hamas.

According to Lawsky, Standard Chartered set up an operation known as "Project Gazelle" aimed at helping Iranian banks put money through the US financial system.

According to the report:

For almost 10 years, SCB [Standard Chartered Bank] schemed with the government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250bn, and reaping SCB hundreds of millions of dollars in fees. SCB's actions left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity ... In short, SCB operated as a rogue institution.

In one example from 2001 detailed in the report Standard Chartered was approached by Iran's CBI/Markazi, Iran's central bank, to act as recipient for daily oil sales from the National Iranian Oil Company.

Iranians warned the bank that disclosure of their identities to US banks would cause "unacceptable delays in clearing funds," according to the report.

The bank took legal advice and was told it "should ascertain that the payments are authorized". Instead it "conspired with Iranian clients to transmit misinformation to the New York branch by removing and otherwise misrepresenting wire transfer data that could identify Iranian parties," the report claims.

It won't be long before they move to Hong Kong anyway.  This could hasten their departure.  Again, though, I'm wondering why British regulators weren't discovering this

[Ed Anger]

a Standard Chartered executive caustically replied: "You fucking Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians."

Enjoy the US Government assrape, Nigel. 

[MadImmortalMan]

Please tell me JP Morgan is highly exposed...

[Grallon]

Will nobody bring these robber-baron bankers to heel!?



G.

[garbon]

Will nobody bring these robber-baron bankers to heel!?



G.

Didn't they bring money into US banks?

[mongers]

Shelf, would you gave to reconsider your recent post about regulation in the other thread ?   

[Admiral Yi]

Please tell me JP Morgan is highly exposed...

  You're going down sucka.

[The Minsky Moment]

Very interesting case for some inside baseball reasons.

One interesting dynamic is continuing trend, since the days Spitzer was NYAG for New York State regulators to act as wild cards.  Particularly an issue here since this is the first high-profile use by NYDFS of its new enforcement powers, and the feds, who were investigating jointly or in parallel, apparently are pretty unhappy that this was released without prior consultation.

Another interesting wrinkle here is that Stan Chart made the tactical decision to waive attorney-client privilege in dealing with the investigations; as a result the DFS order relies heavily on documents that ordinarily would be hidden from view under privilege.

The case also raises some interesting issues about the roles of inhouse counsel, and the practice of offshoring certain compliance functions, all of which come into play here in a significant way.

Although the  UK bank regulatory authorities can easily be critized for their ineffectiveness over the years, I don't think this is a good example of failure on their part - I wouldn't expect them to dedicate their resources to enforcing US foreign asset control regulations.

[The Minsky Moment]

It won't be long before they move to Hong Kong anyway. 

that won't help them b/c they will still need to be able to transact in US $

[Josephus]

Most importantly will this effect Liverpool FC?

[Jacob]

Again, exposed in the US

I was reading a business piece, in the globe and mail I believe, saying that there's a perception that the US treats US and UK banks very differently in an attempt to move the business from London to New York.

Apparently Standard Chartered had come clean about what they'd done and were working with the responsible Federal authorities to deal with it, when the newly created New York state body busted in and levelled the accusations.

This wasn't the article I read, but here's another one on the subject: http://www.theglobeandmail.com/report-on-business/international-business/european-business/bank-of-england-governor-questions-us-approach-to-stanchart-probe/article4469935/

[The Minsky Moment]

I was reading a business piece, in the globe and mail I believe, saying that there's a perception that the US treats US and UK banks very differently in an attempt to move the business from London to New York.

Apparently Standard Chartered had come clean about what they'd done and were working with the responsible Federal authorities to deal with it, when the newly created New York state body busted in and levelled the accusations.

Perhaps not suprising from the G&M but this is a bunch of nonsense from start to finish.

1) If the intent is move business from London and NY, the regulators would do the exact opposite: they would make NY as attractive as possible for foreign banks to set up shop and move assets over.   I.e. they would do exactly what the UK did with their now notorious "light touch" regulatory concept, which was in fact deliberately designed to draw business to London. 

2)  This is not the US taking the action as the next paragraph indicates, its New York State.  The feds were actually a bit miffed about it.

3) The claim that UK banks are singled out is asinine. Check out the list of names on the wikipedia page for "List of cases of Attorney General Eliot Spitzer": : Bear Stearns, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, J.P. Morgan Chase, Lehman Brothers, Merrill Lynch, Morgan Stanley, Salomon Smith Barney, UBS Warburg on the Global Settlment - not a single Brit bank among them.  The late trading cases targeted US based hedge funds and mutual funds almost exclusively.  Then there were the almost deranged vendettas against Grasso and NYSE and Ace Greenberg at AIG.  If anything the bias is going after the Big Names on the Street: the state pols that head these agencies know that NY voters don't know Standard Chartered from Stan Musial; but everyone knows about the House of Morgan and the Vampire Squid.

There is a country bias here but the relevant country name is Iran, not Great Britain.  If the Bank of Mother Theresa and Mahatma Gandhi were caught mucking about with the Iranians, the state authorities would be nailing them to the wall because Iranian proliferation is a political issue of significance in New York. 

4) DFS isn't really newly created.  It's just the combination and rebranding of the old state banking department and insurance department, which date back to before the Civil War.  The new law beefed up the enforcement authority of the combined agency.

[Jacob]

Thanks for that Minsky.

In defence of the G&M, they were reporting various Brits airing those allegations, no claiming there was any merit to them.

What's your take on the whole "state level people not communicating with the feds" thing?

[Ed Anger]

Most importantly will this effect Liverpool FC?

Carroll still sucks.

[The Minsky Moment]

What's your take on the whole "state level people not communicating with the feds" thing?

it's hard to tell beause the sourcing is very vague: "people close to the case", etc.  It could be sources inside the fed agencies or it could be Stan Chart associated people shaping the narrative.  If it really is the former, it's an eyebrow raiser.  For a state finance agency to bring charges relating to federal regs enforcing US foreign policy while multiple federal investigations are proceeding, and to fail to give the feds the heads up until a few hours before going public, would certainly get the needle up on the chutzpah scale.