Foreign banks falling afoul of US regulators seems to be a recurring theme at present – Standard Chartered being the latest institution to feel the heat
The London-based bank stands accused of colluding with the Tehran authorities to launder more than $250bn of Iranian funds through its New York branch over a six-year period from 2001-2007, having first stripped out information from wire transfer messages that could be used to identify sanctioned countries, individuals and entities.
The accusations, detailed in a 27-page brief from banking superintendent Benjamin Lawsky, on behalf of the New York State Department of Financial Services, also claims the bank’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.” Strong words indeed.
In an equally robust rebuttal the bank claims the sum involved is closer to $15m. For some though, the almost laughable gap between the two numbers hides a more sinister truth.
At the very least the regulator could be accused of carrying out a shakedown of the bank, given the narrow window of opportunity Standard Chartered has been given to reach a settlement ahead of a hearing on August 15, where it will be asked why it should be allowed to retain its New York banking licence. If the bank is looking to pay a small fine in exchange for admitting liability it may be out of luck if reports that Lawsky and his colleagues are looking to play hardball and impose a fine of up to $700m have any semblance of truth to them.
The more outlandish theory is that New York regulators view the global banking system through a New York prism; and as a zero sum game. Or to put it another way, inflict reputational damage on a London-based bank and, by extension, undermine London’s position as the pre-eminent financial centre internationally, which will benefit New York in the longer run.
Fanciful perhaps, but maybe not quite as outlandish as it once was. US-based banks are easier to control and if foreign banks lose business due to reputational damage US banks stand ready to mop up much of the lost corporate business from those foreign banks.
Equally disturbing has been the increasing tendency of regulators and lawmakers in the US to regard US jurisdiction as extending beyond America’s borders. The offshore investment industry has already had a taste of this with the US authorities bullying their Swiss counterparts into clamping down on tax fraud involving US citizens, for example.
While Europe and the US are largely on the same page nowadays when it comes to the imposition of financial sanctions on Iran, it wasn’t always that way – not least during the period in question for purposes of the Standard Chartered investigation.
In one memorable email from 2006 that was uncovered by New York regulators, Standard Chartered’s Group Executive Director put it bluntly saying: “You f—ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”
Indeed, at the Iran Invest 2000 Conference held in London just prior to the period when dirty money was allegedly being funnelled through Standard Chartered’s New York branch on a major scale – then Bank of England Governor, Eddie George, addressed the conference, saying in his opening remarks: “I am delighted to be able to take part in this conference, and particularly pleased to be sharing the platform this morning with Governor Mohsen Nourbakhsh of the Central Bank of Iran, Bank Markazi.” How times change.
Second guessing the motives of US regulators is a futile process at the best of times. We’ll only know that the conspiracy theorists are halfway towards being correct if the pressure on foreign banks increases, rather than diminishes, over the coming months.