Standard Chartered a rouge bank, says NY State Department

The market value of Standard Chartered Plc tumbled $16 billion on Tuesday after New York’s bank regulator threatened to tear up its state banking license for allegedly hiding $250 billion in transactions tied to Iran.

অর্থপাচারের অভিযোগ অস্বীকার করল স্ট্যান্ডার্ড চার্টার্ড

The New York State Department of Financial Services (DFS) slammed Standard Chartered as a “rogue institution” that “schemed” with the Iranian government, which is subject to US sanctions over its nuclear programme, and hid 60,000 secret transactions to generate hundreds of millions of dollars in fees over nearly 10 years.

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Shares in the Asia-focused bank were down 23.5 percent at 11.25 pounds by 1120 GMT, their lowest in three years, taking their losses to 30 percent since the news surfaced just before Monday’s close.

“Even the so-called ‘safe’ banks like StanChart and HSBC seem to be crumbling, with their reputation in tatters. No one, it seems, is immune,” said one institutional investor, who asked not to be named.

“Some of the language used is very disturbing. Of course, it could be that the Americans are exaggerating, but somehow that doesn’t seem to be the case here,” the investor said.

The bank, which has been in talks with US authorities since early 2010 over the matter, had exposed the US banking system to terrorists, drug traffickers and corrupt states, the DFS said.

The New York regulator described how officials at Standard Chartered, one of the banks least tarnished during the financial crisis thanks to its focus on emerging markets and a conservative approach to capital and liquidity, had debated whether to continue Iranian dealings.

In October 2006, the top official for business in the Americas, whom the regulator did not name, warned in a “panicked message” that the Iranian dealings could cause “catastrophic reputational damage” and “serious criminal liability”.

A group executive director in London shot back, according to a New York branch officer: “Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”

The reply showed “obvious contempt for US banking regulations”, the regulator said.

At that time the bank had five executive directors: Peter Sands, now chief executive; Richard Meddings, now finance director; Mervyn Davies, a UK Labour Party peer; Kai Nargolwala, who was poached by Credit Suisse and left the Swiss bank last year; and Mike DeNoma, who resigned as CEO of Chinatrust Financial in August.

Standard Chartered’s Americas CEO was Ray Ferguson, who is now its Singapore CEO.

None of the people could be reached for comment or else declined to comment.

Standard Chartered said the bank “does not believe the order issued by the DFS presents a full and accurate picture of the facts”.

The loss of a New York banking license would be a devastating blow for a foreign bank, effectively cutting off direct access to the US bank market. Standard Chartered processes $190 billion every day for global clients, the New York bank regulator said.

Standard Chartered is the third British bank to be ensnared in US law enforcement probes this summer. Barclays Plc agreed to pay $453 million to settle US and UK probes that it rigged a global lending benchmark in June.

A month later, a US Senate panel issued a scathing report that criticised HSBC Holding Plc’s efforts to police suspect transactions, including Mexican drug traffickers.

Standard Chartered said it shared with US agencies an analysis that demonstrated it “acted to comply, and overwhelmingly did comply” with US regulations.

Standard Chartered put the total value of Iran-related transactions that did not follow regulations at less than $14 million, based on its review of the issue, in stark contrast to the DFS’s $250 billion estimate.

The United States imposed economic sanctions on Iran in 1979, but until November 2008 US banks could process some transactions for Iranian banks or individuals provided they were initiated offshore by non-Iranian foreign banks and are on the way to other non-Iranian foreign banks, known as “U-turns”.

Standard Chartered said the DFS’s interpretation of the U-turn exemption “is incorrect as a matter of law”. It said 99.9 percent of its transactions relating to Iran had complied with a US framework.

The figure alleged by the New York regulator would cover the equivalent of 71 percent of the $350 billion total Iranian oil export revenues for the seven years of 2001-2007, according to OPEC data.

“The group was … surprised to receive the order from the DFS, given that discussions with the agencies were ongoing,” Standard Chartered said. “We intend to discuss these matters with the DFS and to contest their position.”

The bank has to appear before the DFS on August 15.

“Some people were walking around under the illusion that Standard Chartered was the world’s first riskless bank, and it’s not. We’ve discovered that Standard Chartered is a mortal bank – as they all are,” said Gareth Hunt, financials analyst at Canaccord Genuity, who rates the stock a “sell”.

Mike Trippitt, analyst at Oriel, cut his rating to “reduce” from “buy”. “The tone and language of the report is quite shocking, but it was equally a very firm rebuttal from Standard Chartered, to say it was acting lawfully and measuring what they think was outside the rules.

“You can paint a range of scenarios, from storm in a teacup to catastrophe, but it’s hard to work out right now,” he said.

Standard Chartered is the sixth foreign bank since 2008 to be implicated in dealings with sanctioned countries such as Iran in investigations led by federal and New York law enforcement officials.

Four banks — Barclays, Lloyds, Credit Suisse and ING — have agreed to fines and settlements totalling $1.8 billion. HSBC currently is under investigation by US law enforcement, according to bank regulatory filings.

The New York regulator, headed by former prosecutor Benjamin Lawsky, ordered Standard Chartered to explain why the bank should not lose its state license and the ability to process dollar transactions. Lawsky also ordered the bank to bring in an outside consultant to monitor its transactions.

“Standard Chartered Bank operated as a rogue institution,” Lawsky said in the order.

Lawsky’s investigation is unusual because probes into banks’ transactions tied to Iran have been primarily led by the district attorney’s office in Manhattan and the US Justice Department.

In an emailed statement to The Daily Star, the bank said it had previously reported that it is conducting a review of its historical compliance and is discussing that review with the different US agencies, including the DFS.

The disclosure appears in the bank’s Annual Results of 2010, 2011 and Interim Results of 2012 in the Risk Review section under Regulatory Changes and Compliance, it said.

In January 2010, the bank voluntarily approached all relevant US agencies, including the DFS, and informed them that the bank had initiated a review of historical US dollar transactions and their compliance with US sanctions.

This review focused primarily on transactions relating to Iran in the period 2001-2007, and in particular, their compliance with the U-turn framework established by the US authorities to enable ongoing US dollar trade with Iran by other countries.

Standard Chartered said its review of its Iranian payments also did not identify a single payment on behalf of any party that was designated at the time by the US government as a terrorist entity or organisation.

Standard Chartered ceased all new business with Iranian customers in any currency over five years ago, it said.

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