New York state regulators Monday accused Standard Chartered Bank, a U.K.-based multinational operating in more than 70 countries, of money laundering. The allegations claim the bank covered up about $250 billion of illegal transactions with Iranian clients.
"In short, SCB operated as a rouge institution," Benjamin Lawsky, head of New York State's recently created financial regulator, said in a legal order issued Monday night.
Standard maintains the claims are inaccurate, and that 99.9% of its dealings with Tehran complied with regulations. The bank will faceoff with regulators next week.
But now other U.S. regulators say they don't think Standard Chartered Bank's wrongdoing was nearly as egregious as originally reported.
Standard Chartered Bank: A Threat to Global Stability... or Not?In what reads like a British spy novel, the New York Department of Financial Services has claimed that between January 2001 and 2012, Standard Chartered collaborated with Iranian clients to route payments through New York after first wiping out information from wire transfer messages used to identify sanctioned countries.
Lawsky claims that SCB moved 60,000 transactions through its New York branch on behalf of Iranian financial institutions that were subject to U.S. economic sanctions, and covered up the dealings. Central Bank of Iran, Bank Saderat and Bank Melli were among those institutions.
"Motivated by greed, SCB acted for at least 10 years without any regard for the legal, reputational and national security consequences of its flagrantly deceptive actions," Lawsky said. "Led by its most senior management, SCB designed and implemented an elaborate scheme by which to use its New York branch as a front for prohibited dealings with Iran-dealings that indisputably helped sustain a global treat to peace and stability."
Lawsky suspects that Iran was using its bank to finance terrorist groups including Hezbollah, Hamas and the Palestinian Islamic Jihad.
But now, according to The New York Times, officials from the U.S. Federal Reserve and the Justice Department who were investigating the bank believe the funds involved total a more modest $14 million.
The Times reported that officials think Lawsky has taken "too broad a view" and included transactions that although questionable are not illegal.
Fed officials, according to The Times, have been investigating the bank since 2010, but had not yet brought any charges. Since regulators usually act in a coordinated move, Lawsky's accusations have triggered a backlash from other U.S. watchdogs.
Lawsky asserts that Standard Chartered Bank's obvious effort to hide clients' identity indicates wrongdoing, and is unapologetic for his moves.
The Times cites an example of one Iranian client who was told to use "NO NAME GIVEN" in paperwork to transfer money, according to an order Lawsky sent to the bank outlining the apparent violations.
Looks like Lawsky wasn't the only one concerned about SCB's Iranian connections.
Among the findings in 30,000 pages of documents was a very descript and incriminatory memo sent in October 2006 from Standard's U.S. chief executive to the group executive director in London regarding concerns with the Iran dealings.
"Firstly, we believe (the Iranian business) needs urgent reviewing at the group level to evaluate if its returns and strategic benefits are... still commensurate with the potential to cause very serious or even catastrophic reputational damage to the group. Secondly, there is equally importantly potential of risk of subjecting management in U.S. and London (for example you and I) and elsewhere to personal reputational damages and/or serious criminal liability," the U.S. chief wrote.
In an explosive reply, the group director allegedly fired back, "Who are you to tell us, the rest of the world, that we're not going to deal with Iranians..."
Also uncovered was evidence of apparently comparable patterns to conduct business with other U.S. sanctioned countries, including Libya, Burma and Sudan.
Standard Chartered Bank FalloutReports Wednesday morning claimed that Standard Chartered Bank could pay $700 million to resolve the allegations.
SCB could lose its New York license, cutting off the institution from the New York bank market. That would be a major disruption considering the bank process $190 billion daily for global clients, according to the New York financial regulator.
Standard Chartered is one of the most successful European banks that has avoided getting rocked by the region's debt crisis. The bank last week reported net profit for the first half of the year rose 11.3% to $2.86 billion.
Around 90% of the bank's profit came from developing economies, but that business could suffer if the bank is barred from clearing transactions in New York. SCB will appear in front of Lawsky on August 15.
The allegations triggered a palpable shock to the industry given Standard Chartered Bank's long standing reputation as a safe-and-sound institution amid the ongoing mayhem marring the sector.
"There is some irony that, a few days after describing its approach as "boring' at its interim results, Standard Chartered should become embroiled in yet another potential banking scandal. The allegations serve to add more risk to an already beleaguered sector," Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, told the Yorkshire Post.
The Standard Chartered Bank allegations come on the heels of other sullied findings amid fellow British banks.
HSBC Holdings Plc (NYSE ADR: HBC) was recently accused of permitting drug cartels and rouge states to launder billions of pounds through its U.S. arm. Barclay's Plc (NYSE: ADR: BCS) reputation is still in shreds following the Libor-rigging scandal.
Standard Chartered Bank shares plummeted 24% Tuesday, wiping some $12.8 billion off its value. They ended the day down 16% and have crept back about 8% since Tuesday's close.
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