UK bank labelled “rogue institution” by New York financial regulators


By a Newsnet reporter

Another London based bank is at the centre of a financial scandal after a report by the New York State Department of Financial Services alleged that Standard Chartered Bank had illegally laundered over 250 billion US dollars (£161 billion) for Iranian financial organisations that were subject to US economic sanctions.  

The report warned that Standard Chartered may lose its licence to operate in the New York financial markets.

In a statement issued on Monday, Benjamin Lawksy, superintendent of New York state’s department of financial services, said that the bank’s actions had “left the U.S. 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”.

He added, “In short, Standard Chartered Bank operated as a rogue institution.”

The US regulator’s report accuses Standard Chartered of “willful and egregious violations of law” and claims that the bank kept over 60,000 transactions with Iranian organisations secret from American regulators.  The report adds that the bank engaged in a highly organised sanctions busting operation which went on for almost a decade.  The bank made hundreds of millions in profit as a direct result.

The report also accuses the bank of falsifying SWIFT wire payment directions by removing data which showed that the clients were Iranian and replacing this with false information.

The practice was said to be so organised that senior management at the bank had codified their illegal procedures into formal operating manuals.  The manuals “provided step-by-step wire stripping instructions for any payment messages containing information that would identify Iranian clients”.

According to the New York regulators’ report, the London directors of the bank showed “obvious contempt for US banking regulations” and engaged in a “staggering cover-up”.

The report quotes a reply from a London based Standard Chartered senior executive to an email from a junior American colleague, who had expressed concerns about the bank’s sanctions busting activities.  The Standard Chartered senior executive angrily emailed back: “You f*****g Americans.  Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”

Mr Lawsky said he is also investigating “apparently similar” schemes to conduct business with other countries subject to American sanctions, including the Gaddafi regime in Libya, Myanmar and Sudan.

Executives of the bank have been called to appear before New York regulators on August 15 to explain the apparent violations, and defend Standard Chartered’s licence to trade on the New York Stock Exchange.

Financial transactions with Iran have been subject to strict terms since the Iranian Revolution of 1979, and the taking of hostages at the US embassy in Teheran by members of the Iranian Revolutionary Guard.  Until 2008, only highly restricted so-called “U-turn” transactions were permitted with Iran.  However the US Treasury banned even these citing fears that Iran was using Western banks to fund its nuclear weapons programme and to support terrorist groups.

The New York regulators’ scathing report into Standard Chartered bank comes just a few weeks after another UK bank, HSBC, was accused of allowing drug cartels and rogue states to launder billions of dollars through its US subsidiary.   HSBC has been warned by the US regulators that fines and penalties may significantly exceed the $700 million which the bank has set aside.

The allegations facing Standard Chartered are said to be far more serious, fines and penalties may run into the billions.  A criminal investigation has not been ruled out.  Until Monday, Standard Chartered had been regarded as the most solid of London’s banks, but its reputation is now in shreds, having been labelled a “rogue institution” accused of “egregious violations of law”.

Standard Chartered’s top management – chief executive Peter Sands and finance director Richard Meddings – were closely associated with the former Labour government.  Sands joined Standard Chartered in 2002 after a spell at the Foreign Office.

The bank is said to enjoy a special status in Whitehall and Sands has admitted to having a “voice” and being involved in the “conversations” between the industry and regulators.  The banking rescue plan implemented by then Prime Minister Gordon Brown in October 2008 was reportedly designed by Mr Sands and Mr Meddings.

The episode will cause serious damage to the international reputation of the City of London, still reeling from the financial crisis of 2008 and the subsequent bail outs of several major banks, and more recently the money laundering at HSBC, and the LIBOR rigging scandal which implicated Barclays and other London based banks.