New York Standard Chartered allegations ‘blindsided’ US treasury

Sources familiar with Standard Chartered case say regulator ‘angered’ government with explosive attack on UK bank

The US Treasury and the Federal Reserve were blindsided and angered by the decision of a New York banking regulator to launch an explosive attack on Standard Chartered over $250bn in alleged money-laundering transactions tied to Iran, sources familiar with the situation said.

By going it alone through the order he issued on Monday, the head of the recently created New York State Department of Financial Services, Benjamin Lawsky, also complicated talks between the Treasury and London-based Standard Chartered to settle claims over the transactions, several of the sources said.

Lawsky’s action, which included releasing embarrassing communications and details of the bank’s alleged defiance of US sanctions, is rewriting the playbook on how foreign banks settle cases involving the processing of shadowy funds tied to sanctioned countries. In the past, such cases have usually been settled through negotiated settlements and public shaming has been kept to a minimum.

In his order, Lawsky said Standard Chartered’s dealings had exposed the US banking system to terrorists, drug traffickers and corrupt states. But the upset expressed by some federal officials, who were given virtually no notice of the action, may help Standard Chartered to portray the allegations as coming from a relatively new and over-zealous regulator.

Given the content of the order, which described Standard Chartered as a “rogue institution” that “schemed” with the Iranian government and hid from law enforcement officials some 60,000 secret transactions over nearly 10 years, the bank may need to come up with a strong defense.

Lawsky did not respond to several requests for comment on Tuesday.

A Fed spokesperson said that it had been working closely with various prosecutorial offices on matters involving Iran and other sanctioned entities but could not comment on ongoing investigations.

White House press secretary Jay Carney said that the government took alleged violations of sanctions “extremely seriously” and the US Treasury remained in close contact with federal and state authorities on the matter. The Treasury declined to add to that comment.

New York’s attack on the integrity of Standard Chartered and threat to revoke its state banking license wiped $17bn off the bank’s market value on Tuesday. Shares in Standard Chartered fell 16.4% to £12.28 Tuesday, after earlier touching a three-year low of £10.92. The stock has fallen 24% since news emerged of the New York action on Monday.

The loss of a New York banking license – effectively a permit to conduct transactions worth hundreds of billions of US dollars – could be a death knell for a global bank like Standard Chartered. The 160-year-old bank said it had been in talks with US authorities over its Iran transactions since early 2010 and stressed that the accusations by New York had come as a shock.

In a statement Monday, the bank said it was “engaged in ongoing discussions with the relevant US agencies. Resolution of such matters normally proceeds through a coordinated approach by such agencies. The group was therefore surprised to receive the order from [the New York bank regulator] given that discussions with the agencies were ongoing.”

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