After several tense days of negotiation, British-based Standard Chartered has agreed to settle for around £217m with the top financial regulator in New York over money-laundering allegations. The bank reached its settlement with the New York State Department of Financial Services (DFS) mere hours before it was due to face a public hearing, which could have resulted in a much larger fine. But StanChart is not out of the woods yet: the settlement is only with the DFS and does not give it impunity from other US regulators.
So, cutting through the jargon, what exactly did StanChart do wrong? Well, last week the DFS accused the bank of breaching US sanctions by handling $250bn worth of Iranian transactions, saying it had left the country’s financial system open to terrorists, weapons dealers, drug dealers and corrupt regimes. In its very swift rebuttal, StanChart said that it reckoned the value of the transactions was just $14m, but its share price plummeted on fears that it could lose its license to trade in US dollars and would see its Asia business wiped out as a result.
The DFS is a hitherto unheard of regulator, but its ambitious boss, Benjamin Lawsky, today released a statement confirming the settlement. In it, he explained that StanChart has now agreed the $250bn figure, and that the bank will ‘install a monitor for a term of at least two years who will report directly to DFS. In addition DFS examiners shall be placed on site at the bank.’ The agreement constitutes an incredible U-turn from StanChart, which last week said it ‘strongly rejects’ the DFS’s original allegations. Nonetheless, CEO Peter Sands will be hoping that the agreement, and the extraordinarily intrusive measures it includes, will help to avert a much larger fine. Not to mention that it is probably better than fighting a high profile case and risking enormous reputational damage.
The settlement is considerably smaller than that being faced by HSBC over similar claims. It has set aside $700m in fine money after regulators found systems failures that may have allowed it to launder money for terrorists and drug lords. Add this to the fines paid by Barclays over the Libor scandal, and suddenly a substantial amount of money is landing in the American regulators’ coffers…
Given StanChart’s reputation for clean banking, the scandal is sure to have come as a blow. It remains to be seen whether the situation will worsen once other US authorities get more heavily involved. Thanks to the sheer number of scandals in recent months, however, some commentators have accused the US of mounting a concerted attack on non-American banks in a cynical attempt to draw more financial power to New York.
And given the lack of attention that US banks seem to be attracting, we can’t help thinking they might be right…
Read MT's recent interview with CEO Peter Sands: click here