StanChart Can't Avoid the Long Arm of the Lawsky

Agenda-Setting Financial Insight.
Aug. 7 2012 3:36 PM

StanChart Can't Avoid the Long Arm of the Lawsky

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Benjamin Lawsky, a brash New York state financial services regulator, is threatening to yank Standard Chartered’s license over claims it hid some $250 billion in transactions for Iranian clients.

Photo by Matthew Lloyd/Getty Images

Standard Chartered can’t avoid the long arm of the Lawsky - Benjamin Lawsky, that is. The brash New York state financial services regulator is threatening to yank the British bank’s license over claims it hid some $250 billion in transactions for Iranian clients. It’s an aggressive move that grabs the spotlight from federal enforcers like the Department of Justice. But if StanChart wants to do business on Wall Street, it has to play by local rules. 

The U.S. government has, of course, dinged plenty of foreign banks before. The Federal Reserve effectively booted Japan’s Daiwa from the country, the Senate slammed HSBC over money laundering and the DoJ and the Commodity Futures Trading Commission extracted hefty fines from Barclays for manipulating Libor. 

Yet state regulators almost never take the lead against global lenders. In this sense, Lawsky has broken the mold. A former federal prosecutor and henchman for both the senior senator and governor of New York, he pounced immediately as head of the state’s new financial services agency. In less than a year, he has brought dozens of insurers and banks to heel over unpaid death benefits, abusive foreclosures and other high-profile issues. 

His hook for pursuing StanChart is the prosaic power to license foreign banks’ Wall Street branches. That’s enough to ensure lenders report fraud, keep accurate books, cooperate with examiners and operate in a generally sound manner. The bank, Lawsky claims, violated all those duties by covering up transactions that breached U.S. financial sanctions against Iran. 

StanChart says the Fed, the Office of Foreign Assets Control and other U.S. agencies have been reviewing its activities. Whether they approved of Lawsky’s move is still unclear. The financial services department says it gave all parties fair notice, though it also stresses that it’s acting solo. 

That kind of bold behavior can raise eyebrows, if not hackles, in political circles. It can also propel ambitious officials into the public eye, something Lawsky, not to mention his boss, Governor Andrew Cuomo, have surely taken into account. 

In this context, the young regulator’s actions resemble those of another aggressive New York watchdog. Eliot Spitzer did much to shake up Wall Street as New York attorney general. Lawsky could do worse than follow in Spitzer’s footsteps, well, at least some of them.

Read more at Reuters Breakingviews.

Reynolds Holding is a Breakingviews columnist who writes from New York about the law in conjunction with Reuters Legal. Before joining Breakingviews, he was a national editorial producer for the Law & Justice Unit at ABC News, a senior writer for Time magazine and the executive editor of Legal Affairs, the first general interest magazine about the law.

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