StanChart $340 Million Settlement Puts NY on the Spot

Agenda-Setting Financial Insight.
Aug. 15 2012 11:15 AM

StanChart $340 Million Settlement Puts NY on the Spot

UK bank Standard Chartered has been accused by American financial investigators of making billions of pounds worth of transactions with the Iranian regime, despite strict economic sanctions being in place.

Photo by Matthew Lloyd/Getty Images

Standard Chartered can breathe a costly sigh of relief. The UK bank has agreed to pay a civil penalty of $340 million to settle allegations by the New York Department of Financial Services that it handled more than 60,000 transactions for Iranian clients, in contravention of U.S. sanctions. The fine is manageable for a firm that earned more than 11 times that amount in the first six months of the year. But it may still be an expensive reminder of the cost of doing business in New York. 

First, there’s the matter of how DFS boss Benjamin Lawsky handled the matter. Sure, the former chief of staff to New York’s Governor Andrew Cuomo has managed to wangle a hefty sum from Standard Chartered. But what exactly is it for?

Lawsky accused the bank of handling some $250 billion-worth of transactions, labeled it a “rogue institution” and threatened to withdraw its banking license, which would have all but killed its $230 billion-a-day dollar clearing business, a centerpiece of its entire franchise. By that measure, at less than 0.2 percent of the alleged offense, the penalty he’s imposing feels like a gargantuan climb-down.

Perhaps he has privately accepted Standard Chartered’s version of events - that just $14 million of the transactions actually contravened the law. If so, the bank certainly deserves to be punished for this. Paying 23 times the face amount may look unduly harsh, but it should do the trick. In retrospect, though, it’s hard to see how that really merited branding the bank a rogue player and stripping it of its reputation for avoiding the ills of the financial crisis. 

Lawsky also broke ranks with several other regulators investigating the bank, including the Department of Justice, the Treasury and the Federal Reserve. The last was so concerned about the impact of what now appear to be Lawsky’s hyperbolic accusations that the watchdog was calling Standard Chartered every three hours for a “liquidity and numbers check” after he threatened to revoke its bank license. 

Add it all up and it’s hard to avoid the impression Lawsky just carried out an effective old-fashioned shake-down, and one that also happens to be good politics in a bank-bashing era. Either way, he has just served notice that yet another regulator has its eye on Wall Street - and that banking in New York may now carry even more frictional costs than the industry bargained for.

Read more at Reuters Breakingviews.

Antony Currie has more than a decade of experience as a financial journalist, having worked with Euromoney since 1996, most recently as a US editor. He has worked on assignments in the major financial centres of Europe and the US and written stories on capital markets, global economies and the investment banking industry.



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