Standard Chartered shares plunge on laundering charges

 

Standard Chartered "has to open its books to show us what really happened," says Kroll's Penelope Lepeudry

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Shares of Standard Chartered have tumbled despite the bank denying allegations that it illegally "schemed" with Iran to launder money.

Shares in London fell 16.7%, about as much as its Hong Kong stock dropped.

The New York State Department of Financial Services said the UK-based bank laundered as much as $250bn (£161bn) over nearly a decade.

It said the bank hid transactions for "Iranian financial institutions" that were subject to US economic sanctions.

The regulator said that Standard Chartered had hidden 60,000 such secret transactions.

However, the bank denied the allegations, saying that it "strongly rejects the position or portrayal of facts as set out in the order" issued by the regulator.

'Not a full picture'

Standard Chartered

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The US regulator labelled UK-based Standard Chartered a "rogue institution" and ordered the bank to "explain these apparent violations of law" from 2001 to 2010.

It accused Standard Chartered of falsifying payment directions by stripping the message of unwanted data that showed the clients were Iranian, replacing it with false entries.

"It provided step-by-step, wire-stripping instructions for any payment messages containing information that would identify Iranian clients," the complaint said.

The regulator also said that it would hold a formal hearing over the "assessment of monetary penalties". The bank, which currently only operates in the US in New York, has also been threatened with having its New York banking licence revoked.

The regulator also pointed the finger at consultancy firm Deloitte, suggesting it could have aided Standard Chartered in its alleged deception.

Deloitte had "intentionally omitted critical information" in a report, it said.

Deloitte responded by saying its financial advisory service division "performed its role as independent consultant properly and had no knowledge of any alleged misconduct by bank employees. Allegations otherwise are unsupported by the facts."

Account freeze

U-turns and Wire strips

  • Wire-stripping: Removing key information from electronic financial transactions
  • U-turn transactions: A transfer of funds from one foreign bank to another, via a US financial institution.

Standard Chartered also said the order issued by the US regulator did not present "a full and accurate picture of the facts".

It said that it had conducted a review of its transactions, primarily those relating to Iran for the period between 2001 to 2007, and had given regular updates to the US authorities on the results of the investigation.

"As we have disclosed to the authorities, well over 99.9% of the transactions relating to Iran complied with U-turn regulations," the bank said.

"The total value of transactions which did not follow the U-turn was under $14m."

The so-called U-turn transactions are those started outside the US by non-Iranian foreign banks that pass through the US financial system on the way to other non-Iranian foreign banks.

How Iran receives dollars for oil

To ascertain whether these transactions are permitted or not under current regulations, US clearing banks use the wire-transfer messages they get from the banks involved.

If the banks do not have enough information, they are supposed to freeze the assets.

Senior management were also said to have codified their illegal procedures in formal operating manuals, including one labelled "Quality Operating Procedure Iranian Bank Processing".

Penelope Lepeudry, managing director of Kroll Advisory Solutions, a consulting firm specialising in financial investigations, told the BBC that "if the allegations are confirmed, this is a very serious development".

"The regulators are not going to be merely convinced by a statement from the bank - they need to see the details," she said.

Other schemes found

The regulator said it had also uncovered evidence with respect to what are apparently similar schemes to conduct business with other countries under sanctions - Libya, Burma and Sudan.

"Investigation of these additional matters is ongoing," it added.

Who is Standard Chartered?

  • Standard Chartered is headquartered in London and its chief executive and chairman are based in the UK capital
  • Its roots are in Asia; the Chartered Bank was founded by Royal Charter and opened in Bombay, Calcutta and Shanghai in 1858
  • Standard Chartered Bank was formed in 1969 through the merger of Standard Bank of British South Africa and the Chartered Bank of India, Australia and China
  • It currently makes two-thirds of its profit in Asia; only 10% of its operating profit last year came from the Americas and Europe
  • It currently has 1,700 offices in 70 territories
  • The bank made a pre-tax profit of $6.8bn in 2011
  • The bank's New York office was first granted its foreign-branch bank licence in 1976

The regulator said that its nine-month investigation, which involved looking through more than 30,000 pages of documents, including internal bank emails, showed that the bank reaped "hundreds of millions of dollars in fees".

"SCB's actions left the US 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," it said.

'Staggering cover-up'

In numerous emails going back as far as 1995, Standard Chartered's lawyers advised on ways to go about circumventing US sanctions.

In March 2001, the bank's legal adviser counselled that "our payment instructions [for Iranian clients] should not identify the client or the purpose of the payment".

By 2006, there were concerns raised about the bank's conduct in its New York branch.

The chief executive for the Americas sent an email to London saying the programme needed to "evaluate if its returns and strategic benefits are... still commensurate with the potential to cause very serious or even catastrophic reputational damage to the group".

But those warnings were ignored by senior management in London in what the regulator called a "staggering cover-up".

Among the violations of the law, the bank is accused of:

  • falsifying business records
  • failing to maintain accurate books and records
  • failing to report misconduct to the regulator in a timely manner
  • evading federal sanctions

The US Treasury, which implements the sanctions, said that it treated violations "extremely seriously".

 

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  • rate this
    +14

    Comment number 621.

    From what I understand the rules are clear. Standard Chartered went about breaking the rules in an organised fashion to maximise their profits and hence bonuses. None of this will stop until personal responsibility for these actions is identified. I am afraid that the only way for this to be taken seriously is for criminal prosecutions to follow, together with a claw-back of appropriate bonuses.

  • rate this
    +16

    Comment number 551.

    Whether the bank is American or British is somewhat irrelevant. A bank operating in the United States is subject to American regulations, period. If the bank is proved innocent, we will all be fully justified in questioning US regulators for their baseless accusations. However, if the bank is guilty, why does it matter who called them out? The infraction is the same.

  • rate this
    +15

    Comment number 420.

    Standard Chartered can do what it wants, but once it decided to do business in the US it came under US laws and apparently chose to flaunt those. The bank deserves whatever punishment it gets. The stockholders who are taking a huge hit in value got screwed by the greedy executives involved--who undoubted go well rewarded for breaking the law but will probably pay no penalty.

  • rate this
    +6

    Comment number 407.

    Until hard evidence is produced what the US regulators have done is completely reckless. Whilst US government has every right to impose sanctions when issuing licensces to trade in the US, their regulators have no right to make such serious allegations without, so far, any hard evidence that SC was involved in money laundering.

  • rate this
    +21

    Comment number 337.

    Whilst giving Iran is clearly a very misguided financial policy, I also dislike the US's adamant and self-important role as The World Police. It's a slight contradiction to defend freedom and free-trade and enterprise and so on, and then demand that it is done on their terms. Funding Iran is foolish, but chastising the very thing you claim to stand for is also hypocritical.

 

Comments 5 of 18

 

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