British Bank Blagging De Rigueur in These Stressful Times

on Aug 9, 2012

In the annals of British banking history, the summer of 2012 will have its own page – as the time when a motley collection of chickens flapped home to roost. In the space of just three months, an already-beleaguered industry has been hit hard with regulatory interventions both at home and from across the Atlantic, in America. First it was LIBOR-fiddling, then Mexican drug-money laundering and now, Iranian sanctions busting. Whatever will be next?

In this latest chapter, Standard Chartered Bank’s (we’ll call it SCB – ticker STAN.L) New York branch has been ordered by the ‘superintendent’ of the New York State Financial Services Department (we’ll call it FSD) to appear before him – Lawsky’s the name – and show cause why it shouldn’t have its New York banking licence revoked and, meantime, its daily USD clearing operations suspended. The bank’s been given just nine days to get its act together before the hearing date of 15 August, occasioning the recall from their respective summer holidays of both its global CEO and chairman.

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!m[](/uploads/story/244/thumbs/pic1_inline.png)The order document, released to the media by the FSD after service on SCB, goes by the rather bland title ‘Order Pursuant to Banking Law Section 39’, but don’t let that put you off – it’s a cracking read, all 27 pages of it.*
There’s exotic language – words like ‘egregious’ (which means ‘really bad’ but which, funnily enough, used to mean ‘really good’) – and turgid terminology – like the word ‘programmatically’. And it uses the stuff of pulp fiction – a plentiful resort to adjectives and adverbs to accentuate the ‘egregious’ nature of SCB’s offending.

Thus, for example, a message sent from SCB in New York to head office in London was ‘panicked’, there was ‘… yet another staggering cover-up’, and ‘ongoing misconduct was especially egregious’ (meaning it was really really bad). Further, SCB’s ‘contempt’ for US sanctions law was ‘obvious’ and that law was not just ‘stringent’ but ‘exceedingly’ so. And italics are used for emphasis, in case we miss the point, as in ‘SCB’s New York office … clears approximately $190 billion per day for its international clients’ (Really? Not million?).

What comes through loud and clear is that the superintendent of the Financial Services Department of the State of New York is really pissed – as Americans would say – at Standard Chartered. And not just the bank’s New York office – that ‘evident’ hostility (yes, ‘evident’ is also used in the FSD narrative) goes all the way to top management in London.

One of whom is alleged to have said, and said ‘caustically’: “You f***ing Americans”. He was seemingly addressing his colleague, the CEO of the bank’s American operations, but only as proxy for all the Americans involved in the United States sanctions regime, for he allegedly continued, “Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”
I use ‘seemingly’ and ‘allegedly’ in the preceding paragraph because my initial impression on reading the media coverage – that here was surely a gold-plated smoking gun email, left on the bank’s system until happened upon by the FSD’s investigators – needed recalibrating on reading the actual order. The source for that ‘You f***ing Americans’ remark, which has so delighted the media, is not an email from its maker – where the words would be cast in stone – but ‘as quoted by’ an SCB New York staffer during an interview with FSD investigators at some undisclosed date.
Not a contemporaneous recall and apparently not even in the next year – because the alleged remark was made sometime in 2006 and that staffer is described in the order document as having been ‘Head of Compliance (2005-2007) at the New York branch’. It’s also not apparent whether this otherwise unidentified informant was present when the statement was allegedly made or whether he, or she, was passing on something acquired second- – or third- – hand. At which point of course, it becomes hearsay – tittle-tattle, quite possibly. An utterance which may or may not have been made but for which the available source is of no evidential probity.
Which matters not a whit to the media or, probably, to the FSD. Their order document also has no evidential value; it serves only as a direction – provided for under New York state banking law – to SCB to present itself for interrogation by the state banking regulator. It needn’t have contained any allegations – quite apart from the purple prose – though there was presumably a legal requirement to put the bank on notice of the reason for issuing the order. And it needn’t have been made public. But it seems that the FSD wanted to attract media attention to this case. There is a whiff of vindictiveness. The
FSD knew perfectly well the impact their document would have on its release to the media.
There is also the interesting spectacle of the FSD – a state agency – treading on the toes of the Fed. It transpires – or at least it’s reported – that Superintendent Lawsky went public with his order without first clearing the action with the US Treasury or Department of Justice, which have also been talking to SCB and other banks about infringement of Iranian sanctions. Those sanctions, incidentally, have been in place since 1979, when the Shah – remember him? – was deposed and the American diplomatic staff in Tehran were kidnapped and held to ransom. Given its antiquity, you might have thought that Iranian sanctions-busting would be purely a federal matter but, no, the state of New York has felt sufficiently aggrieved to get in on the act.
Standard Chartered faces some difficult times. Unless it’s able to put the FSD allegations firmly to bed, a loss of lucrative US dollar clearing business and the imposition of massive fines are in prospect. Together with ‘reputational’ damage. All a la Barclays, HSBC and – one suspects – others to come.


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