Hefty Fine for Standard Chartered Over Iran Links

on Aug 16, 2012

Shares jumped 3 per cent and investors regained confidence after a deal was struck on Tuesday between the New York State Department of Financial Services and Standard Chartered (STAN:LSE). The bank is to pay $340m (£217m) to the regulator over transactions linked to Iran. Ian Gordon, an analyst with Investec Securities, said that for now there are no further regulatory costs to be expected and shares are sure to rebound on the news. There is also no risk of the bank losing its state banking license. The deal requires from Standard Chartered to install a monitor for at least two years who will have the responsibility of evaluating the money-laundering controls in the company’s New York branch and report all findings to the regulator.

The case started when last week Chartered was accused of hiding more than $250bn (£160bn) from Iranian financial deals for the past ten years. According to the regulator, there were 60,000 secret transactions out of which the bank has supposedly made millions in fees. Benjamin Lawsky, head of the New York state regulator, said US laws have been blatantly ignored for a long period of time.

!m[](/uploads/story/258/thumbs/pic1_inline.png)The BBC’s John Moulan explains what Standard Chartered is really accused of. Let us say there is an Iranian company that has a French bank account and wants to sell oil to a German firm. Because oil is traded in dollars it has to go through the US. Iran, however, is subject to US economic sanctions since 1979 with laws being toughened even more by Ronald Reagan in 1987 and Bill Clinton in 1995. Transactions of the above-mentioned sort are to be inspected and often rejected so Standard Chartered was accused of deliberately hiding the fact that the financial deals were connected to Iran. The bank has supposedly falsified SWIFT wire payments by removing messages showing that the clients were Iranian and substituting them with false information.

Chartered rejected the accusations and stated:

“As we have disclosed to the authorities, well over 99.9% of the transactions relating to Iran complied with the U-turn regulations. The total value of transactions which did not follow the U-turn was under $14m.”
When Lawsky filed his case against the bank, its shares tumbled and the top executives were forced to

rush back to London from their vacations. The bank’s CEO Peter Sands said he was completely surprised by the ferocity of the DFS’s attack and described the whole case as disproportionate.
Disproportionate or not, Standard Chartered could have lost their New York banking license if they were found guilty of the charges. Despite the fact that the bank specialises in financing in the Middle East, Africa and Asia, it does make a profit in its New York branch by facilitating cross border trade between customers that have operations in emerging markets and in the US. What is even worse is that the bank’s reputation could have been tarnished, which would have affected relationships with its Asian business clients.

It is important to note that settlement has been reached only with the particular state bank regulator. Further attacks will most likely come from the Federal Reserve and the US Treasury (OFAC) who had been left in the dark by Lawsky over his one-man mission.
Standard Chartered are not the only ones in trouble over doing business with sanctioned states. Credit Suisse Group, Lloyds Banking Group, ING Bank NV and Barclays Plc were all fined similar amounts. HSBC Holdings Plc is still under investigation by US law enforcement.


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