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Standard Chartered Scandal: “Asian Regulators Had Lost Faith in American Regulators”

Posted by Larry Doyle on August 13, 2012 8:58 AM |

I would not expect that Benjamin Lawsky, superintendent of the New York State Department of Financial Services, is receiving many invitations on the Washington cocktail circuit currently.

When Lawsky recently brought to light the alleged longstanding Iranian money laundering activities at Standard Charted Bank, he not only dropped a bombshell on the institution, he dropped an even bigger explosive into the midst of America’s largest financial regulators. Good for him and for us.

We are long overdue for somebody with a real set of balls to expose the crony capitalism that defines our domestic and international banking and regulatory system these days. 

While Standard Chartered may flail about in an attempt to defend its franchise and reputation and our financial heavyweights at the Federal Reserve, U.S. Treasury, and elsewhere do the same, I pose the following questions to all parties involved:

1. Did Standard Chartered strip the names of Iranian counterparties from their internal systems in an attempt to skirt the sanctions imposed by the United States against dealing with Iran? This is a simple yes or no question.

2. If Standard Chartered so vehemently disputes the allegation, then why are they currently negotiating a coordinated settlement of hundreds of millions of dollars?

3. When did the Federal Reserve, U.S. Treasury and other domestic regulators learn about the Standard Chartered laundromat and why weren’t they moving even more aggressively to address and stop these operations?

And the BIGGEST QUESTION of all.

4. If laundering money for entities within a rogue state engaged in international terrorist activities and pursuing a nuclear capability does not meet the standard for revoking a banking license, then just what is the standard and hurdle to undertake such action?

Seriously, if laundering  Iranian money merely generates a fine, what does a financial institution have to do to get its license revoked? Does stealing state secrets do it? How about infiltrating the Pentagon? Paying kickbacks to elected officials? Providing protection and cover for confirmed spies from rogue nations? Would any of these offenses qualify as reason to revoke a bank’s license or do all of these merely generate a fine as well?

Americans are certainly increasingly aware that our financial regulators and our financial regulatory system are held captive by the global banking system as a whole. That fact does little to renew the confidence needed to move our economy forward. Who else has lost confidence in our regulators? Let’s look eastward as the Financial Times highlights this morning,

A few years ago, a StanChart banker told me in my office that one result of the 2008-09 financial crisis was that Asian regulators had lost faith in the wisdom and judgment of American regulators.

That statement speaks volumes and is testament to the serious price we all pay for the deeply embedded Wall Street-Washington Incest that continues to define our economic landscape.

Navigate accordingly.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • LD

    Standard Chartered Backing Down in Money Laundering Probe

    After flirting with a countersuit, Standard Chartered Bank is slowly coming around to the deal offered them by New York’s Department of Financial Services in a money-laundering scandal. The bank has agreed to an outside monitor that would oversee compliance with state and federal anti-money laundering laws. This is a prelude to agreeing to an expansive settlement, enabling Standard Chartered to keep their ability to operate in the state of New York.

    New York banking Superintendant Benjamin Lawsky alleged London-based Standard Chartered flouted U.S. banking laws as part of a decade-long deception, helping launder about $250 billion in Iranian funds in contravention of U.S. statutes and without proper disclosure. Lawsky is said to seek as much as $700 million to settle the investigation, another person familiar with the case said.

    The regulator’s threat panicked the bank’s investors, sent its share price down about 16 percent the day after and provoked a defiant response from Standard Chartered Chief Executive Officer Peter Sands, who said the vast majority of wire transfers identified by Lawsky complied with federal law. The bank’s stock is down about 10 percent for the week.

    According to the terms of the order, the state regulator will select the monitor, and the bank will pay for it and provide access to all compliance and transaction records.

    A $700 million fine for facilitating money laundering is not debilitating, but for context, consider that Goldman Sachs was fined $550 million for their Abacus fund, for which they made at least three times that. And Benjamin Lawsky could still revoke the charter of the bank, a move that’s entirely at his discretion. But the two sides are in settlement negotiations at this point. Reuters reports that the fine could reach upwards of $1 billion.

    Standard Chartered keeps huffing that these matters are normally settled by coordinated action across state and federal regulators. So their alibi is about protocol, and on a second level a claim that they didn’t money launder quite as much as what DFS has alleged. But they’ve completely backed down from their angry denunciation of Lawsky and threats to counter-sue. They’re going to take their medicine now, because they really have no choice.

    The next move comes Wednesday, when Standard Chartered is due in court. Either a settlement will get announced at that time, a plea to postpone the court date to allow for more negotiation time, or the settlement talks will end, and Standard Chartered will have to fight to keep their US operations.

  • Jim Wells

    It is loathsome, but instructive to watch federal financial regulators and bankers vilify NYS Financial Services Superintendent Benjamin Lawsky for doing his job. Understandably, his type of responsibility makes other regulators uncomfortable. Regulators who have gone out of their ways to enable the largest banks in the country to run roughshod over American consumers and businesses. Regulators who have gone to great lengths to find reasons not to hold the CEOs of the mega-banks that created a mortgagee mess that grew into a global financial crisis. Regulators that instead of reducing the size of banks that proved to be Too Big To Fail, helped them grow even bigger, to the point where they are now Too Big To Behave, Too Big To Manage, and Too Big To Regulate.

    By consolidating more financial assets in the hands of fewer banking behemoths, federal financial regulators have placed the U.S. and the world in greater jeopardy of another crisis, which is likely to make 2008 look like an inconvenience.

    The list of nefarious activities that the Too Big To Behave Banks perpetrate against the American Public continues to grow — unfettered by federal regulators. High rate credit cards sold like cocaine. High-risk mortgages sold to people who could not afford them. Mortgages destined to fail bundled into complex securities disguised as high-quality investments. Illegal foreclosures on members of the military. Using non-existent, incomplete or fraudulent robo-signed documents to pursue mortgage and credit card holders. Bid-rigging in the municipal securities and electric power markets. Rate-rigging in credit cards and Libor.

    Federal judges continue to rail against reluctant, sporadic and uninspired prosecutions of Too Big To Behave Banks, minimal fines (even for repeated violations) and allowing banks found guilty to neither admit nor deny guilt.
    Larry’s right — what do financial institutions have to do to get punished? But, what has to happen to get other financial regulators to follow Superintendent Lawsky’s lead? And, what can loyal readers of Sense on Cents do to support Mr. Lawsky, while deploring the continuing inaction of other regulators?

  • Gamma

    Amen, especially on #4.

    FYI, I finally had a chance to watch the movie “Inside Job” – if you have not seen it already I highly recommend it.

  • Small BD

    This is far from the first time that a NY State regulator has brought down an elephant that was been loitering on the doorstep of the feds. But perhaps Mr. Lawsky’s actions have more to do with political ambition than having brass balls.

    When merely the state’s attorney general, Spitzer went after AIG / Mercer et. al. for bid rigging. Cuomo’s big ticket PR story was the “Pay for Play.” It’s a bit preliminary, but perhaps we should address Lawsky as “Mr. Governor.”

    Being curious, I visited the Standard Chartered website. Dead center on the home page is a reference to their Customer Identification Program….pursuant to the Patriot Act. Logic dictates that there has been a failure of enforcement. But I fear that the feds will once again divert attention from their continued failures by passing several new laws, blaming the Standard case on some fictional ‘weakness’ in the law. I think I’ll go check HSBC’s website for their version of this superficial level of compliance…

    The above comments only reflect my personal opinions. None have been presented as statements of fact.

  • TF

    340 million for treason.. not bad.

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