In its television commercials (such as this one), Standard Chartered Bank pitches its honest-to-goodness approach to banking. “Can (a bank) balance its ambition with its conscience?” the ad asks. “Can it look not only at the profit but how it makes that profit?”
The answer to those questions, based on allegations levelled against the British bank by financial regulators in New York earlier this week, appears to be: “Don’t bank on it.”
All the goodwill generated from such feel-good commercials go out the window when something more powerful than a television ad comes along and knocks the stuffing out of a bank’s reputation – by calling it a “rogue institution” and accusing it of “deceptive and fraudulent misconduct”.
That’s what authorities at the Department of Financial Services in New York called StanChart in a statement detailing allegations of the bank’s efforts to circumvent US sanctions against on Iran – and to cover up its tracks by falsifying business records, lying to authorities and obstructing governmental administration. (More details of the allegations here.)
The transgressions occurred for nearly a decade from 2001, the DFS statement notes, and were carried out with the collaboration of the Iranian government. ”SCB schemed with the Government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250 billion, and reaping SCB hundreds of millions of dollars in fees.” SCB’s actions, it added, “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.”
Even more damagingly, top StanChart officials in the UK contemptuously dismissed expressions of disquiet, even panic, from its US head honchos. “In October 2006, the statement notes, StanChart’s CEO for the Americas wrote to the Group Executive Director in London saying that the Iranian business need to be reviewed urgently “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.”
Additionally, he flagged the risk that senior management at the bank in both the US and London would be exposed to “personal reputational damages and/or serious criminal liability.”
The response of the StanChart Group Executive Director is the stuff of legends. An officer at the bank’s New York branch quoted him as saying: “You f…ing Americans, who are you to tell us, the rest of the world, that wer’re not to deal with Iranians.”
All these are serious charges, and could lead to StanChart losing its banking licence in the US. The bank, however, has rejected the allegations, and says that it was in full compliance with regulatory authorities, and was currently in talks with US authorities to resolve the matter. (More on that here.)
But since StanChart is the third British bank to be hauled up – and seen its reputatation tarnished – by US regulators, it has prompted British bankers and politicians to wonder if a political agenda is being served by these repeated trans-Atlantic allegations. (Indicatively, in just the past month, Barclays was caught in a scandal to fix Libor rates; and subsequently HSBC was indicted on money-laundering charges.)
To some media commentators, all this seems extraordinarily fishy. The fact that Benjamin Lawsky, the head of New York DFS ( whose office levelled the serious charges against StanChart) also lists it as one of his responsibilities to keep New York “on the cutting edge as the financial capital of the world” counts as a smoking gun. “Could there be an agenda at play here? Could Lawsky be not (also) battling for… Wall Street?” they ask.
The trans-Atlantic tussle over StanChart’s alleged transgressions, taken with the charges against Barclays and HSBC, expose the underbelly of the financial world. In a world where securing a larger share of the financial pie is getting rather more of a struggle, banks have clearly bent the rules of the game. And in a post-9/11 world, with the (selective) tightening of laws on money laundering, transgressions are rather more easily exposed. It’s becoming difficult for institutions with a reputation to protect, and who make a virtue of their honest-to-goodness quality, to go entirely off the radar.
But in a world where the race for financial one-upmanship between capital centres is getting increasingly more edgy, reputations of institutions are also vulnerable to spit-and-scoot attacks as well.
The gloves have come off. It’s going to get progressively more ugly.