Regular readers know that going public is a direct blow to the Financial-Academic-Regulatory Complex (FARC) and the policy of protecting the banks at all costs.
Since the time Paul Volcker was chairman of the Fed, it has become standard operating procedure for FARC to settle all problems with the banks behind closed doors. [Please recall that if the banks were required to provide ultra transparency and disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details most of this activity hidden behind closed doors would go away.]
By going public, the New York State Department of Financial Services is making it more difficult to settle on a bank friendly deal (where Standard Chartered doesn't admit it was guilty and pays a token fine based on the $14 million worth of transaction that Standard Chartered acknowledges violated US laws).
The Washington portion of FARC knows it needs to move quickly to get a settlement. The longer Standard Chartered is in the news, the more likely it is that everyone will link the lack of action on money laundering by the Washington portion of FARC with the lack of action that took place with Libor.
Upon making this linkage, it becomes a near certainty that someone will ask 'are the financial regulators part of the solution or are they a major part of the problem'.
In the meantime, the Washington regulators will try to suggest that the real rogue is not the bank engaged in money laundering, but rather the regulator who unilaterally moved forward to do something about it.
It is a well known strategy of FARC to claim that the regulators must coordinate their efforts and not do anything until every regulator has concluded their investigation. Of course, this means that nothing gets done as the most bank friendly regulator can never finish their investigation.
The Treasury Department and Federal Reserve were blindsided and angered by New York's banking regulator's decision to launch an explosive attack on Standard Chartered Plc over $250 billion in alleged money laundering transactions tied to Iran, sources familiar with the situation said.
By going it alone through the order he issued on Monday, Benjamin Lawsky, head of the recently created New York State Department of Financial Services, also complicates talks between the Treasury and London-based Standard Chartered to settle claims over the transactions, several of the sources said.
Lawsky's stunning move, which included releasing embarrassing communications and details of the bank's alleged defiance of U.S. sanctions against Iran, is rewriting the playbook on how foreign banks settle cases involving the processing of shadowy funds tied to sanctioned countries. In the past, such cases have usually been settled through negotiation - with public shaming kept to a minimum....Clearly Mr. Lawsky has upset the bank friendly status quo.
But the upset expressed by some federal officials, who were given virtually no notice of the New York move, may provide ammunition for Standard Chartered to portray the allegations as coming from a relatively new and over-zealous regulator....The issue is not how long a regulator has been in business, but rather did Standard Chartered knowingly break the law.
The loss of a New York banking license - effectively a permit to conduct transactions worth hundreds of billions of U.S. dollars — could be a death knell for a global bank like Standard Chartered. The 160-year-old bank said it has been in talks with U.S. authorities over its Iran transactions since early 2010 and the sudden accusations by New York were a shock.
In a statement on Monday, the bank said it was "engaged in ongoing discussions with the relevant U.S. agencies. Resolution of such matters normally proceeds through a coordinated approach by such agencies. The Group was therefore surprised to receive the order from (the New York bank regulator) given that discussions with the agencies were ongoing."...Discussions behind closed doors with bank friendly regulators.
It probably was very surprising to have a regulator effectively announce that the regulator actually wants to enforce the laws to the fullest extent possible.
Finally, it is only because of the coddling by the Financial-Academic-Regulatory complex that the bank would expect to be notified before receiving the order from the NY bank regulator. In a world where regulators are not partners with the banks, banks would live in fear of receiving an order and behave accordingly.
One area of sharp disagreement between Lawsky and Standard Chartered is just how much in illicit funds is involved. The bank put the value of Iran-related transactions that did not comply with regulations at less than $14 million. Lawsky estimated them at $250 billion.
The regulator said Standard Chartered moved money through its New York branch on behalf of Iranian financial clients, including the Central Bank of Iran and state-owned Bank Saderat and Bank Melli, that were subject to U.S. sanctions - generating hundreds of millions of dollars in fees.
At the center of concern were alleged "U-Turn" transactions, involving money moved for Iranian clients among banks in Britain and the Middle East and cleared through Standard Chartered's New York branch, but which neither started nor ended in Iran....
David Proctor, who worked for Standard Chartered from 1999 until 2006 and who oversaw the Iran business briefly in 2006 when he was CEO in the United Arab Emirates, said the rules on dealing with Iran were unclear.
"At the time (May 2006), ... the key question was to try and understand exactly what counted as a U-turn transaction," he said. Proctor, who now provides advice for banks with BAS Consulting in Singapore, said Standard Chartered now has to help clear up what actually happened. "Banks these days don't have a choice," he said. "You have to be transparent."Imagine that, transparency appears to end money laundering.