Standard Chartered is the latest example of opacity driving out good behavior.
I ask readers to imagine that a decade ago Standard Chartered and other banks were required to provide ultra transparency and disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details.
Imagine the culture that would exist when there is this level of sunshine and everyone knows that any bad behavior today ends up on the front page of the Financial Times, the Telegraph and the Wall Street Journal tomorrow.
How do you think that a bank with this culture would approach clearing funds for Iran?
I think that a bank with this culture would take steps to ensure that it clears funds in as transparent a manner as possible (no stripping off who sent the money and where it went). It would also take steps to prevent clearing transactions that are money laundering.
Of course, Standard Chartered wasn't required to provide ultra transparency and Bloomberg reported on the resulting culture that is 'unfit' for holding a New York banking license.
New York’s financial-services regulator has grounds to shut Standard Chartered Plc (STAN) in the state even if he accepts the firm’s argument that it illegally laundered only a fraction of the $250 billion he claims.
As the state’s top banking regulator, Benjamin Lawsky has power to act in his discretion against any financial institution he deems untrustworthy, according to the charter of his year-old department.
Penalties he could impose include fines and the revocation of the bank’s license to operate in the state....
Since the Aug. 6 issuance of an order from Lawsky’s Department of Financial Services threatened to revoke Standard Chartered’s license, the bank has focused its defense on the amount it laundered, saying it involved less than 1 percent of the 60,000 Iranian wire transfers asserted by Lawsky.
Even if Standard Chartered’s position is legally sound, the order’s disclosure of internal e-mails suggesting a conspiracy to hide the identity of Iranian clients from regulators has given Lawsky grounds to act ...
“I don’t care whether it is a half of 1 percent that weren’t right,” said Arthur Levitt, former chairman of the Securities and Exchange Commission, in an interview yesterday on Bloomberg Radio.
“There are going to be more that weren’t right,” said Levitt, a board member of Bloomberg LP, parent of Bloomberg News. “The e-mails are really outrageous. I think Lawsky has uncovered something that probably has a much deeper depth.”
Standard Chartered’s e-mails, cited by Lawsky in the Aug. 6 order, provide suitable grounds for his action, said Owen Watkins, a partner with the London law firm Lewis Silkin.
“Making and publicizing the order was within the power conferred on Mr. Lawsky by section 39 of the New York Banking Law,” he said. “On the basis of the order, you can see that the superintendent has an arguable case, with the e-mails and the comments made by certain Standard Chartered staff internally.”...
“Willful non-compliance is very serious,” said Tariq Mirza, a former Federal Deposit Insurance Corp. official now with Grant Thornton. “If those allegations can be substantiated, regulators throw the book at institutions.”
Standard Chartered’s apparent effort to conceal the identity of its Iranian counterparties violated the terms of a 2004 settlement between it and the state of New York, in which the London bank pledged “to ensure compliance with all record keeping and reporting requirements,” according to the order.
For almost a decade starting in 2001, Standard Chartered operated under what Lawsky’s order called a “deceptive business plan” designed to conceal from regulators that it was processing money transfers for Iranian clients, including the central bank’s U.S. dollar transactions related to oil sales. The order cites bank e-mails and other internal documents to support its accusations.
Even before 2001, the order states, the bank’s general counsel “embraced a framework for regulatory evasion” by keeping its New York branch in the dark about Iranian transactions.
The bank allegedly accomplished this goal by stripping out the name of Iranian clients so as not to slow down transfers that might have to be reviewed for compliance with U.S. economic sanctions. Those restrictions allowed some transactions but not others as long as non-Iranian banks were involved on both ends....
All this alleged misconduct by “a rogue institution” had an effect on the “safety and soundness” of its New York branch and on the department’s confidence in the unit’s “character, credibility and fitness as a financial institution licensed to conduct business under the laws of this state,” according to the order.
Accusing the bank of “being motivated by greed,” the department’s order concludes that Standard Chartered’s “most senior management designed and implemented an elaborate scheme by which to use its New York branch as a front for prohibited dealngs with Iran -- dealings that indisputably help sustain a global threat to peace and stability. By definition, any banking institution that engages in such conduct is unsafe and unsound.”