The charges against Standard Chartered were a shock for a bank which proudly described itself recently as "boring" — its share price was down as much as 25 per cent before recovering a bit to close 16.5 per cent lower at 12.28 pounds on the London Stock Exchange.
The falling share price also affected the main FTSE 100 index in London — Standard Chartered makes up 1.5 per cent of the index's overall market value. In Hong Kong, where the bank's shares are also listed, they finished 14.9 per cent lower.
The storm surrounding Standard Chartered is the latest in a summer of scandals for the City of London — one of the world's leading financial centres. Bob Diamond, the chief executive of Barclays, was forced to step down after his bank was found to have manipulated a key interbank interest rate. HSBC has been fined for failing to stop money-laundering in Mexico and U.S. bank JPMorgan suffered a huge trading loss in its London office.
New York State Department of Financial Services alleged on Monday that Standard Chartered schemed with the Iranian government to launder $250 billion from 2001 to 2007, leaving the U.S. financial system "vulnerable to terrorists."
Standard Chartered said it "strongly rejects" the allegations. In a statement, the bank said "well over 99.9 per cent" of the questioned transactions with Iran complied with all regulations, and the exceptions amounted to $14 million.
Last week, Standard Chartered's chief executive, Peter Sands, boasted that the bank has racked up a 10-year string of record first-half profits "amidst all the turbulence in the global economy and the apparently never-ending turmoil in the world of banking."
"It may seem boring in contrast to what is going on elsewhere, but we see some virtue in being boring," Sands added.
Though based in London, Standard Chartered relies heavily on China and other emerging Asian markets, where it also has retail banking operations.
The New York regulator ordered Standard Chartered representatives to appear in New York City on Aug. 15 "to explain these apparent violations of law" and to demonstrate why its license to operate in the State of New York "should not be revoked."
Gary Greenwood, analyst at Shore Capital in London, said the possible revocation of the New York license was of far greater concern than any potential fine, which could run into hundreds of millions of dollars.
Standard Chartered's U.S. operation facilitates trade for customers that have operations in both the U.S. and emerging markets.
"Indeed, this is an area of the business that has been highlighted by management for growth," Greenwood said. "A loss of its U.S. banking license would not only jeopardize part of this profit stream, but the associated reputational damage could also have a severely damaging impact to its operations within emerging markets."
The New York agency alleged that Standard Chartered conspired with Iranian clients to route nearly 60,000 different U.S. dollar payments through Standard Chartered's New York branch "after first stripping information from wire transfer messages used to identify sanctioned countries, individuals and entities."
The New York regulators called the bank a rogue institution and quoted one of its executives as saying: "You (expletive) Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians."
The order also identifies an October 2006 "panicked message" from a London group executive director who worried the transactions could lead to "very serious or even catastrophic reputational damage to the group."
If proven, the scheme would violate state money-laundering laws. The order also accuses the bank of falsifying business records, obstructing governmental administration, failing to report misconduct to the state quickly, evading federal sanctions and other illegal acts.
Between 2004 and 2007, about half the period covered by the order, the department claims Standard Chartered hid from and lied about its Iranian transactions to the Federal Reserve Bank of New York. Before 2008, banks were allowed to transact some business with Iran, but only with full reporting and disclosure, the order states.
In 2008, the U.S. Treasury Department stopped those transactions because it suspected they helped pay for Iran to develop nuclear weapons and finance terrorist groups including Hamas and Hezbollah. The order states the bank has to provide information and answer questions to determine if any of the funding aided the groups or Iran's nuclear program.
"The extent of the claims, such as falsifying data to avoid investigation, look so damaging that we suggest Standard Chartered will need to put up a much stronger defence to get investors back on side," said Nic Clarke, analyst at stockbrokers Charles Stanley.
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