Standard Chartered was branded a rogue institution in August, following the New York State Department of Financial Services’ investigation.
The latter accused Standard Chartered of deliberately hiding 60,000 secret transactions, equating to $250 billion, with the Iranian government between 2001 and 2007.
It also revealed they did not tell the US about this for another three years, to enable Iran to evade sanctions imposed by that country.
The scrutiny follows recent reports of the involvement of HSBC USA in money-laundering activities and Barclays in Libor fixing, resulting in a loss of trust in the financial sector’s ability to regulate its affairs.
Things could have easily ended in disaster for Standard Chartered during the hearing on 15 August by the New York DFS. The bank was forced to confront its charges of exposing the US financial system to terrorists, weapons dealers and drug kingpins.
A quick payment of $340m in civil penalties and an agreement to the installation of a monitor in its New York branch to assess its money-laundering operations meant Standard Chartered had a narrow escape. But despite these measures, its reputation is in ruins and the nature of the bank’s settlement has raised further questions over bank regulation.
Effectively the bank’s decision to opt for a fast settlement of the charges allowed it to escape from sinking sand.
Furthermore, its shareholders bear the weight of the fine, which they can handle. Standard Chartered is able to continue operating throughout the US financial sector and will not have to defend its actions before the regulator.
Crucially, the bank was able to hold on to its licence. Not only did its management avoid scathing examination in court, but share prices recovered and they also quickly recaptured over half of its 22 per cent drop following the accusations on 6 August.
What is more worrying is Standard Chartered’s initial reaction of denial and indignation at the DFS charges. If the bank’s initial response was warranted, the settlement is even more alarming as it suggests that, when faced with severe charges by regulators and the loss of its licence, Standard Chartered had little option but to pay up.
Gaining payments by the threat and bargain approach is open to criticism as it could be considered equal to legalised extortion, which is ethically questionable. It seems that companies are willing to pay significant sums of money to escape corporate indictment as the cost of criminal charges is far greater and more damaging.
The New York regulators’ order centres on Standard Chartered’s general counsel and compliances offices, putting the bank’s lawyers in the spotlight. The latter are currently in an uncomfortable position, facing criticism along with the employees making the repairs and the managers overseeing them.
There are ongoing concerns over the financial regulatory system as a whole, especially when in-house counsel fail to meet high standards. Arguably, big banks are being scrutinised because their in-house lawyers and bankers have placed too much focus on speed and profit.
It’s important that banks clean up their act, maintain stricter regulation and uphold appropriate values throughout their organisations in order to restore confidence in the financial industry as a whole.