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Shares Of Standard Chartered Bank Fall After Allegations Made Over Involvement In Iranian Money Laundering

  • Standard Chartered is accused of helping Iran avoid sanctions by concealing $ 250B of transactions over 10 years
  • U.S. regulators have accused the London-based group of concealing 60,000 transactions with Iranian clients
  • Standard Chartered has refuted the charges, saying over 99.9% of the transactions complied with U.S. regulations

London -- What is Standard Chartered accused of?

Standard Chartered, a British banking giant, is accused of helping Iran avoid American sanctions by concealing $ 250 billion worth of transactions over nearly 10 years, according to banking regulators in New York.

The New York State Department of Financial Services Monday accused the London-based banking group of concealing 60,000 transactions with Iranian clients, including the Central Bank of Iran, from 2001 to 2010. The department says there is also evidence of similar schemes to conduct business with other U.S.-sanctioned countries such as Libya, Myanmar and Sudan.

Why are there sanctions in place?

The U.S. and its allies have increased economic sanctions against Iran during the past few years in an effort to deter the Islamic Republic from developing its nuclear capabilities. Iran has argued that its goal is to produce energy and medical isotopes, but U.S. officials say the Iranians are developing weapons.


Troubling news for Standard Chartered

Standard Chartered allegedly falsified business and official records to mask transactions with Iranian customers that were subject to U.S. economic sanctions, the New York State Department of Financial Services said. In exchange, the global banking group reaped "hundreds of millions" of dollars in fees, according to an order issued by the New York authorities.

More: Culture shift needed in banking?

The regulators said the bank's actions left "the U.S. 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."

How is Standard Chartered alleged to have violated the rules?

The regulators say Standard Chartered had a well-established policy to "repair" documents in so-called U-Turn transactions, in which offshore money passes through the U.S. financial system on its way to other offshore accounts.

Under federal law, banks are obligated to ensure that such transactions do not violate U.S. sanctions. But regulators say Standard Chartered's New York branch regularly manipulated wire transfers that would have identified Iranian customers in the U-Turn transactions.

The New York branch is mainly involved in clearing U.S. dollar transactions, on average $ 190 billion per day, for international clients. It was first granted a license to operate in New York as a foreign bank branch in 1976.

According to the order, an official in the bank's U.S. division warned top bank managers in London in 2006 that the bank could face "serious criminal liability," according to internal emails.

How was the warning received?

The warning was allegedly rejected by the recipient, who regulators say responded by writing in an email: "You f—ing Americans. Who are you to tell us, the rest of the world, that we are not going to deal with Iranians. [sic] "

According to the regulators, 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 dealings with Iran -- dealings that indisputably helped sustain a global threat to peace and stability."

More: Age of irresponsibility in banks?

The regulator has ordered executives of Standard Chartered -- which it says was operating as a "rogue institution" -- to appear in New York on August 15 to answer the charges. Standard Chartered could face fines and potentially have its U.S. banking license revoked.

How has Standard Chartered responded?

Standard Chartered has refuted the charges, saying "well over 99.9%" of the referenced transactions complied with U.S. regulations.

In a statement, the group said it "strongly rejects" the position and portrayal of facts made by the U.S. regulator, and that it had been conducting a review of its historic compliance which it was discussing with U.S. agencies.

More: Banking ethics "in question"

The statement said the group had approached U.S. agencies in January 2010 and informed them they had initiated a review of historic U.S. dollar transactions and compliance with U.S. sanctions.

It said the "group does not believe the order issued by the DFS presents a full and accurate picture of the facts," and "Standard Chartered ceased all new business with Iranian customers in any currency over five years ago."

Can Standard Chartered survive?

The bank is expected to face a large fine and executives -- including chief executive Peter Sands, who has been at the bank's helm since 2006 following four years as group finance director -- are expected to come under pressure. A bank spokeperson declined to comment on the possibility of resignations.

It will fight to hold onto its U.S. banking license and is likely to survive with bruises, according to analysts.

Daiwa Capital Markets credit analyst Michael Symonds said: "As we have seen most recently with Barclays and HSBC, it is the reputational hit and management distraction that results from these regulatory allegations that is likely to prove most costly."

The U.S. banking license is "very important" to Standard Chartered's operations, Symonds said. "We would expect the bank to do everything possible to maintain the license."

David Marshall, senior bank analyst at CreditSights, said the most likely outcome would be a fine but Standard Chartered "will have to demonstrate that it has improved compliance procedures." Resignations from senior management will probably be required, he added.

However if the regulator had found a "smoking gun" that the bank had been concealing the penalties would be more severe, Marshall said.

Cormac Leech, of Liberum Capital, said the bank was "very likely to survive," putting the chance of losing its U.S. licence at 10%.

Leech has a buy recommendation on the stock, which was been hammered in trading, given the market "seems to be discounting closer to a 40-50% chance based on current share price."

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