US Outlook Standard Chartered was no rogue bank. In fact, it might have been one of the financial institutions that was most helpful to the US Treasury here as America has ratcheted up financial pressure on Iran over the past decade.
Being labelled a "threat to global peace and stability" is a dangerous blow to its reputation, for sure, but the biggest reason that Standard Chartered bosses, and its chief executive Peter Sands in particular, have appeared so wounded this week is personal. As far as they are concerned, they are the good guys.
Two former Treasury officials have told me that the department had particularly good personal relations with Standard Chartered executives, who provided information and advice when first the Bush administration and then the Obama one worked to cut Iran off from international finance.
The evolving sanctions regime was based on a novel premise: the interconnectedness of the global payments system, and the centrality of the US dollar to global trade, could be used to magnify the effect of American sanctions far beyond its borders. The old way might be to ban American banks from trading with Iran and leave it at that; the new regime was designed to go further, to encourage the private sector to limit its overseas dealings with Iran voluntarily. Call it a kind of wary public-private partnership.
To make it work, the Treasury needed good intelligence from the banks about the way the payments system worked. I'm told that Standard Chartered was one of the banks that provided that intelligence.
The man behind the novel regime, the Treasury's undersecretary for terrorism and financial intelligence, Stuart Levey, waged a campaign of moral suasion and gentle threat to encourage foreign banks from doing business with specific Iranian institutions – and the list of institutions grew as intelligence came in about suspicious funding activities. Mr Levey described in Congressional testimony in 2007 how he had "engaged in unprecedented outreach to the international private sector, meeting with more than 40 banks around the world to share information and discuss the risks of doing business with Iran."
By the middle of 2007, according to diplomatic cables published by WikiLeaks, Mr Levey was telling Middle Eastern regimes that Standard Chartered was among the banks that had dramatically cut their business with Iran in response.
Today, Mr Levey is chief legal officer at HSBC, hired to clean up that other British institution after money laundering failures of its own.
The big picture is one of co-operation between Standard Chartered and the US authorities, not the cat-and-mouse game of sanctions-evasion painted in the explosive regulatory order from the New York state Department of Financial Services (DFS) at the start of this week. The details, though, turn on the characterisation of payments that flowed through Standard Chartered from Iranian sources earlier in the last decade, and on this the DFS is way out of the mainstream.
As is now well-known, the sanctions regime until 2008 allowed Iranian oil money to keep flowing through the global system, thanks to so-called "U-turn" payments in and out of the US, as long as the payments were processed between non-Iranian, non-American institutions not subject to sanctions.
Unfortunately, keeping track of the ultimate origin and destination was not straightforward, since – oh, that damned complexity again – a large proportion of all international bank transfers (perhaps as much as one-quarter) are processed in such a way that they have been stripped of that information. These so-called "cover payments" are designed to be extra-fast, most usually a way of dealing with time zone differences between transferring banks.
Obviously, they also have the potential for masking abuse of sanctions, which is why Iranian banks seem to have demanded that they be used as a matter of course.
The Treasury began flagging this practice as a problem in about 2007, and encouraged the industry to work out the technology and the standards for re-linking originator details to pay ments. It wasn't until 2009 that a proper system was hashed out with the SWIFT bank payments organisation, and it is only now, since clear new standards have been introduced via the Bank for International Settlements, that the Obama administration has been able to sharpen the law on banks that doctor payments records.
As the US Treasury pointed out in a letter to George Osborne in the UK this week, US authorities have been pursuing banks for stripping originator information from specifically sanctions-busting transactions since a settlement with ING in 2005. But there has never been any suggestion until the DFS's intervention on Monday that a small number of potentially illegal transactions should render a bank punishable for every single cover payment it ever processed.
Benjamin Lawsky, head of the DFS, has looked a touch sheepish since coming out so forcefully on Monday accusing Standard Chartered of processing $250bn in transactions that violated money laundering laws. His only personal comment on the subject, on Wednesday, was noticeably blander than the language in his legal filing. "This is a case about Iran, money laundering, and national security," he said, adding: "No bank, big or small, foreign or domestic, is above the law."
That's boilerplate stuff, suggesting to my mind that he has been surprised by the behind-the-scenes backlash from other regulators, from which he has chosen to break.
The 42-year-old marathon-enthusiast, who has a pile of worn-out running shoes behind his office desk, is in the long tradition of aggressive, ambitious and media-savvy prosecutors to have pursued wrongdoing in the banking sector.
The question is, what will he do next? There is a very great difference between his retrospective interpretation of the sanctions laws and their interpretat ion at the time, but in a corner, he might not be able to back down.
In fact, he could become more dangerous than ever.
If he stands by his view that all cover payments were illegal, it follows that the authorities have been too soft in pursuing these issues over the past decade. That could tempt him to open up the issue of whether the banking industry has been too close to the Treasury and other agencies. He may slap the label "rogue" on still more of the good guys. Brace yourselves.