Market value of Britain’s second largest bank Standard Chartered falls by a quarter after Iranian money laundering allegations


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The Independent Online

The market value of Britain’s second largest bank fell by almost quarter today after it was accused by US regulators of laundering $250bn from Iran and behaving like a “rogue institution”.

In the latest blow to the reputation of the City of London Standard Chartered was accused by regulators in New York of leaving the US financial system “vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes” through its “flagrantly deceptive actions” between 2001 and 2010.

The bank, which is second only to HSBC in market capitalisation and has extensive operations across the globe, lost 23 per cent of its value in trading this morning. This was on top of a fall of six per cent in the final minutes of trading yesterday when the news broke.

The bank, which employs nearly 90,000 people worldwide and is primarily focused on Asian markets, has been called to appear before regulators on Monday to explain the apparent violations and defend its licence to trade on the New York Stock Exchange.

The revelations are all the more embarrassing because Standard Chartered largely escaped unscathed from the financial crisis and its senior executives in London have close links to senior politicians in both countries.

Its chief executive Peter Sands was instrumental in advising the Gordon Brown on the initial banking bail out in 2008 and sits as a non-executive director of the board of the Department of Health.

He has been one of the most vocal opponents of new regulations that have been advanced to curb the excesses of the financial sector. He has even been promoted in some quarters as a possible replacement for Sir Mervyn King as Governor of the Bank of England.

This morning John Mann, a member of the Treasury Select Committee, called for an inquiry into what he described as “international money laundering” by British based banks.

“I have no truck whatsoever with British banks profiteering from Iran and Burma, nor with US banks profiteering from drug and illegal arms money or the private accounts of world dictators,” he said.

“The British Parliament should instigate an unbiased and far reaching investigation into money laundering in Britain, involving British banks and the endangering the well being of British interests and the British people.”

In an explosive legal order released yesterday, New York State's Department of Financial Services accused the New York branch of the 160-year-old institution of earning millions of dollars in fees by “conspiring” with Iran in around 60,000 “secret transactions”.

This behaviour, according to the regulator, had been purely “motivated by greed” on the part of Standard Chartered.

The regulator also said it had uncovered evidence of similar schemes by Standard Chartered to conduct business with Libya, Burma and Sudan, all of which have been subject to sanctions by the US.

The findings include a memo sent in October 2006 from the bank's US chief executive to the group executive director in London raising concerns about the activities with Iran.

He said: “Firstly, we believe (the Iranian business) needs urgent reviewing at the group level to evaluate if its returns and strategic benefits are ... still commensurate with the potential to cause very serious or even catastrophic reputational damage to the group."

He added: “Secondly, there is equally importantly potential of risk of subjecting management in US and London (for example you and I) and elsewhere to personal reputational damages and/or serious criminal liability."

The group executive director in London allegedly replied: “You f****** Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians.”

The bank has been threatened with having its US banking licence revoked and has been ordered to appear before the regulator soon to explain these apparent violations. The accusations are the latest blow to the reputation of the British banking sector. In July, a United States Senate panel found that HSBC was used by Iranians looking to evade sanctions and by Mexican drug cartels.

And in June, Barclays was fined £290m by UK and US regulators after the bank admitted that it had manipulated the Libor interest rate, which is used to set the prices of trillions of dollars worth of loans around the world, to inflate the bonuses of traders in its investment bank.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “There is some irony that, a few days after describing its approach as 'boring' at its interim results, Standard Chartered should become embroiled in yet another potential banking scandal.

“The allegations serve to add more risk to an already beleaguered sector.”