Standard Chartered agreed last night to pay $340m (£217m) to settle sanctions-busting allegations in the US, protecting its valuable New York banking licence and averting an embarrassing public hearing that had been scheduled for today.
The bank has admitted processing $14m of Iranian money through the US, in contravention of strict financial sanctions on the country over the past decade, but the New York state Department of Financial Services (DFS) additionally accused it of deliberately obscuring the origins of $250bn of Iranian money that flowed in and out of its American subsidiary.
That practice, the DFS's superintendent, Benjamin Lawsky, claimed, raised doubts about whether Standard Chartered was "fit and proper" to operate in the US.
Mr Lawsky announced that the bank has agreed to pay a civil penalty to the state and to install a monitor for at least two years who will evaluate money-laundering risk controls of its New York branch and take corrective measures. State agency's examiners will be placed at the bank.
Peter Sands, the London-listed bank's chief execuive, flew in to New York this week to manage the bank's discussions with the DFS and with other regulators that are also investigating sanctions violations. Those other regulators, including the Department of Justice, have not so far taken as hard a line as Mr Lawsky, which is why the DFS's public threat last week to revoke Standard Chartered's licence came out of the blue. He had demanded that bank executives appear at a hearing into the matter at 10am today, though it was never clear if the hearing would be public or private.
In the end, Standard Chartered has decided to pay a hefty settlement rather than risk an embarrassing and prolonged showdown, even though it had rejected Mr Lawsky's accusations as a deliberate misunderstanding of normal bank processes. Significantly, the bank has now "agreed that the conduct at issue involved transactions of at least $250bn", Mr Lawsky said. As a result, the $340m payment is an order of magnitude larger than anything previously envisaged. Standard Chartered had proposed a $5m fine.
Though the contours of the deal have been finalised, the legal wording has not yet been agreed. Bank analysts will want to see the fine print of any admissions by Standard Chartered and the legal arguments used by Mr Lawsky, to see if the precedent changes the balance of power in other negotiations over sanctions and money laundering violations. Standard Chartered said it continued to "engage constructively" with other US agencies, and HSBC is still to wrap up its own talks with an array of US regulators over multiple failures to lock Mexican drug gangs, Iranian sanctions-busters and others out of the US banking system.
For Mr Lawsky, the settlement will be the first lucrative victory for his agency, which was created this year from the merger of the state's previously supine insurance and banking regulators.
Meanwhile, Deloitte, the accounting firm, has been pushing back against allegations from Mr Lawsky that it helped Standard Chartered hide transactions with Iran. The regulator's claims are "distortions of the facts", said Joe Echevarria, Deloitte's chief executive.
The DFS cited an email from a Deloitte partner saying he drafted a "watered-down version" of the report after being asked by Standard Chartered to omit information.
"It's an unfortunate choice of words that was pulled out of context," Mr Echevarria told Reuters. "Contrary to the allegation, [Deloitte] "absolutely did not delete any reference to certain types of payments."Reuse content