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Should U.S. Tell Foreign Banks Who They Can Do Business With?

When news broke Monday that New York regulators had accused Standard Chartered of laundering at least $250 billion for the Iranian government, the British bank found itself at the center of the latest banking maelstrom. The company's shares plummeted Tuesday as phrases like "rogue institution," "willful and egregious violations of law" and "terrorists, weapons dealers, drug kingpins and corrupt regimes" made the rounds on Twitter.

But as the afternoon wore on, and perhaps the stirs of patriotism subsided, some began to question whether the ire was entirely deserved.

"Isn't it at least worth contemplating the possibility that not acting as an adjunct to U.S. gunboat diplomacy is actually the more 'socially legitimate' course here?" one reader commented on Felix Salmon's Reuters blog.

In its regulatory order, the New York State Department of Financial Services alleges, among other things, that Standard Chartered engaged in "wire-stripping" (the intentional removal of codes so money transfers can go unidentified); wrote a training manual so employees would know how to conduct said stripping; asked its auditor Deloitte to omit information from reports submitted to regulators; and gave its entire money-laundering practice a code name, "Project Gazelle."

But, unlike HSBC, which essentially admitted guilt in its money-laundering scandal, Standard Chartered is denying the bulk of the allegations against it. In a formal statement released on Monday, the bank asserts that only $14 million worth of transactions failed to comply with regulations, that it ceased all new business with Iranian customers in any currency over five years ago and, most notably, that it "strongly rejects the position or the portrayal of facts as set out in the order issued by the DFS."

According to Reuters, Deloitte is similarly denying any wrongdoing.

Whether or not all the allegations are true, a provocative question was posed by the London official quoted in the New York regulator's order (and subsequently everywhere else on the Internet). 

"You [expletive] Americans," the official allegedly wrote to an executive in the Americas who attempted to warn him of the repercussions attached to doing business with Iran. "Who are you to tell us, the rest of the world, that we're not going to deal with Iranians?"

Or, as another Salmon commenter more politely phrased it, "why is it OK for the U.S. to unilaterally declare that people all across the world cannot do business with Iran?"

A CNN commenter provided a potential answer to this question by pointing out, "You do realize this bank is in America, and we seem to have a problem with Iran right now."

And others are quick to point out that, regardless of the pariah nation in question, foreign banks need to listen to us [expletive] Americans the second they set up shop on our shores.

As one commenter wrote on a Naked Capitalism blog post questioning the New York Fed's involvement (or lack thereof) in unearthing the scandal, "If you want to have a U.S. bank charter, you have to play by U.S. banking rules."

Do U.S. regulators have the right to tell foreign banks not to do business with certain countries? What's your take on the Standard Chartered money-laundering allegations? Post a comment below. 

Jeanine Skowronski is the deputy editor of BankThink.


(12) Comments



Comments (12)
I applaud the comments that point out that US regulators should have power to apply their laws to banks that hold licenses to transact business inside the US. The term 'foreign banks" in the title of Ms. Skrowronki's article begs the question: Stanchart is a licensed bank in New York state, subject to its laws and to examination and supervision by it and other bank regulators and law enforcement agencies in the US. One of the most important aspects of licensure, examination, and regulation is the accuracy of bank records. Stan chart stands accused of purposefully obscuring the identities of parties to dollar-denominated transactions involving iran. Obstruction of beneficial interests was in aid of transfers that volateUS laws and UN sanctions for which the US and also Stan chart's home state regulator, the UK, voted. Thus, it would appear disingenuous for the bank to claim that US laws don't apply and the charges suggest that senior bank management urged expansion of this clearing thrrough New York.

Holding a NYS license is a privilege and one that provided lucrative rewards for StanChart. With such privileges come responsibilities, and the responses from StanChart's managers after the Department of Financial Institutions broke its order to show cause suggest that StanChart does not appreciate the responsibilities that come with the privilege, only the income stream.

Shame on them.
Posted by Bank regulation | Saturday, August 11 2012 at 10:12AM ET
What is so hard to understand? The purpose of a regulation is to conform behavior. Get caught throwing a spitball or using a corked bat and you get ejected from the game. That's how we F--- Americans play the game!
Posted by Bigfoot | Wednesday, August 08 2012 at 8:16PM ET
If "these payments were perfectly legitimate even under US laws", why did the Bank go to great lengths to strip the identifying information?
Posted by MrPotter | Wednesday, August 08 2012 at 6:09PM ET
Plain, simple and longstanding - if you want to do business in this Country and the State of New York - you MUST abide by our rules and regulations.
Posted by Big Bob | Wednesday, August 08 2012 at 4:11PM ET
Although I can understand how the US would want to regulate the type of transactions that a foreign bank operating in the US conducts through their US offices, I believe it would be presumptuous to tell them what type of transactions they can conduct in their offices in other countries. Many foreign banks with offices in the US sent wires from other offices in the world to countries like Cuba, Iran, Lybia and other for legitimate businesses that are not related to US companies. While it would be nice that our enemy is their enemy, the whole financial world is not connected to US business and the US should not expect to have a say so or control it.
Posted by MartaC | Wednesday, August 08 2012 at 2:40PM ET
No foreign bank should be given an advantage ove US banks while doing business in the US. If US banks can not do business with Iran no other bank operating in the US should be able to do business with them. This is not arrogance it is fair trade practice. If they want to do business with Iran they have at least two choices. Give up their US charter and not operate in the US (maybe it would be more profitable to setup shop in Iran than the US) or work behind the sceens to remove the situations that are causing the US not to allow business with Iran. As long as a company operates in the US it should be under the US rules of operation.
Posted by steveemmons | Wednesday, August 08 2012 at 1:46PM ET
Has Standard Chartered Bank forgotten the pictures from the acts of terrorism that they are aiding Iran thru money laundering. If they wish to conduct business in this manner, by all means let them leave the US.
Posted by pdf95499336 | Wednesday, August 08 2012 at 1:03PM ET
These comments just exemplify the typical US knows better than the rest of the world. Has anyone actually read the statement from StanChart saying that these payments were perfectly legitimate even under US laws? Prior to 2008 foreign banks could do U-turn payments. It is only now that the US authorities are trying to rewrite history. Where is the opprobrium for Bank of America and Wells Fargo (then the Wachovia side of that bank) for money-laundering in Mexico. Where's the calls to close those banks down for those activities? Selective thinking here? And if you think that US banks were not involved in funnelling IRA money 20 years ago, you are very much mistaken (never mind your politicians contributing, when they wanted to get the Irish votes). I don't recall US banks being thrown out of London for going against what the UK government/people would have wanted.
Posted by markinusa | Wednesday, August 08 2012 at 12:16PM ET
The US has laws that need to be followed. If a foreign company establishes an office in the US and does business using the US office, there are rules to follow and if found guilty of violating the law shut them down. Otherwise, the US will become the operating center for those companies circumventing their (charter) country's laws. US citizens and corporations follow the law. Why should foreign companies be exempt from sanctions or shut down penalty?
Posted by Independent Thinker | Wednesday, August 08 2012 at 12:02PM ET
No, US regulators should not be able to tell any bank with whom they can transact business. What US regulators can and should be able to tell any bank that "if you're going to do business in the US, these are the rules you must follow." Standard Chartered can do business with whomever it wishes. But if it wants to continue to do business in the US it has to follow the US rules. HSBC can also do business with whom they wish, including Mexican drug lords, but they can't do it while doing business in the US. Would Standard Chartered have stood up 20 years ago and said "If we want to do business with the IRA, who is the Bank of England to say we can't?". I doubt that very much.
Posted by Bill Chambers | Wednesday, August 08 2012 at 11:31AM ET
For the sake of making money, and nothing else, and with the uncaring consequence of aiding criminal organizations and adversarial political regimes, Standard Chartered Bank was blatantly gaming the American financial system and got caught. And now, like a morally-challenged sociopath, they are denying any wrongdoing. The really dark side of this, however, is the number of seemingly sympathetic sociopaths who have been flushed out in defense of this bankrupt philosophy of "anything to make a buck". Obviously the products of deprived childhoods and mass education.
Posted by mdillon | Wednesday, August 08 2012 at 11:05AM ET
The recent revelation regarding Standard Charterer's defiance of the US prohibition on trading with the enemy, in this case $250 billion in volume with Iran, are icing on the cake for those calling for the increased regulation of the banking industry. This is hot on the tail of the trading loss at JPMorgan/Chase, and the manipulation of LIBOR by Barclay's and the other 15 parties which 'quote' LIBOR.

A picture is being painted of a malignant arrogance in the upper ranks of Money Center Finance (especially Wall Street and London) that they are indeed the smartest people in the room. This is a form of intellectual arrogance that criminals share with them, that they are smarter than law enforcement, that they are entitled, special, and that the rules don't apply to them.

In Japan, traditionally, the best and smartest business and finance students go into government. Not so in the U.S. where the aspiration is to go to Wall Street. This leads to a belief that regulators are an intellectual second-class. As a result, there is a belief of those in high finance that they can out-think their counterparties at the regulating agencies. This, I believe, should be self-evident to an unbiased industry observer.

Profit is well and good, but laws are laws. No one is telling Standard Chartered that they can't do business with our enemies. However, if Standard Chartered wants to do business in the U.S., they will not do business with Iran, or North Korea, or Cuba at this time. Standard Chartered's belief that they can ignore our laws and still do business in the U.S. reeks of a sense of entitlement. And this sense of entitlement is at the core of the issue: a belief that they are special, unique, and deserve to be treated differently. However, the U.S. is a republic, and everyone must live under and abide by the same laws.

We are not a society with a class system, and it is long overdue that this message be sent to Wall street and London. The fines must be severe so that there is no profit motive in breaking laws. And for those breaking criminal law, they should spend time reflecting with their more common brethren in prison.
Posted by Pegasus Intellectual Capital Solutions | Wednesday, August 08 2012 at 10:37AM ET
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