Benjamin Lawsky, head of the New York State Department of Financial Services, threw a double curve when he ordered London-based Standard Chartered to appear on Aug. 15 to explain why its charter to operate in the state should not be revoked. Not only was Standard Chartered apparently blindsided by the move, so were federal regulators; negotiations had been ongoing for some time for what the bank hoped would be a quiet settlement without embarrassing details made public.
Not anymore. Reuters reported Wednesday that Lawsky was not interested in a quiet settlement typical of those negotiated by federal regulators. His order to Standard Chartered cited e-mails and other documentation that will make it tougher for the bank to defend its policy, which it has said amounted to less than $14 million in transactions that violated anti-money -laundering regulations from among 60,000 wire transfers. Lawsky’s agency puts the figure at $250 billion instead.
Bloomberg quoted an unnamed source familiar with the New York investigation crediting those e-mails with making Lawsky take unilateral action, instead of waiting for other agencies investigating the bank. They include the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), the Federal Reserve Bank of New York, the Justice Department, the New York District Attorney and the FBI.
The bank had turned over documents from an internal investigation to federal agencies and to Lawsky’s agency as well.
On Monday the bank issued a statement that said in part that it was “engaged in ongoing discussions with the relevant U.S. agencies. Resolution of such matters normally proceeds through a coordinated approach by such agencies. The Group was therefore surprised to receive the order from [the New York bank regulator] given that discussions with the agencies were ongoing.”
OFAC was likewise surprised, and David Cohen, under secretary for terrorism and financial intelligence, was taken off guard by the DFS action, according to unnamed sources. Jay Carney, White House press secretary, said that sanction violations were taken “extremely seriously” and that the Treasury Department was in close touch with federal and state authorities over the case.
DFS was formed in 2011 when the now-defunct Banking Department and Insurance Department transferred their functions and authority to Lawsky’s bailiwick. His agency can issue regulations, investigate and fine financial services companies, investigate alleged criminal activities and send its findings to the New York attorney general so that wrongdoers can be prosecuted.
Under this broad scope, the tone of the e-mails—which seem to open a window into efforts to hide the bank’s behavior—was cited as the main factor in the action. One e-mail from the U.S. head of Standard Chartered’s business in New York in 2006 carried a warning that the bank’s actions on so-called U-turn transactions involving countries under U.S. sanctions could result in “catastrophic reputational damage.” The London response was, according to Lawsky’s order, to refer to the U.S. employees with an obscenity and say, “Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”
Lawsky’s office is also investigating transactions that involve Myanmar, Libya under Moammar Gadhafi, and the Sudan.