New York on Solid Ground to Sanction Standard Chartered, Experts Say

While London’s response to this latest blow to its banking sector has been largely to attack the regulator challenging it—Bank of England (BoE) Governor Mervyn King has jumped on Lawsky for his independent action, while Mayor Boris Johnson instead went the conspiracy theory route, saying that New York is attacking its largest business competitor as a means of defending its own financial center—others are defending Lawsky’s actions. “This is not Lawsky getting ahead of other regulators,” said Neil Barofsky in the report. Barofsky, who oversaw the U.S. Troubled Asset Relief Program (TARP) and criticized the U.S. Treasury Department in his book Bailout, added, “This is Lawsky doing his job.”

Another factor in the case is the 2004 agreement Standard Chartered had with New York over previous violations involving its anti-money-laundering policies and procedures. Standard Chartered signed an agreement with the New York State Banking Department and the Federal Reserve Bank of New York in which, according to the order, it pledged “to ensure compliance with all record keeping and reporting requirements.”

The agreement not only applied to money laundering, but also, from 2004 to 2007, subjected the bank to formal departmental action over regulatory compliance failures in connection with the Bank Secrecy Act and regulations of the U.S. Office of Foreign Assets Control. But in 2007, the bank provided a “watered-down” compliance report; the Banking Department was thus “misled” into lifting the restrictions, according to the order.

Lawsky’s order said the bank since 2001 had been engaged in a “deceptive business plan” that involved hiding proscribed transactions and falsifying records to keep the truth from regulators. Instead, according to the order, the bank not only had, prior to 2001, “embraced a framework for regulatory evasion,” but went after greater market share in those transactions.

The order said, in part, “Led by its most senior management, SCB designed and implemented an elaborate scheme by which to use its New York branch as a front for prohibited dealings with Iran. By definition, any banking institution that engages in such conduct is unsafe and unsound.” This behavior by a “rogue institution,” the order continued, affected the “safety and soundness” of the New York branch of the bank and cast doubt on its “character, credibility and fitness as a financial institution licensed to conduct business under the laws of this state.”

Tariq Mirza, a former Federal Deposit Insurance Corp. official now with Grant Thornton, was quoted saying, “Willful noncompliance is very serious. If those allegations can be substantiated, regulators throw the book at institutions.”