An "up-and-down" road sign is seen alongside the logo of Standard Chartered outside the company's headquarters in London, UK, on Tuesday. The bank is now being investigated by US financial regulators on illegal banking activities, which may kick it out of the US market. Simon Dawson / Bloomberg

US alleges bank's illegal Iran deals amount to $250b

The London-headquartered bank Standard Chartered Plc, which is the third British bank to be stung by US financial regulatory authorities' probes into illegal banking activities, has strongly refuted the claim that it has participated in alleged money laundering activities worth $250 billion in transactions with Iran in the last 10 years. Analysts cautioned that the possible penalties imposed on Standard Chartered would leave detrimental effects on the bank's operations in the US market.

Standard Chartered issued a statement to the Hong Kong Stock Exchange market on Tuesday in which the bank "strongly rejected the position and portrayal of the facts made by the New York State Department of Financial Services (DFS)."

"Standard Chartered has reviewed the transactions relating to Iran in the period 2001 to 2007 and finds out that well over 99.9 percent of the transactions relating to Iran complied with the US regulations. The total value of transactions that were not in compliance was under $14 million," the bank's statement said.

The bank, which ceased all new business in Iran in any currency in May 2007, pulled out of the Iranian market completely in May 2012, the bank added.

The DFS said that the British bank "schemed" with the Iranian government and had hidden from law enforcement officials some 60,000 secret transactions worth $250 billion tied to Iran that exposed the US banking system to terrorists, drug traffickers and corrupt states. The bank earned hundreds of millions of dollars fee incomes for handling transactions on behalf of Iranian institutions, the DFS said.

The New York's top bank regulator threatened to strip Standard Chartered Plc of its state banking license. The regulator, headed by former prosecutor Benjamin Lawsky, described the bank as a rogue institution and ordered Standard Chartered in mid-August to explain why the bank should not lose its state license and the ability to process dollar transactions. Lawsky also ordered the bank to bring in an outside consultant to monitor its transactions.

Standard Chartered "had previously reported that it is conducting a review of its historical compliance and is discussing that review with US enforcement agencies," the bank said in the statement, adding that the lender said it "waived its attorney-client and work product privileges to ensure that all the US agencies would receive all relevant information."

Standard Chartered is the third British bank to be ensnared in US law enforcement probes this summer. Barclays Plc agreed to pay $453 million to settle US and UK probes that it rigged a global lending benchmark in June. A month later, a US Senate panel issued a scathing report that criticized HSBC Holding Plc's efforts to police suspect transactions, including Mexican drug traffickers. HSBC last month made a $700 million provision for the US fines.

"The loss of a New York banking license would be a devastating blow for a foreign bank, effectively cutting off direct access to the US bank market in terms of the dollar payment activities," said Royal Bank of Canada analyst Patrick Lee. "It would potentially impact its core business trade finance model."

Standard Chartered currently processes $190 billion every day for global clients making it the seventh-largest in the world, the New York bank regulator said.

The scandal may cost the bank as much as $5.5 billion in fines, lost revenue and reduction in share price, said Cormac Leech, an analyst at London-based Liberum Capital Ltd.

Nomura Holdings cut its rating on the bank to "neutral" from "buy", saying there was "material headline risk" from the DFS allegations.

Standard Chartered's New York operation had $40.8 billion of assets at the end of March, according to the New York regulator. By comparison, the bank had $624 billion in assets at the end of June.

In Hong Kong on Tuesday, Standard Chartered shares plunged 14.8 percent to HK$160.1 a share, which is their biggest one-day fall since late November 2009.

Reuters and Bloomberg contributed to this story

oswald@chinadailyhk.com

(HK Edition 08/08/2012 page2)