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The US Treasury and the Federal Reserve have been angered by the New York banking regulator’s surprise decision to accuse Standard Chartered of conducting secret money laundering transactions with Iran.The explosive allegations by Benjamin Lawsky, head of the recently created New York State Department of Financial Services, complicate talks between the Treasury and the 160-year-old British bank to settle claims over the transactions, Reuters reported, citing sources.
Some federal officials were given virtually no notice of the New York move.
Mr Lawsky’s report, full of colourful language alleging “fraud” and a “staggering cover up”, threatens to rewrite the rules on how foreign banks settle such cases. In the past they have been almost choreographed with public shaming kept to a minimum.
Several senior British politicians have accused the New York regulator of pursuing an anti-City agenda to weak London’s standing as a financial centre. Boris Johnson, the Mayor of London, warned that the “proper desire to root out wrongdoing” should not become an excuse for “protectionism” and a “self-interested attack”.
Standard Chartered shares rose 7pc in early trading in London on Wednesday, after plunged 16pc on Tuesday as analysts said it could lose 40pc of its earnings if US regulators are successful in securing money-laundering charges against the bank. Shares in the bank rose more than 2pc at one stage in Hong Kong on Wednesday.
A spokesman for the Federal Reserve told Reuters it had been working closely with various prosecutorial offices on matters involving Iran and other sanctioned entities, but could not comment on ongoing investigations.
White House Press Secretary Jay Carney said the government takes alleged violations of sanctions “extremely seriously” and the Treasury remains in close contact with federal and state authorities on the matter. The official silence from Treasury is seen as conspicuous by some commentators and analysts.
Standard Chartered issued a firm rebuttal, saying it “strongly rejects the position and portrayal” of the allegations, but it failed to prevent the shares tumbling more than 25pc at one stage. The bank admitted it was “in discussions” with a range of US regulators on “historic compliance” with money-laundering regulations but that the investigations had not finished.
Peter Sands, chief executive of Standard Chartered, cut short his holiday and returned to London to try to limit the fallout. It is not yet clear if Sands will personally travel to New York to answer allegations at a hearing set for August 15.
On Tuesday night, Mr Sands told The Daily Telegraph: “We were surprised to receive the order [from New York State Department of Financial Services], given that discussions with the agencies were ongoing. Resolution of such matters normally proceeds through a co-ordinated approach by such agencies.” He added: “We are working out our next steps and liaising with the other agencies in the US and, of course, the FSA.”
Sir John Peace, the bank’s chairman, flew from Florida where he was on holiday to talk to Standard Chartered’s lawyers in New York.
Analysts and investors described the share-price rout as “shocking” as anger was directed both at the bank’s management and Mr Lawsky for his handling of the announcement.
One top institutional investor said: “This is just a tiny regulator grabbing the headlines. But these days, politics can be very dangerous.” He added: “People are terrified in this situation because the scale of the fine, the losses, the loss of licence is so unknown and could even lead to the chief executive having to go, or whatever else. There is a lot of fear.”
Mr Lawsky has accused the bank, which employs nearly 90,000 people worldwide, of breaking money-laundering rules and processing $250bn of transactions on behalf of Iranian clients. The regulator has given the bank until next week to “demonstrate why [the bank’s] licence to operate in the state of New York should not be revoked”.
Analysts estimated that losing the ability to clear transactions through the US could wipe as much as 40pc off the group’s earnings. Others forecast that the bank could face a $1.5bn fine plus losses of around $1bn from its Iranian business and a further $3bn of losses if senior managers were forced to quit.
It emerged that Richard Meddings, Standard Chartered’s finance director, was the “Group Executive Director” accused of showing “obvious contempt for US banking regulations”. The US regulator’s order alleges that Mr Meddings’ response to warnings about the bank’s Iranian operations was: “You f——- Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”
The order is the latest in a run of allegations made by US regulators against British banks. Last month, regulators accused HSBC of facilitating money laundering on behalf of clients from high-risk countries including Mexico and Russia. In June, Barclays was fined $450m by regulators in America and Britain for attempting to rig Libor rates used to set the prices of trillions of dollars worth of financial securities.