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The Standard Chartered case adds pressure on banks to make sure not only their technology, but also their culture, is designed to prevent the laundering of funds.
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As Standard Chartered deals with the fallout over accusations it laundered money for Iran, some wonder if U.S. regulators have been overreaching.
August 7
Britain's Standard Chartered Bank will pay $340 million to settle claims that it laundered hundreds of billions of dollars in illegal foreign transactions for Iran and other parties.
The case was brought by New York State's Department of Financial Services, a combined banking and insurance regulator that shocked both London and Washington by aggressively interjecting itself into the Standard Chartered matter. Other banks have quietly settled similar allegations with federal regulators in the past, paying big fines but staying out of the limelight.
In contrast, the DFS threatened to revoke Standard Chartered's state banking license and publicly aired damning emails in which a bank executive aggressively stated contempt for Washington prohibitions on dealing with Iran.
"You [expletive] Americans," the most widely cited such email read. "Who are you to tell us, the rest of the world, that we're not going to deal with Iranians."
The enforcement action by the DFS, a recently reformulated agency headed by Benjamin Lawsky, effectively sidelined Washington regulators from the enforcement action. Notably, Lawsky's settlement does not include the Treasury Department or other federal enforcement bodies that may still have open investigations of Standard Chartered, leaving the question of whether Standard Chartered has fully resolved its legal issues unclear.
"While the dollar values in some prior sanctions cases against foreign banks have been huge, the New York Department of Financial Services' threat to pull Standard Chartered's license is likely to be viewed by most banks as much more ominous," said Meredith Rathbone, a partner in Steptoe & Johnson's DC office who handles AML cases. "It is unclear whether the New York Department of Financial Services involvement in sanctions enforcement actions is going to become the 'new normal' in this space."
Unlike previous large-dollar laundering settlements which went to the federal government (Credit Suisse) or ones that were split between New York and the U.S. (ING) Standard Chartered's $340 million will go entirely into New York State's general fund.
The DFS's aggressive methods and results will likely raise eyebrows both in Washington and abroad. Following the DFS's initial salvo in the case, politicians and newspapers in the UK branded Lawsky a "rogue regulator."
"This is a substantive strategic event for not just foreign banks in the US but for any bank with a state charter," said Karen Shaw Petrou, Managing Partner of Federal Financial Analytics. "Standard Chartered saved its license at the cost of $340 million and a lot of reputational damage."
Standard Chartered initially argued that its prohibited transactions were limited to around $14 million, and were the result of administrative errors. According to the DFS release on Tuesday, the bank agrees that "the conduct at issue involved transactions of at least $250 billion." But the release does not state that Standard Chartered concedes it has misbehaved.
The settlement will give New York significant oversight of the banks' anti-money laundering efforts in the future. In addition to the fine, Standard Chartered has also agreed to give the DFS significant access to its operations in order to monitor for compliance.
"The Bank shall install a monitor for a term of at least two years who will report directly to DFS," the department's release states. "In addition, DFS examiners shall be placed on site at the Bank."
While DFS's actions may have been a surprise to regulators in the UK and Washington, they appear to have gone over well in Albany. Shortly after the DFS announcement, the office of New York Governor Andrew Cuomo issued a press release praising Lawsky's actions.
"This state and nation are still paying the price for a failed regulatory system and that must not happen again," the release from Cuomo's office states. "[The settlement with Standard Chartered] demonstrates the effectiveness and leadership of the new Department of Financial Services, and I commend the state legislature for creating a modern regulator for today's financial marketplace."
