JUST when it felt as if it couldn’t get any worse for the City, it is now Standard Chartered’s turn to be engulfed in a major scandal. The bank – which didn’t need a bailout and is hugely successful thanks to its emerging market focus – stands accused by US regulators of having deliberately ignored American sanctions against Iran and other rogue states. It could face massive fines, prosecutions and even the loss of its critical US licence were it to be found guilty as charged.
Regardless of what happens next, and whether the US allegations actually stack up, this is a bitter blow for what is left of London’s reputation as a trustworthy centre for corporate fair play and integrity. It is also a tragedy for Standard Chartered, which until last night was the last major UK bank able to hold its head high. It is now going to have to fight, if not for its very survival, then at least for its reputation and that of its top executives. Any company that breaks the law should be punished severely.
In the past few weeks, many of London’s most important financial firms have faced crippling fines or other major problems; the wholesale markets as a whole are under investigation; and the City is under attack from all quarters, including Brussels. This was the last thing London and the hundreds of thousands of people employed in the financial and business services industries needed.
The New York State Department of Financial Services’ 27-page attack on the UK bank is written in typically inflammatory language and contains a number of devastating allegations, suggesting that the bank was deliberately falsifying the codes that would normally identify Iranian clients when money is wired internationally. It also claims that those in charge of the US part of Standard Chartered had warned their London HQ to stop dealing with Iranians. Standard Chartered said in a late-night statement that it strongly rejects the State Department’s portrayal. Deloitte was also criticised by the US authorities and will undoubtedly seek to put its side of the story. It is worth remembering that Standard Chartered is the sixth foreign bank since 2008 to be implicated by the US in dealings with countries such as Iran. Barclays, Lloyds, Credit Suisse and ING have settled for a total of $1.8bn, while HSBC remains under investigation.
I have nothing but contempt for rogue regimes, especially Iran’s barbaric government. The EU now has stricter sanctions against Iran, something that the US has operated for years. It would be utterly wrong for any UK bank operating on Wall Street to have broken US law. But it is important that the US authorities only prevent foreign banks from dealing with countries that they don’t approve of via their US subsidiaries.
There is a risk otherwise of extreme extra-territoriality and of the US imposing its foreign policy on every single foreign company that has dealings with any US citizen, let alone that has US operations. This is not intended as a defence of any wrong-doing in this case but is an important caveat at this stage of the scandal. I am often told by UK fund managers and private bankers that they don’t want to have anything to do with the US market and don’t even want US citizens as clients; this latest story could reinforce this pernicious trend.
It will also fuel fears – expressed most recently to me by a top City lawyer – that the US has it in for the UK and that it is now trying to put the City back in its place. There is clearly something to this, and I will return to this theme – but in some cases at least UK banks have not been helping themselves. All in all, another terrible day for the City of London.