The bank denies U.S. claims it illegally moved $250 billion of Iranian money around financial system

More than £11.5 billion has been wiped from the stock market value of Standard Chartered bank since U.S. allegations that the bank had illegally moved $250 billion of Iranian money around the financial system.

The share price fall on Tuesday puts the top management of the bank — described by the U.S. authorities as a “rogue institution” — under intense pressure even though they have denied the allegations made by the U.S.

By mid-day Tuesday in London, the shares had lost 4.81 pound of their value — some 11.5 billion pound in total — since the shock announcement which caused the sudden 6 per cent fall in the shares on Monday and a further 24 per cent fall on Tuesday.

The stunning drop comes after the surprise announcement, just as the London market was closing on Monday, by the New York state department of financial services that Standard Chartered’s actions had left the U.S. “vulnerable to terrorists, weapon dealers, drug kings and corrupt regimes.”

Even though the highly regarded London-based bank denied the accusations, investors took fright following a spate of banking scandals that have unseated management at rival banks and amid fears Standard Chartered could lose its banking license in the U.S.

Standard Chartered had attempted to calm nerves overnight by issuing a statement at midnight refuting the allegations.

Until now, the bank has been the only global bank regarded as having a reputation untarnished by the growing number of scandals. Top management was stunned by the scale of the allegations, of which it had no prior warning before late Monday afternoon.

The U.S. regulator’s 30-page report reproduces e-mails and conversations between Standard Chartered staff, including a remark from a London-based director when warned by a U.S. colleague of potential problems in dealing with Iran. “You Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians,” the director said.

The director is not named but the exchange is said to have taken place when the bank’s chief executive for America warns, among others, the head group executive director for risk. At the time, October, 2006, this title was held by Richard Meddings, who was promoted to finance director the following month. The bank would not comment on individuals.

Meddings and Peter Sands, who was promoted from finance director to Chief Executive in November, 2006, are highly regarded and respectively regarded as potential candidates for top jobs at Barclays and as the next governor of the Bank of England.

Until November, 2006, Mervyn Davies had been Chief Executive — a role he held since 2001 — until he was elevated to Chairman. He later became Lord Davies when he joined the Labour government during the financial crisis and left the bank. Among others to have sat on the board are: Lord Turner, who was a non-executive director for two years until he left in late 2008 to become Chairman of the Financial Services Authority.

While the U.S. authorities said that $250 billion had been hidden for nearly a decade, Standard Chartered conceded that “under $14m” had breached so-called U-turns, which were transactions that U.S. authorities allowed to take place as long as the money did not end up in Iranian banks. The bank stopped dealing with Iran five years ago. “As we have disclosed to the authorities, well over 99.9 per cent of the transactions relating to Iran complied with the U-turn regulations. The total value of transactions which did not follow the U-turn was under $14m,” Standard Chartered said.

In 2010, 2011 and only last week when it published another rise in profits, the bank has admitted it was in discussions with U.S. regulators about historic breaches of sanctions.

But it appears to have been wrong footed by the New York regulator, which it had expected to co-ordinate with other U.S. agencies. Standard Chartered is also in discussions with the department of justice, the office of foreign assets control, the Federal Reserve group of New York and the district attorney of New York.

Transaction review

Standard Chartered said it had “voluntarily approached all relevant U.S. agencies” in January, 2010, and “informed them that we had initiated a review of historical U.S. dollar transactions and their compliance with U.S. sanctions.”

“This review focused primarily on transactions relating to Iran in the period 2001-2007, and in particular, their compliance with the U-turn framework established by the U.S. authorities to enable ongoing U.S. dollar trade with Iran by other countries.” Several thousands of pages of documents and interview notes, plus analysis of approximately 150 million payment messages were handed over. The New York regulator accuses Standard Chartered of hiding the transactions by wiping out codes used in the payment system that would have identified Iranian clients.

“The group does not believe the order issued — presents a full and accurate picture of the facts. The analysis, that the group shared with all the U.S. agencies, demonstrates that throughout the period the group acted to comply, and overwhelmingly did comply, with U.S. sanctions and the regulations relating to U-turn payments,” said the bank.

Its review of its Iranian payments also did not identify a single payment on behalf of any party that was designated at the time by the U.S. government as a terrorist entity or organisation,” it said.

“The group takes its responsibilities very seriously, and seeks to comply at all times with the relevant laws and regulations. It is in this spirit we initiated this review and have engaged with the U.S. agencies,” the bank said. — © Guardian Newspapers Limited, 2012

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