To see how the federal government has pursued money-laundering cases against big banks over their dealings with Iran and other countries under U.S. trade sanctions, consider what happened when Barclays Plc (BARC) and the Justice Department were required to file reports describing the U.K. bank’s cooperation under a settlement in 2010.
The deadline came and went. Barclays and the Justice Department failed to comply, infuriating U.S. District Judge Emmet Sullivan of Washington, who had ordered that the reports be filed. “I am amazed that with all the legal talent before the court that no one opened the order to read it,” he said. A Justice Department attorney, Kevin Gerrity, told the judge he couldn’t explain the lapse. Before approving Barclays’s deferred-prosecution agreement, Sullivan called it a “sweetheart deal.” Barclays paid $298 million, its core business was unscathed, and no executives were charged.
Standard Chartered Plc (STAN) can only dream of having such a light touch for an adversary. This week, the New York State Department of Financial Services threatened to revoke Standard Chartered’s state banking license -- far more serious than a mere fine -- after accusing the U.K. bank of using its New York office to illegally launder $250 billion for Iranian financial institutions, including Iran’s central bank.
Although it’s hard to imagine the department’s superintendent, Benjamin Lawsky, carrying out his threat, it’s refreshing to see anyone in a position of authority even go through the motions of fully enforcing the law against a big bank. Lawsky, 42, has every bit as much standing to pursue such a case as his counterparts in the federal government do.
Eight years ago, Standard Chartered signed an agreement with the New York State Banking Department and the Federal Reserve Bank of New York, promising to correct deficiencies in its anti-money-laundering policies and procedures. (Last year, New York combined its banking and insurance departments to form the Department of Financial Services.) Lawsky took action after determining that Standard Chartered violated the agreement. The Fed chose not to, for reasons it has yet to explain.
Lawsky has scheduled a hearing for Aug. 15, when Standard Chartered will be asked to show why its state banking license shouldn’t be revoked. He minced no words. “Led by its most senior management, SCB designed and implemented an elaborate scheme by which to use its New York branch as a front for prohibited dealings with Iran,” Lawsky’s order said. “By definition, any banking institution that engages in such conduct is unsafe and unsound.” The order accused Standard Chartered of numerous violations of state banking laws, including falsifying its books and records.
Standard Chartered has denied Lawsky’s allegations -- and it has been fairly aggressive about it, which might not be so wise. Although the department’s decisions can be appealed, the standard for review that courts usually apply under New York state law is whether a regulator’s decision was “arbitrary and capricious.” That’s a very high bar. You would think Standard Chartered would be trying extra hard to show Lawsky respect, rather than arguing with him in the press.
The company this week accused Lawsky of failing to present “a full and accurate picture of the facts.” It claimed that “99.9 percent of the transactions relating to Iran complied with” U.S. regulations. The bank said it has been in talks with the Fed, the Justice Department, the Treasury Department and the Manhattan District Attorney’s Office -- and suggested that Lawsky was out of bounds for acting without their coordination.
There’s a fascinating political backdrop to this case, too. As superintendent, Lawsky serves at the pleasure of New York Governor Andrew Cuomo, a Democrat, whose name and photo are plastered all over the Department of Financial Services website. So here you have Cuomo’s administration jumping ahead of a Democratic president’s administration and the Fed to take on a big bank. That willingness to show an independent streak might be a plus for Cuomo, 54, should he run for president in 2016.
If what Lawsky alleges is true, Standard Chartered deserves to lose its state license. If that meant the bank couldn’t process dollar payments for clients that have operations in New York, so be it. Just because a bank has $624 billion of assets shouldn’t make it immune from the law.
Since 2009, the Justice Department has entered deferred- prosecution agreements with six banks, including Barclays and Credit Suisse Group AG, over transactions with Iran and other banned nations in violation of U.S. sanctions. Most violations involved stripping information from wire-transfer documentation to hide the role of a prohibited person or country. Lawsky’s order against Standard Chartered shouldn’t jeopardize other agencies’ investigations. If anything, it should make Standard Chartered more eager to settle with them.
Federal regulators and prosecutors are the ones who created the power vacuum here, by going so soft on the banking industry for so long. Lawsky is filling it in, and evoking memories of how Eliot Spitzer challenged the securities industry a decade ago when he was New York attorney general. We’re about to find out whether Lawsky has the chops or the stomach for the role.
(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)
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