Standard Chartered Fought the Lawsky and the Lawsky Won

Aug. 17 (Bloomberg) -- Benjamin Lawsky, New York’s top state banking regulator, shook up the financial world by squeezing a record settlement out of Standard Chartered Plc over allegations that it laundered money for Iran. Let’s get this much straight about him, too: He’s no rogue cop. He’s a loyal soldier.

Look at the section on the New York State Department of Financial Services website that lists the agency’s press releases this year, and you will see a pattern. Most of the headlines start with the name of New York Governor Andrew Cuomo, not Lawsky, the department superintendent who serves at the governor’s pleasure. Within minutes of Lawsky’s disclosure this week that Standard Chartered had agreed to pay a $340 million penalty, Cuomo released his own statement taking much of the credit for the 10-month-old department’s creation last year.

Lawsky, 42, may be in the limelight as the person who put the Department of Financial Services on the map. But the guy who has his back is Cuomo. In an odd twist, Cuomo, 54, never scored such a clear-cut victory in a high-profile case when he was New York’s attorney general. Ever the grandstander, Cuomo publicly castigated Moody’s Investors Service and Standard & Poor’s during an investigation by his office in 2008, for instance, only to reach a settlement later in which the discredited rating companies paid no penalties.

Banking Universe

The Cuomo administration has upset the banking universe’s traditional pecking order. Under the usual way of doing business, state regulators take a back seat to the Federal Reserve, the Treasury Department and the Justice Department and do as they are told. Lawsky disliked the pace of their Standard Chartered probe. He saw a case to be made based on state-law violations. The U.K. bank’s initial $5 million settlement offer to his department was an insult. So he went his own way, at the risk of straining relations with other regulators.

The bank caved eight days after Lawsky threatened to revoke its New York state license, and one day before it was scheduled to appear at a hearing on the matter. The settlement is believed to be the largest ever for an individual regulator in a money-laundering case, although Standard Chartered deserved worse. In June, ING Bank NV agreed to pay $619 million to settle criminal claims that it moved about $2 billion of prohibited Cuban and Iranian funds through the U.S. financial system. The penalty was split evenly between the federal government and the Manhattan District Attorney’s Office, which each collected $309.5 million and let ING off with deferred-prosecution agreements.

Perhaps it is accurate for Lawsky’s critics in the federal government to say he hijacked their investigation in an ambitious power grab. Even if true, the public seems better off for it. Lawsky’s counterparts will now feel pressure to seek larger penalties for their own money-laundering settlements with Standard Chartered. It is hard to see a downside in that.

The deal also blows up Standard Chartered’s assertion that it had only $14 million of improper transactions with Iran, which is the subject of U.S. economic sanctions. Lawsky, a former federal prosecutor, estimated the figure at $250 billion.

Standard Chartered’s chief executive officer, Peter Sands, last week tried to frame the issue as a disagreement over how to interpret U.S. rules on so-called U-turn transactions, in which overseas funds pass through a U.S. bank before being turned back to foreign banks as dollars. As Lawsky’s order made clear, the department’s case was always about Standard Chartered covering up the use of its New York office to move Iranian banks’ money, by stripping information from wire-transfer messages used to identify sanctioned countries and individuals.

Clear Jurisdiction

The financial services department’s predecessor, the New York State Banking Department, in 2004 entered a written agreement with Standard Chartered and the Fed in which the bank promised to correct deficiencies in its anti-money-laundering systems. Lawsky contended that Standard Chartered lied to the banking department about complying with that agreement, and lied in its books and records about its transactions with Iran. Those are matters of state law over which Lawsky’s department had clear jurisdiction.

Standard Chartered at first tried to fight back against Lawsky in the press, saying it “strongly rejects the position and portrayal of facts” made in his Aug. 6 order. Perhaps Standard Chartered now could say it paid up to avoid more bad publicity and negate the risk (however slight) that Lawsky might yank its license. The fact remains that it entered a settlement in which “the parties have agreed that the conduct at issue involved transactions of at least $250 billion,” according to an Aug. 14 statement released by Lawsky’s office.

U.K. officials, including Bank of England Governor Mervyn King, were especially upset by Lawsky’s treatment of Standard Chartered. London Mayor Boris Johnson even accused New York of seeking to damage its biggest competitor as a financial center. The criticism was off the mark. This was a turf battle between federal and state agencies, not New York and London, although it remains to be seen if Lawsky would ever have the nerve to threaten a huge New York-based bank with serious penalties.

If the federal government would do a better job of overseeing large banks, rather than protecting them, there would be no opportunity or reason for someone like Lawsky to step in. Having active, competent, functional state financial regulators can only be a good thing. The country needs more.

(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)

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To contact the writer of this article: Jonathan Weil in New York at

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