New banks scandal as Standard Chartered branded ‘rogue’

The 160-year-old bank saw shares plunge 24%, wiping £10 billion from its value, after regulators claimed its underhand tactics exposed the US to terrorists and drug kingpins.

The allegations will come as a shock given Standard’s reputation as a safe and sound bank, which described its approach as “boring” amid the turmoil engulfing the sector.

The bank, which employs 2,100 staff in the UK, said it “strongly rejects” the portrayal by the New York State Department of Financial Services.

Standard, which will face the wrath of US regulators at a hearing on Monday, said the claims were inaccurate and 99.9% of its dealings with Tehran complied with regulation.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “There is some irony that, a few days after describing its approach as ‘boring’ at its interim results, Standard Chartered should become embroiled in yet another potential banking scandal. The allegations serve to add more risk to an already beleaguered sector.”

The investigation’s findings come after fellow British bank HSBC was accused of allowing drug cartels and rogue states to launder billions of pounds through its US arm.

Barclays’ reputation is in tatters following the Libor-rigging scandal and the cost of the payment protection insurance mis-selling scandal is mounting at most major lenders.

Standard, which employs nearly 90,000 people worldwide and sponsors Liverpool Football Club, has been threatened with losing its licence to operate within New York state.

In an explosive legal order issued last night, New York State Department of Financial Services (DFS) superintendent Benjamin Lawsky said: “In short, SCB (Standard Chartered Bank) operated as a rogue institution.”

The regulator claims that between January 2001 and 2010, Standard Chartered conspired with Iranian clients to route payments through New York after first stripping information from wire transfer messages used to identify sanctioned countries.

The bank moved 60,000 transactions through its New York branch on behalf of Iranian financial institutions that were subject to US economic sanctions, and then covered up the dealings, the financial watchdog claimed.

The institutions included the Central Bank of Iran, as well as Bank Saderat and Bank Melli, both of which are also Iranian state-owned institutions.

The US suspects that the Gulf state was using its banks to finance terrorist groups, including Hezbollah, Hamas and the Palestinian Islamic Jihad.

The findings include a memo sent in October 2006 from the bank’s US chief executive to the group executive director in London raising concerns about the activities with Iran.

He said: “Firstly, we believe (the Iranian business) needs urgent reviewing at the group level to evaluate if its returns and strategic benefits are... still commensurate with the potential to cause very serious or even catastrophic reputational damage to the group.”

He added: “Secondly, there is equally importantly potential of risk of subjecting management in US and London (for example you and I) and elsewhere to personal reputational damages and/or serious criminal liability.”

To which the group executive director allegedly replied: “You f****** Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”

The watchdog, which reviewed 30,000 pages of documents during the investigation, also uncovered evidence of apparently similar schemes at Standard to conduct business with other US sanctioned countries, such as Libya, Burma and Sudan.

A statement from Standard said: “The group does not believe the order issued by the DFS presents a full and accurate picture of the facts.”

It added: “Standard Chartered ceased all new business with Iranian customers in any currency over five years ago.”

Unveiling a 9% rise in pre-tax profits for the first half of the year to 3.6 billion US dollars (£2.3 billion), chief executive Peter Sands said the bank saw “some virtue in being boring”.

Mr Sands, previously touted as a successor to Bank of England governor Sir Mervyn King, went on: “For me as chief executive, our culture and values are a top priority, something we can never take for granted - something we embed in our systems of measurement and reward.”

The bank has no UK branches but is headquartered in London, a key hub for its wholesale banking business.

The Central Bank of Iran approached Standard Chartered Bank in early 2001 to act as its recipient bank for US dollar proceeds from daily oil sales made by the National Iranian Oil Company.

The bank’s group legal adviser counselled several of its officers and advised that “our payment instructions (for Iranian clients) should not identify the client or the purpose of the payment”, the DFS said.

Standard Chartered then “conspired” with Iranian clients to transmit misinformation to the New York branch by removing and otherwise misrepresenting wire transfer data that could identify Iranian parties, the watchdog said.

The bank achieved this by inserting phrases such as “NO NAME GIVEN” or “NOT STATED” in place of requested information that would identify Iranian clients.

In a damning conclusion, Mr Lawsky said: “Motivated by greed, SCB acted for at least 10 years without any regard for the legal, reputational, and national security consequences of its flagrantly deceptive actions.

“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 - dealings that indisputably helped sustain a global threat to peace and stability.”

The bank’s shares tumbled 352p to 1120.5p as the investors weighed up the severity of the allegations.

Ian Gordon, analyst at brokers Investec, said Standard had a proud reputation and a management team of high integrity, adding: “It is of grave concern to see its reputation sullied before the facts are known.”

The DFS report also claimed that Standard was aided in its deception by its consultant Deloitte, one of the City’s big four accountants.

The regulator said Deloitte “intentionally omitted critical information in its ‘independent report’ to regulators”.