Standard Chartered has rejected New York regulators’ accusations of the bank scheming to hide $250 billion worth of transactions with Iran, generating “several hundreds of millions of dollars” of fees for itself and leaving the US financial system “vulnerable to terrorists, weapon dealers, drug kingpins and corrupt regimes.”

But this did little to halt the steep slide in its share price, down over 24 per cent in early afternoon trading in London on Tuesday.

On the BSE, the StanChart IDR tumbled 20 per cent on Tuesday.

The bank said it “strongly rejects” the position adopted by the New York State Department of Financial Services (DFS), and that the order issued by the regulator did not present a “full and accurate picture of the facts.”

It also insisted that the value of the transactions that did not follow the regulator’s “U-turn” framework came to under $14 million (Rs 77.1 crore), less than 0.1 per cent of the total transactions relating to Iran.

In addition, its own review had not found a single payment on behalf of an entity that the US government had designated a terrorist organisation at the time.

But Credit Suisse analysts said that “the timing of this release appears to come as a surprise to the company given the wording and the confident management tone at the results presentation last week.”

Analysts at JP Morgan Cazenove said while the bank’s strong capital position meant it would be able to absorb a penalty of the size of the fees it had gained, there were a number of additional concerns, such as its New York licences and US dollar clearing operation.

Standard Chartered has been ordered to meet the regulator on August 15, where among other things it will have to demonstrate why its licence to operate in New York State should not be revoked, and why its US dollar clearing operations should not be suspended pending a full hearing.

Over the past couple of years, banks have faced huge fines for violating US Office of Foreign Assets regulations, including HSBC, which has set aside Rs 3,860 crore, ING, which has been fined Rs 3,410 crore, and Barclays, fined Rs 1,640 crore.

Work outsourced to India under lens

PTI reports from New York

The DFS is also looking into the outsourcing of key banking jobs by Standard Chartered to India for exposing the US financial system to terrorists and money laundering risks.

A DFS probe has found deficient money laundering controls in outsourcing of work.

(This article was published on August 7, 2012)
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