A tale of two fatwas

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If a few hundred million dollars could buy peace, then investors will just have to lump the resultant loss of market capitalisation as yet another facet of risk in equity investments. Or so goes the rationale.

I dare say it is hard to see a connection between a fetching young woman and an ambulance. Yet a young man training to be, of all things, a chartered accountant when his talents clearly lay elsewhere, spotted a similarity and narrated it to me decades ago.

Maybe, the neighbourhood girl kept spurning his advances. Or it could be that he was simply quoting from one of those innumerable urdu verses of unproven authorship to impress me, or whatever. But this is how it went.

Jab woh safed sadi pahenke aati hai,

To lagta hai ek ambulance aayi hai;

Magar fark itna hai

Ambulance ghayal ko le jaati.

Aur yeh ghayal kar leti.

Here is a rough translation:

When she breezes in clad in a saree white,

She reminds me of an ambulance;

The difference is

One carts away the wounded.

This one leaves

Many a heart wounded.

Granted, the analogy of an ambulance to a woman clad in a white saree requires a fair degree of poetic licence for it to stick.

But the resemblance of the Government of the United States of America to the late Ayatollah Khomeini, Supreme Leader of the Iranian public, seems pretty straight forward. The irony of the US being linked to a venerable symbol of the very nation that it is now painting as a force of evil cannot be missed. But facts are facts. There is no escaping it.

Shareholder wealth

Ask Standard Chartered Bank, what it feels to be at the receiving end of the wrath of the banking regulatory system in the US.

The banking regulator of the State of New York said the other day that Stanchart has violated the US law on dealing with prohibited Iranian entities. It put the value of such transactions at $250 billion, and for added effect leaked out a mail from a senior official to his counterpart in New York castigating the regulators in a language that would have brought a flush of shame to the cheeks of costermongers in Coventry Garden.

Presto, the shares of Stanchart tanked 30 per cent the very same day, and when markets opened in India the next morning, Stanchart's Indian Depository Receipts did not escape the punishment either.

A few days later came the announcement that the Bank agreed to a financial penalty of 340 million in US dollars. In other words, in the utterances of a banking regulator in New York, shareholder-wealth, including that of Indian holders of IDRs equivalent to the amount of penalty imposed on the Bank, evaporated into thin air.

Of course, Stanchart was not alone. Other banks too have been charged with violation of US banking and tax laws and imposed fines running into millions of dollars.

Just as Salman Rushdie trembled in fear for his life at the utterance of a fatwa by the grand priest of the mosque in Qom, Iran, so too must global investors feel now the tremors of anxiety when some official, empowered by the long arm of the US law and additionally by its military might, so much as opens his mouth.

In the circumstances, if some hapless Indian investor in the IDRs of Standard Chartered Bank allows his imagination to take poetic wings he may be pardoned for penning the following words, or something to that effect.

When Uncle Sam gets on stage to proclaim

He resembles

A Khomeini, no less.

But the difference is;

While the blasphemer fears for his life

The poor investor his wallet.

The Stanchart management, it would seem, concurs. They made it very clear that, merits of their case notwithstanding, they had no choice but to go in for a settlement.

The prospect of a cancellation of the right to carry on with banking business in New York, however slight the risk was, was too much to bear for the Bank. Equally, the uncertainties of a civil and/or criminal prosecution is the perfect recipe for short sellers to have a field day in speculative trading positions in the stock.

If a few hundred million dollars could buy peace, why not, says the Bank. Investors will just have to lump the resultant loss of market capitalisation as yet another facet of risk that investments in equity instruments are prey to, goes the reasoning.

Sanctions loopholes

In fairness to the US, it would be justified in claiming that it has the sovereign right to pass such laws as it thinks would enhance its national security.

Further, it is not imposing them on anyone other than those entities operating within its shores. Although if you ask the Pashtun tribals living in North Waziristan area of Pakistan bombarded by those strange mechanical birds called Drones, they might have a different take on the sovereign right of the US Government to preserve its homeland. But that is another matter altogether.

But at another level, it cannot be denied that whether it intended it to be so or not, there is an extra territorial jurisdiction of US laws in ways that have not been contemplated.

Take the US sanctions on Iran which seem to have triggered so much trouble for European banks operating in that country.

For long, the way the sanctions were structured, they only had the effect of conferring exclusive banking right on some while leaving out everyone else.

In any case, the sanctions regime had more loopholes than a sieve for draining water from a bowl of steamed vegetables.

Later on they were supposed to have been plugged for sanctions to have a greater sting.

But the reality is that Iran continues to sell oil, which is practically all that it has, if you leave out stuff such as palm dates for you and me, and shoulder-fired stinger missiles for the Hezbollah militia in Lebanon.

I mean, no one is actually queueing up to buy nuclear power plants from that country. Yet we have the farce of a sanctions regime that is supposed to have instigated the common public to rise in revolt against the present ruling order. If it is going to happen, there is still not much evidence of that on the Iranian ground.

But the common man in Iran does suffer from expensive medicines and scarce food supplies. The experience of Iraq demonstrated that more lives were lost from lack of medical facilities caused by the US sanctions than the numbers killed by Saddam Hussein for opposing his regime.

At the end of it all, it still required troops on the ground for the US to impose its will than any amount of sanctions placed on the freedom of other nations and their commercial enterprises to do business with the then Iraqi Government.

To the list of collateral damages from a regime of financial and commercial sanctions, you can now add Indian retail investors as well.

(This article was published on August 19, 2012)
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