Sunday, August 12, 2012

When you do business in New York, play by their rules. The message Standard Chartered failed to learn!


There has been a long and dishonourable tradition in this country that every time a financial sector player engages in one of those periodic episodes of gross criminality which so identify the City of London, there is always someone from Parliament or the financial establishment to step forward and demand a cessation of public comment for fear of damaging the 'good name of the City of London'!

The Standard Chartered affair has been no different.

The Sunday Times of 12th August in an article entitled 'America Attacks', quotes a series of anonymous shareholders in Standard Chartered indulging in an excess of outrage against the actions of Ben Lawsky, the Superintendent of the New York Department of Financial Services.

The financial establishment, or so we are told, has 'rallied behind Standard Chartered...' Mark Hoban the City Minister has reportedly been '...bombarded with phone calls from the British business community...' George Osborne, we are reliably informed, '...has been forced to intervene, holding three calls with Tim Geithner, the US Treasury Secretary to complain about Lawsky's actions...'

John Mann MP has even called for a formal inquiry based in the UK that would be “unbiased and fair” in the aftermath of US allegations against Standard Chartered.  

'...We don't want to whitewash any potential problems with UK banks but money laundering is not a British problem..,” said Mr Mann.

In a superb exhibition of downright ignorance in which he proves that he knows nothing about the laws he helps to oversee and was probably instrumental in introducing, Mann feels able to make statements of such crass stupidity.

What does he think he means when he says '...money laundering is not a British problem...' Wake up man and smell the coffee! You are clearly unaware that London is the money laundering capital of the world! He then goes on to prove even more ignorance, by saying;

'...American banks are doing the same and worse and there are numerous US banks involved in drugs cases in US courts...'

Oh, that's alright then, so that makes it all ok, right ? He still sticks to the drug nexus for money laundering. He clearly hasn't heard that it involves the proceeds of all crimes, including LIBOR manipulation, and sanctions busting!

He then proceeds to drift off into a conspiracist fantasy land which involves the perfidious Yanks trying to snatch back financial market share! He says;

'...So, what we have here is a clear political agenda that has merged with a domestic American agenda to shift financial markets from London to New York...'

Boris Johnson, the mayor of London, another man who is not unnecessarily overburdened with concern for the use of hard facts, also warned that regulation in New York should not become '...a self-interested attack on London's status as the pre-eminent financial centre...'

Mr Mann ends by making a statement which is really very sensible, except he did not mean his words to contain the logic that they do. He said the UK Government needed to '...respond” to the growing international problem of money laundering by taking the lead internationally and investigating the problem with a balanced political view...'

Now wouldn't that be a good thing? Except that the British Government has absolutely no intention of doing any such thing, because it would mean washing our dirty linen in public for all the rest of the world to see!

You would think that a British Parliamentarian on a Treasury Select Committee might be a bit more clued up about the issues, but why expect something that has never been a leitmotif of such committees in the past?

So, let us just review what it is these rent-a-quote apologists think they are protecting.

A global bank which has been under investigation for funny money dealing for a number of years.

Page 1 of the NYDFS report states openly;

'...The Department's initial focus is on SCB's apparent systematic misconduct on behalf of Iranian Clients.  However, the Department's review has uncovered evidence with respect to what are apparently similar SCB schemes to conduct business with other U.S. sanctioned countries, such as Libya, Myanmar and Sudan.  Investigation of these additional matters is ongoing...'

Much of the uninformed public commentary which seeks to mitigate the SCB activities, purports to suggest that SCB was engaged in legitimate transactions with Iran, recognised by the Americans and referred to as 'U Turn' transactions.
The New York Report is quite clear why they state that SCB have behaved dishonestly and deceptively over this facility.

'... For nearly a decade, SCB programmatically engaged in deceptive and fraudulent misconduct in order to  move  at least $250 billion  through  its New York branch  on behalf of client  Iranian  financial institutions (“Iranian Clients”) that were  subject to U.S. economic sanctions, and then covered up its transgressions...' 

The New York finding demonstrates that SCB did not provide the truthful and correct information to US authorities, information which was required to prove the legitimacy of the transaction and this obtain the benefit of the 'U Turn' exemption.

'... From January 2001 through 2007, SCB conspired with its Iranian Clients to route nearly  60,000  different  U.S. dollar  payments through  SCB's New York branch after first stripping information  from wire transfer messages  used to identify  sanctioned  countries, individuals and entities (“wire stripping”).

Specifically, SCB ensured the anonymity of Iranian U.S. dollar clearing activities through SCB's New York branch  by falsifying SWIFT wire payment directions. When SCB  employees determined that it was necessary to “repair” unadulterated payment directives, they did so by stripping the message of unwanted data, replacing it with false entries or by returning the payment message  to  the  Iranian Client  for  wire stripping and resubmission.   Thus, SCB developed various ploys that were all designed to generate a new payment message for the New York branch that was devoid of any reference to Iranian Clients...'

What is clear is that the NYDFS have found that SCB provided false and misleading information to the US Authorities. Later in the report it becomes clear that SCB conspired with Deloitte and Touche to continue to mislead the US Authorities.

'... By 2003, New York regulators had discovered  other  significant BSA/AML violations at  SCB's New York branch, including  deficiencies in  its suspicious activity monitoring and customer due diligence policies and procedures.   In  October 2004, SCB consented to a formal enforcement action and executed a written agreement with the Department and FRBNY, which required SCB to adopt sound BSA/AML practices with respect to foreign bank correspondent accounts (the “Written Agreement”).  The Written Agreement also required SCB to hire an independent consultant to conduct a retrospective transaction review  for the period of July 2002 through October 2004.  The review was intended to identify  suspicious activity involving accounts or transactions at, by, or through SCB‟s New York branch. 
Besides imposing  specific  operational  reforms, the Written Agreement  created negative “implications for [SCB's] growth ambition and strategic  freedom that [went] way beyond just the US.”  In consequence, SCB had every incentive “to exit the Written Agreement in a timely fashion.”  It stood as a significant obstacle to SCB's growth and evolving business strategies.

SCB vowed to the regulators that it would comply with the Written Agreement.  To that end, SCB retained D&T to conduct the required independent review and to report its findings to the regulators.  In August and September 2005, D&T unlawfully gave SCB confidential historical transaction review reports that it had prepared for two other major foreign banking clients that were under investigation for OFAC violations and money laundering activities.  These reports contained detailed and highly confidential information concerning foreign banks involved in illegal U.S. dollar clearing activities.

Having  improperly  gleaned insights into the regulators' concerns and strategies for investigating U-Turn-related misconduct, SCB asked D&T to  delete from its draft “independent”  report any reference to certain types of payments that could ultimately reveal SCB's Iranian U-Turn practices.  In an email discussing D&T's draft, a D&T partner admitted that “we agreed” to SCB's request because “this is too much and too politically sensitive for both SCB and Deloitte.  That is why I drafted the watered-down version.”

I could go on quoting from the report but it must be clear that the findings enunciated by Ben Lawsky have painted a very different picture from that identified by SCB. In summary the findings include the following;

'...Falsifying business records; offering false instruments for filing; failing to maintain accurate books and records of all transactions effected and all actions taken on behalf of SCB; obstructing governmental administration; failing to report misconduct to the Department in a timely manner; evading Federal sanctions; and numerous other violations of  law that,  as with the above,  have an impact upon the safety and soundness of  SCB‟s  New York branch and the Department's confidence in SCB's character, credibility and fitness as a financial institution licensed to conduct business under the laws of this State...'

This is the institution which British officials are seeking to protect! This demonstrates how bad things have become, that certain people will seek to protect a banking institution no matter how dishonestly or criminally it behaves.

SCB itself admits it engaged in about 300 unlawful transactions, worth about $14 million dollars, any one of which would be enough to get its licence revoked. Yet according to the Sunday Times Business Section, '...Standard Chartered is understood to believe it should pay a fine of just $5 million dollars..!' This so farcical you couldn't make it up!

I wonder how SCB would react if they were robbed of $14 million dollars by a gang of criminals, and who when caught said; 'It was only $14 million dollars guvnor, so we only expect to pay a small fine..!'

This anomic state of affairs has arisen because this is how the British regulators deal with the 'too big to jail' bankers! They negotiate settlements behind closed doors, they negotiate what and how the news of the findings will be released, and they allow the banksters to negotiate the wordings of the notices. There is no effective naming and shaming in the UK, and no regulator ever seems to threaten to remove a banking licence. No wonder UK banks consider themselves to be a 'protected species'!

Well, don't try this stunt in New York, seems to be the message from Ben Lawsky! There is little doubt that there is some friction between different agencies, but the balance of probabilities is that US citizens want and expect their financial regulators to get the handcuffs on and make the banksters do the 'perp' walk! If only we had prosecutors in this country with this man's sense of destiny and purpose!

When ships used to sail into New York harbour carrying goods to trade, they had to pay New York custom's duties. If bankers do business in dollars, then they must expect to have to comply with New York's banking rules. The most important message to global bankers is to learn what New York bank regulators expect. It's no good whinging about New York's rules, if you don't like them, then don't do business there.

It is as simple as that!

3 comments:

AbogadoNZ said...

It beggars belief and as an ex-pat Brit leaves me embarrassed to have citizenship. The reaction in UK is stunning and shows major newspapers editors, government ministers, MPs, mayors and other public officials all too willing to aid and abet criminal behaviour. A proper reaction would be to call for the SCB directors to resign and await their fate before the judiciary. As for Deloitte Touche surely this is a clarion call for a thorough investigation of other potentially actionable behaviours. As for how to deal with them well how about report them to the accountants' disciplinary body. Get real Britain; the City of London is a cess pit and money laundering is endemic.

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