Why Standard Chartered Bank and its supporters need to think very carefully before continuing to publicly contradict the published findings of the US Regulators.

Standard Chartered Bank are in very deep water indeed. They and their supporters are beginning to make things even more difficult for (SCB) the bank. by adopting a very high-profiled series of misplaced complaints and allegations.

British politicians are already talking about an increasing 'Anti-British bias'. John Mann, Labour member of the Treasury Select Committee has said that the US Regulatory move may be motivated by a desire to shift business from the City to Wall Street. He says '...This is a real power grab and the stakes are very high...'

Such an uninformed statement demonstrates how little Mann understands about global banking, but then when did a politician ever let the facts get in the way of his rhetoric?

Other public commentators are moaning about a concerted US focus on the City and calling for political intervention to back the City of London. They don't seem to understand that the American authorities are growing very concerned with the way that just about every major financial scandal seems to emanate from London or has a London element. Barclays bank and the LIBOR scams, HSBC and the money laundering evidence, the billion dollar derivative losses caused to J.P.Morgan Chase were orchestrated from London, there are further US investigations into RBS, it all adds up to an orchestrated level of regulatory failure, and the Americans are rightly concerned.

There are suggestions, carefully floated, that the NYDFS is somehow operating as a lone wolf in all this, that they have annoyed their co-agencies, and that SCB are going to play hardball when it comes to the hearing next week!

Well, if SCB want to lose their licence completely, I would think the best way to do this will be to go in and start throwing their weight around and taking on the DFS at playing hardball!

I doubt this will happen frankly, because I am certain that SCB's lawyers will read the DFS document carefully and observe the findings that have been made against the bank, and then they will start to tread very carefully!

The findings are all pure regulatory issues, every one of which could render SCB to be found to be 'not fit and proper' to hold a banking licence in the State of New York. They are entirely within the remit of the DFS and the Superintendent is merely doing his job and following all the precedents which he is required so to do.

Section 39 of the New York State Banking Act requires that the powers of the   superintendent include;

To order any licensee to appear and explain an apparent violation.

"...Whenever it shall  appear to  the  superintendent that any  banking  organization... or foreign banking corporation licensed by the superintendent to do business or maintain a representative  office in this state has violated any law or regulation, he or she may, in his or her discretion, issue an order describing  such apparent violation and requiring such banking organization,   to  appear  before him or her, at a time and place fixed in said order, to present an explanation of such apparent violation..."

And that is all the good Superintendent has done. He has set out his findings describing the apparent violations as he is required to do and has invited SCB to come in and explain their conduct. This is not as described by Sam Gyimah, MP, another UK apologist leading with his mouth before engaging his brain, "...a highly inflammatory report that is effectively the case for the prosecution..."

This is the regulator's case, there is no prosecution in this instance, and it is couched in strict US legal language and it is a formal legal document. What it contains are the regulatory findings arising out of a routine regulatory examination, in which SCB have been given every opportunity to come clean and cooperate with the US Authorities, and which they have failed so to do.

You see, although the thrust of the public story is focused on the issues surrounding the degree of Iranian dollar clearing that went on, that is not really what the regulator is primarily concerned about, that is just a good bit of padding to stand an otherwise very technical case up for newspapers and their readers with their 2 nano-second attention spans. Let us examine the findings which I am quoting from the DFS report against SCB, which will be incredibly difficult if not impossible to deny or refute.

APPARENT VIOLATIONS OF LAW

FIRST VIOLATION OF LAW

(Failure to Maintain Accurate Books and Records NYBL §200-c )

SCB failed to maintain or make available at its New York branch office true and accurate books, accounts and records reflecting all transactions and actions, including but not limited to, true and accurate books, accounts and records to reflect Iranian U-turn transactions, effected by or on behalf of SCB and its New York branch.

SECOND VIOLATION OF LAW(Obstructing Governmental Administration P.L. § 195.05)

SCB obstructed governmental administration at its New York branch by intentionally obstructing, impairing and compromising the Department's administration of law, regulation and supervisory authority and prevented examiners of the Department and of other US regulatory agencies from performing their official functions by means of withholding, stripping and distorting information to identify numerous transactions of its OFAC-sanctioned clients to evade OFAC regulations.

THIRD VIOLATION OF LAW

(Failure to Report Crimes and Misconduct 3 N.Y.C.R.R.§ 300.1)

SCB failed to submit a report to the Superintendent immediately upon the discovery of fraud, dishonesty, making of false entries and omission of true entries, and other misconduct, whether or not a criminal offense, in which an SCB director, trustee, partner, officer, employee or agent was involved.

FOURTH VIOLATION OF LAW

(Falsification of Books and Reports N.Y.B.L. § 672.1)

SCB‟s officers, directors, employees and agents made false entries in SCB‟s books, reports and statements and wilfully omitted to make true entries of material particularly pertaining to the US dollar clearing business of SCB at its New York branch with the intent to deceive the Superintendent and examiners, supervisors and lawyers of the Department and representatives of other US regulatory agencies who were lawfully appointed to examine SCB‟s condition and affairs at its New York branch.

FIFTH VIOLATION OF LAW

(Offering False Instrument for Filing P.L. § 175.35)

SCB offered written instruments to examiners of the Department and of other US regulatory agencies, with the knowledge that such instruments contained false information, and with the intent to defraud the Department and with the knowledge that it would be filed with, registered or recorded in or otherwise become part of the records of the Department

SIXTH VIOLATION OF LAW

(Falsifying Business Records P.L. § 175.10)

SCB falsified business records with the intent to defraud examiners and the intent to aid and assist sanctioned countries to engage in US dollar clearing transactions in violation of 31 CFR 560.516.25

SEVENTH VIOLATION OF LAW

(Unauthorized Iranian Transactions 31 C.F.R. 560.516)

SCB engaged in transactions within the United States without complying with the requirements of 31 C.F.R. 560.516 in that SCB prevented its New York branch from determining whether the  underlying transactions were permissible under by 31 C.F.R. 560.516 before effecting them.

OK, so those are the findings. What all those people who are now whining and moaning about how unfair it is that these decisions have been made public fail to realise is that these statements of legal violations are not allegations, which are yet to be proven, they are real findings of fact, based on a series of earlier investigations. These are the regulatory decisions that the DFS has made, and the case is now proven. These are the findings that the regulators have made. There will be no trial to assess the truth or otherwise, with witnesses being called, these are the findings, and all that remains now is for the DFS to assess the suitable outcome for SCB. That is why SCB have been invited to attend a hearing so that they can be heard before judgement is levied, and that is why the document uses the language it does.

"...NOW THEREFORE, the Superintendent directs that:

WHEREAS, having considered the foregoing evidence of SCB's apparent fraudulent and deceptive conduct toward the Department and other industry regulators; and

WHEREAS, having considered additional and substantial evidence presently before the Department of this egregious misconduct; and

WHEREAS, apparent violations of law enabled SCB to evade strict regulatory obligations established to ensure the safety and soundness of foreign banking institutions licensed to operate in the State of New York, as well as to support the national security of the United States; and

WHEREAS, the Superintendent has determined that grounds exist for revocation of SCB's license to operate in the State of New York and that interim measures must be taken to protect the public interest,  26

IT IS NOW HEREBY ORDERED that, pursuant to Banking Law § 39(1), SCB shall appear before the Superintendent or his designee on Wednesday, August 15, 2012, at 10:00 a.m., at the Department's offices located at One State Street Plaza, New York, NY 10004, to explain these apparent violations of law and to demonstrate why SCB‟s license to operate in the State of New York should not be revoked; and

IT IS HEREBY FURTHER ORDERED that, on August 15, 2012, SCB shall also

demonstrate why, pursuant to Banking Law § 40(2), SCB‟s U.S. dollar clearing operations should not be suspended pending a formal license revocation hearing;

So that's that!

The only thing to be decided now is whether SCB's licence will be revoked, and whether pending a full revocation hearing, the ability of SCB to clear dollars in New York should be suspended.

It doesn't really matter, because if the ability to clear dollars is suspended, SCB is effectively finished as a banking entity.

The British Government has already been in contact with the Americans about this case, and the U.S. Treasury have told the British government on Wednesday 8th August that it takes financial sanctions violations "extremely seriously" and is coordinating with federal and state agencies in an investigation of Standard Chartered bank.

In a Reuters' report, Adam Szubin, director of Treasury's Office of Foreign Assets Control, told the British Treasury in a letter that his office is investigating the bank for "potential Iran-related violations as well as a broader set of potential sanctions violations."

The letter, dated Aug. 8, was in response to a British request for clarification of U.S. sanctions laws and comes after New York State authorities alleged that Standard Chartered hid $250 billion of Iranian banking transactions, in violation of U.S. law.

Szubin told British authorities that in 2008 the Treasury Department outlawed the so-called U-turn transaction license - licenses the New York banking regulator accused Standard Chartered of using to evade sanctions.

The New York State Department of Financial Services order alleged that even as some banks exited the U-turn transactions, Standard Chartered hustled to "take the abandoned market share."

When you add to this the fact that SCB's consultants, Deloitte and Touche have admitted wilfully deleting important but damaging elements from the report that they were required to carry out on behalf of the US Government into SCB's conduct, thus misleading the NYDFS, and you can begin to appreciate the level of US concerns.

I have repeatedly said for some years now that if the British financial market space was not subjected to more strenuous financial regulatory control, then the Americans would not stand idly by, but that they would use the awesome powers they possess by dint of their powers to exclude perceived wrong-doers from the US dollar-clearing mechanism, which would spell out the kiss of death for such players.

The problem for SCB is that they probably didn't take the Americans seriously enough - they might have thought that the NYDFS was just as supine as the FSA in dealing with regulatory discipline, and that they could drag their heels and mislead the regulator in the same way as banks in the UK treat the FSA.

Looks like they got that wrong!