Why Standard Chartered Bank might be feeling rather pissed off at the NYDFS

I owe a debt of gratitude to Roger Moore of the Executive Intelligence Review for permission to quote widely from his blog.

The timing of the announcement by the NYDFS of their findings against Standard Chartered Bank is an unusual aspect of the case. As the Guardian of 7th August 2012 points out; '...scandals in banking-land or, rather, their revelation, tend to be choreographed when regulators become involved. The existence of an investigation is often known (and it was at Standard Chartered) but the details of the wrong-doing, the admission of fault and the nature of the punishment tend to be published simultaneously.

That's how the plot worked with Barclays and Libor-rigging – the Financial Services Authority issued its final notice, imposed a £290m fine and the directors made a grovelling apology. Similarly, HSBC said sorry immediately when a US senate committee said the bank's lax systems had allowed drug cartels to launder money.

In the Standard Chartered case, the choreography has collapsed. The bank complains that it was in discussions with five US agencies, including the US Department of Justice, and was surprised to receive the New York DFS's order. It grumbles that "resolution of such matters normally proceeds through a co-ordinated approach by such agencies".

That may well be the case, but this is all too redolent of the pussy-footing that tends to mark out the UK style of financial regulatory handling of big cases involving the crimes of the powerful. Such a softly-softly kind of approach has an important qualifier!

One of the problems facing UK regulators is the threat of judicial review. This is not a problem faced by US regulators. In the UK, when a regulator makes a series of administrative findings against a regulated entity, before any report or finding is published, copies of the findings are sent to all parties concerned so that they can comment upon the findings and make representations if they think that the findings are not fair or do not properly represent the facts. Sometimes these representations can take months before the parties can agree on a form of words which are acceptable to all concerned.The failure to do this can lead to threats of judicial review whereby the whole matter is aired before a High Court Judge, prior to any publication. JR is hugely expensive, but then no bank is concerned with the issue of cost because at the end of the day it is shareholder's money being spent. However, no regulator could possibly justify being forced to spend such money defending a JR, for fear that any finding might go against them, and they would be criticised by politicians for having wasted money in the whole process. This is among the reasons why UK regulators are so wary of taking on really big cases against the 'too big to jail' banks.

So why did the DFS go public?

Well one reason is the growing dissatisfaction by a number of leading US regulators and prosecutors at the seemingly 'light touch' manner in which those who break US law are seemingly being treated by the present regime at the Department of Justice in the US. A number of US Federal Judges have been very critical of plea-deals entered into in similar cases.

An EIR News Feed report on the Standard Chartered case reported;

"...In all these cases, including Wachovia, LIBOR and HSBC, there is strong sentiment among regulators and investigators, agents, etc. throughout many government agencies, that the full force of the law (is not being and) should be applied. That it hasn't happened, is testimony to the political decisions of two successive administrations (both Bush and Obama) to go with the bailout policies, including what one has to describe as sabotage of good investigatory work, the kind of work, a good prosecutor would have no trouble taking to criminal court..."

While "regulators" at the Fed, and at the Treasury and Justice Departments, were slowly putting together the grounds for another sweetheart deal with StanChart, which likely would have resulted in a non-prosecution or deferred-prosecution agreement, as they are reportedly working on with HSBC and have already done with so many other outlaw bankers, Lawsky swooped down on StanChart on Monday, charging it with tens of thousands of illegal transactions, and threatening to pull their banking license within ten days.

In his show-cause order, issued without advance notice on Aug. 6, Lawsky charged that StanChart's conduct "left the U.S. financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity." While the charges center on StanChart's knowingly illegal dollar-clearing operations carried out on behalf of Iranian banks, the references to arms dealers and drug kingpins and "other" money-laundering violations, suggest that the scope of Lawsky's investigation is much broader. The
potential breadth of StanCharts crimes, is indicated by the fact that its New York dollar-clearing business "clears approximately $190 {billion} per day for its international clients"

Quoting from a blog written by EIR News Feed in which the whole question of how the pussyfooting with the global banksters was being perceived in the US;

"...former U.S Attorney and TARP Inspecteur General Neil Barofsky warned in an August 1, Bloomberg TV interview that the same Department of Justice was preparing a "global settlement" on the multi-billion LIBOR rate fixing conspiracy, such that the banks involved could avoid prosecution as well as case-for-case investigations, fines, and arrests.

Barofsky stated, "I for one personally hope they don't do a global settlement. I prefer they go institution by institution down the line. That is the best way if this a criminal investigation, which is what we're hearing, in order to scare others, other institutions, to get them in early to cooperate and flip, and hopefully as you go institution by institution, and go higher and higher up the line and really have individual accountability. The bottom line is that if we're going to continue to have these types of scandals, this type of manipulation of the system, then we need executives at the top to start being held accountable and pay the price, and that includes handcuffs..."

Whatever the situation, there is clearly a major power struggle taking place in the US between the DoJ and other regulatory agencies regarding the criminal actions of the banksters, and how they should best be dealt with, and other global reports have alluded to these conflicts.

The British wire service Reuters is circulating a story labelled "EXCLUSIVE -- U.S. regulators irate at NY action against StanChart," which reports that the U.S. Treasury Department and the Federal Reserve "were blindsided and angered by New York's banking regulator's decision to launch an explosive attack on Standard Chartered Plc over $250 billion in alleged money laundering transactions tied to Iran... By going it alone through the order he issued on Monday, Benjamin Lawsky, head of the recently created New York State Department of Financial Services, also complicates talks between the Treasury and London-based Standard Chartered to settle claims over the transactions."

Reuters went on to state that "Lawsky's stunning move ... is rewriting the playbook on how foreign banks settle cases involving the processing of shadowy funds tied to sanctioned countries," noting that such cases "have usually been settled through negotiation -- with public shaming kept to a minimum."

But Laskey, Reuters complains, "wasn't interested in a quiet pact of the sort reached by federal authorities in recent years."

Likewise, the New York Times "Dealbook" reports that Lawsky's actions "stunned" officials at the Federal Reserve and the Justice Department who are also supposedly investigating Standard Chartered. "In money-laundering cases, authorities almost always move in concert," the Times says, which is why Lawsky's action "irked many of the other regulators, who questioned whether he had moved too quickly."

So, who is Benjamin Lawsky, and why has he decided to move in this way? Those who have known and worked with him for years, such as Neil Barofsky, the former TARP Inspector General, are not surprised by his actions.

In 2011, when New York Governor Andrew Cuomo merged the New York State Department of Banking and Insurance, into the new Department of Financial Services, he appointed Lawsky, his former Chief of Staff, to head the new agency. Earlier, when Cuomo was New York State Attorney General (having succeeded that "rogue prosecutor" Elliot Spitzer), Lawsky was his "Special Assistant." Lawsky had joined Cuomo's office in 2006, and handled such high-profile cases as Bank of America and Merrill Lynch.

From 2001 to 2006, Lawsky was an Assistant U.S. Attorney in the Southern District of New York, where he prosecuted organized crime, insider trading, and terrorism cases. In the securities fraud unit, he worked with Barofsky, who has had nothing but praise for Lawsky. 

After Lawsky's filing of charges against Standard Chartered, and the barrage of attacks on him that followed, Barofsky told {Business Insider} that he knows Lawsky well, and that even though Lawsky has never faced opposition like this before, he will stay strong in the face of this pressure from Washington (and London, he might have added). And Barofsky, speaking to the New York Times yesterday, lauded Lawsky's speed in pursuing Standard Chartered, in contrast to what he called the "passivity of federal regulators."

Standard Chartered Bank might have had good reason to suppose that their criminal actions were going to be dealt with in the same cosy, chummy-chummy manner that was being planned for HSBC and the LIBOR scams. They probably thought that they had reason to believe that they would be able to negotiate some kind of quiet sweetheart deal which would result in a fine, not a lot of bad publicity, which could be stage managed, and a deferred prosecution at the very worst.

This is the bitter lesson that we all have to learn about the pathetic state of affairs which now exists in the administration of criminal justice when it comes to dealing with the crimes of the powerful. The banksters have come to expect that they will be treated with kid gloves, that they can expect their lawyers to be allowed to negotiate the level of penalty that they will consider accepting, and that they can dictate the terms of the settlement statements. This has come about because we have allowed our regulatory agencies to be staffed by men and women who don't know how to deal with criminals, how to go head-to-head with them and browbeat them down, and we are reaping the whirlwind because London has become one of the leading Pariah cities in the global financial sector.

Standard Chartered may have hoped that things would be worked out in the gentlemanly way they would have expected at home in London with the Fantastically Supine Authority sweetly enquiring whether they were happy with the press statement which was about to be published. They were not to know that they were dealing with a strong and experienced criminal prosecutor, a man who was lead some very important criminal cases and wants to win, and who is not prepared to become part of the cosy cartel of regulators playing a form of transatlantic 'kiss in the ring', dishing out soft penalties to banksters who didn't give a damn about US foreign policy initiatives. In hindsight, the alleged quote from the SCB senior executive asking who these 'fucking Americans were to say with whom the bank could do business' has the ineluctable ring of truth about it!

No wonder Standard Chartered feel a tad miffed!