THE British banking industry is mired in fresh scandal after Standard Chartered was branded a “rogue institution” for covering up billions of pounds of illegal transactions with the Iranian government.
The 160-year-old bank saw shares plunge 24%, wiping £10bn from its value, after regulators claimed its underhand tactics exposed the US to terrorists and drug kingpins.
The allegations will come as a shock given Standard’s reputation as a safe and sound bank, which described its approach as “boring” amid the turmoil engulfing the sector.
The bank, which employs 2,100 staff in the UK, said it “strongly rejects” the portrayal by the New York State Department of Financial Services.
Standard, which will face the wrath of US regulators at a hearing on August 15, said the claims were inaccurate and 99.9% of its dealings with Tehran complied with regulation.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “There is some irony that, a few days after describing its approach as ‘boring’ at its interim results, Standard Chartered should become embroiled in yet another banking scandal. The allegations serve to add more risk to an already beleaguered sector.”
The investigation’s findings come after fellow British bank HSBC was accused of allowing drug cartels and rogue states to launder billions of pounds through its US arm.
Barclays’ reputation is in tatters following the Libor-rigging scandal and the cost of the payment protection insurance mis-selling scandal is mounting at most major lenders.
Standard, which employs nearly 90,000 people worldwide and sponsors Liverpool Football Club, has been threatened with losing its licence to operate within New York state.
The regulator claims that between January 2001 and 2010, Standard Chartered conspired with Iranian clients to route payments through New York after first stripping information from wire transfer messages used to identify sanctioned countries.
The bank moved 60,000 transactions through its New York branch on behalf of Iranian financial institutions that were subject to US economic sanctions, and then covered up the dealings, the financial watchdog claimed.
The institutions included the Central Bank of Iran, as well as Bank Saderat and Bank Melli, both of which are also Iranian state-owned institutions.
The US suspects the Gulf state was using its banks to finance terrorist groups, including Hezbollah and Hamas.
The findings include a memo sent in October 2006 from the bank’s US chief executive to the group executive director in London raising concerns about the activities with Iran.
He said: “We believe (the Iranian business) needs urgent reviewing at the group level to evaluate if its returns and strategic benefits are... still commensurate with the potential to cause very serious or even catastrophic reputational damage to the group.”
The watchdog, which reviewed 30,000 pages of documents during the investigation, also uncovered evidence of apparently similar schemes at Standard to conduct business with other US sanctioned countries, such as Libya, Burma and Sudan.
A statement from Standard said: “The group does not believe the order issued presents a full and accurate picture of the facts.”