The dispute between Standard Chartered (StanChart) and the Department of Financial Services (DFS) of the State of New York over the bank’s dealings with Iranian entities has played out to a familiar script. The regulator here would speak of massive irregularities, only for the regulatee to deny outright any wrongdoing. A settlement is then reached, with the regulator not pressing any charges and the alleged culprit emerging without much stain on its reputation. L’affaire StanChart has been no different. The DFS has spoken of StanChart violating US sanctions on Iran in respect of transactions worth over $250 billion, whereas the bank has conceded to infractions not exceeding $14 million. Now, as part of an overall settlement, StanChart has agreed to pay $340 million in penalty.
In doing so, the London-based banking conglomerate has basically bowed to investor pressure, following a sharp plunge in its shares in the wake of the DFS’ August 6 order. For the DFS, on the other hand, establishing StanChart’s culpability could have led to a messy legal process. According to the regulator, StanChart had, during 2001-10, concealed roughly 60,000 transactions involving Iranian financial institutions, including its central bank. These were payments originating and terminating in banks outside the US, but cleared through StanChart’s New York branch. StanChart was said to have ensured that the wire transfer messages from the correspondent banks reaching its New York branch were manually or electronically ‘stripped’ of any reference to the sanctioned Iranian entities. But whether these were intentional or mere clerical errors wouldn’t have been easy to establish. In any case, whether the DFS should have woken up after 10 long years to these transgressions is also a question that was bound to come up – not a welcome prospect for any regulator.
L’affaire StanChart is not the first instance of alleged violations of US sanctions by major Western banks. In recent times, ING Bank, Barclays, Lloyds TSB and Credit Suisse have also had to settle accusations of moving funds on behalf of clients in Iran, Cuba, Libya, Sudan or Myanmar – ‘rogue states’ as designated by the US. In virtually all these, the investigations have pointed to a similar pattern of the banks removing information from American-bound wire transfers that would have signalled the money as originating in a rogue country institution. It only shows the inherent limitations to enforcing sanctions. If at all they work, it is the ordinary citizens of the sanctioned countries who suffer, even while their rulers and the banks enabling them to circumvent the sanctions manage to remain in business or get away by paying light fines. Even worse is when the cause for imposing sanctions, culminating in regime change, itself turns out to be dubious. There can no better example of that than the so-called weapons of mass destruction in Iraq under Saddam Hussein.