HONG KONG/LONDON, Aug 7, (RTRS): The market value of Standard Chartered Plc tumbled as much as $17 billion on Tuesday after New York’s bank regulator threatened to tear up its state banking licence for allegedly hiding $250 billion in transactions tied to Iran.
The New York State Department of Financial Services (DFS) slammed the London-based but Asia-focused bank as a “rogue institution” that “schemed” with the Iranian government, which is subject to US sanctions over its nuclear programme, and hid 60,000 secret transactions to generate hundreds of millions of dollars in fees over nearly 10 years.
Shares in Standard Chartered were down 16.6 percent at 12.26 pounds by 1420 GMT, taking their losses to 24 percent since the news surfaced just before Monday’s close. They had earlier slumped as low as 10.92 pounds, their lowest for three years.
“Even the so-called ‘safe’ banks like StanChart and HSBC seem to be crumbling, with their reputation in tatters. No one, it seems, is immune,” said one institutional investor, who asked not to be named.
“Some of the language used is very disturbing. Of course, it could be that the Americans are exaggerating, but somehow that doesn’t seem to be the case here,” the investor said.

Exposed
The bank, which has been in talks with US authorities since early 2010 over the matter, had exposed the US banking system to terrorists, drug traffickers and corrupt states, the DFS said.
The New York regulator described how officials at Standard Chartered, one of the banks least tarnished during the financial crisis thanks to its focus on emerging markets and a conservative approach to capital and liquidity, had debated whether to continue Iranian dealings.
In October 2006, the top official for business in the Americas, whom the regulator did not name, warned in a “panicked message” that the Iranian dealings could cause “catastrophic reputational damage” and “serious criminal liability”.
A group executive director in London shot back, according to a New York branch officer: “Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”
The reply showed “obvious contempt for US banking regulations”, the regulator said.
At that time the bank had five executive directors: Peter Sands, now chief executive; Richard Meddings, now finance director; Mervyn Davies, a UK Labour Party peer; Kai Nargolwala, who was poached by Credit Suisse and left the Swiss bank last year; and Mike DeNoma, who resigned as CEO of Chinatrust Financial in August.
Standard Chartered’s Americas CEO was Ray Ferguson, who is now its Singapore CEO.
None of the people could be reached for comment or else declined to comment.
Standard Chartered said the bank “does not believe the order issued by the DFS presents a full and accurate picture of the facts”.

The loss of a New York banking licence would be a devastating blow for a foreign bank, effectively cutting off direct access to the US bank market. Standard Chartered processes $190 billion every day for global clients, the New York bank regulator said.
David Proctor, who worked for Standard Chartered from 1999 until 2006 and was CEO in UAE from March to June 2006 and had the Iran business briefly report to him, said the rules on dealing with Iran were unclear.
“At the time (in May 2006), many international banks active in Iran were trying to adjust to increased attention from the US There was a lack of clarity over what was and wasn’t allowed. The key question was to try and understand exactly what counted as a U-turn transaction,” he said.
The United States imposed economic sanctions on Iran in 1979, but until November 2008 US banks could process some transactions for Iranian banks or individuals provided they were initiated offshore by non-Iranian foreign banks and are on the way to other non-Iranian foreign banks, known as “U-turns”.
Proctor, who now provides advice for banks with BAS Consulting in Singapore, added: “I don’t think it’s a matter of fighting this case; Standard Chartered just has to get to the bottom of what happened. Banks these days don’t have a choice. You have to be transparent.”

Standard Chartered is the third British bank to be ensnared in US law enforcement probes this summer. Barclays Plc agreed to pay $453 million to settle US and UK probes that it rigged a global lending benchmark in June.
A month later, a US Senate panel issued a scathing report that criticised HSBC Holding Plc’s efforts to police suspect transactions, including Mexican drug traffickers.
Standard Chartered said it shared with US agencies an analysis that demonstrated it “acted to comply, and overwhelmingly did comply” with US regulations.
Standard Chartered put the total value of Iran-related transactions that did not follow regulations at less than $14 million, based on its review of the issue, in stark contrast to the DFS’s $250 billion estimate.
Standard Chartered said the DFS’s interpretation of the U-turn exemption “is incorrect as a matter of law”. It said 99.9 percent of its transactions relating to Iran had complied with a US framework.
The figure alleged by the New York regulator would cover the equivalent of 71 percent of the $350 billion total Iranian oil export revenues for the seven years of 2001-2007, according to OPEC data.

Surprised
“The group was ... surprised to receive the order from the DFS, given that discussions with the agencies were ongoing,” Standard Chartered said. “We intend to discuss these matters with the DFS and to contest their position.”
The bank has to appear before the DFS on Aug. 15.
“Some people were walking around under the illusion that Standard Chartered was the world’s first riskless bank, and it’s not. We’ve discovered that Standard Chartered is a mortal bank — as they all are,” said Gareth Hunt, financials analyst at Canaccord Genuity, who rates the stock a “sell”.
Hugh Young, managing director in Singapore at Aberdeen Asset Management Asia, the third biggest shareholder in the bank said: “It’s something to worry about, although I noticed a lot of emotive and sensational language which slightly diminishes the allegation.
“The StanChart we recognise is not the rogue bank portrayed in the allegation,” he added.
Standard Chartered is the sixth foreign bank since 2008 to be implicated in dealings with sanctioned countries such as Iran in investigations led by federal and New York law enforcement officials.
Four banks — Barclays, Lloyds, Credit Suisse and ING — have agreed to fines and settlements totalling $1.8 billion. HSBC currently is under investigation by US law enforcement, according to bank regulatory filings.

The New York regulator, headed by former prosecutor Benjamin Lawsky, ordered Standard Chartered to explain why the bank should not lose its state licence and the ability to process dollar transactions. Lawsky also ordered the bank to bring in an outside consultant to monitor its transactions.
“Standard Chartered Bank operated as a rogue institution,” Lawsky said in the order.
Lawsky’s investigation is unusual because probes into banks’ transactions tied to Iran have been primarily led by the district attorney’s office in Manhattan and the US Justice Department.
The cost to buy protection for five years against Standard Chartered defaulting on its debts rose to 166,000 euros for 10 million euros’ worth, up from 140,000 euros on Monday, according to Markit.
Allegations that a banking unit of Standard Chartered Plc schemed with Iran to conceal billions of dollars in transactions have dragged Deloitte into the spotlight in another hit to the global accounting and consulting firm.
The New York State Department of Financial Services, in a case involving US anti-money laundering laws, on Monday said Deloitte LLP consultants hid details from regulators about Standard Chartered Bank’s transactions with Iranian clients.
The bank’s actions “left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes,” Benjamin Lawsky, superintendent of the department, said in an order made public on Monday.

Deloitte said in a statement: “Deloitte Financial Advisory Services performed its role as independent consultant properly and had no knowledge of any alleged misconduct by bank employees. Allegations otherwise are unsupported by the facts.”
The New York Department of Financial Services regulates New York banks and New York branches of foreign banks. It said Standard Chartered’s license to operate in the state of New York may be revoked.
The allegations are the latest in a string of setbacks for the US arm of Deloitte, the world’s second-largest accounting and consulting firm.
Late last year, Deloitte’s US arm came under scrutiny from a member of Congress after audit industry regulators unsealed parts of a report criticizing quality controls at Deloitte’s corporate auditing business. Deloitte said at the time that it had made investments to improve its audit practice.
Deloitte consultants separately had overseen a review of HSBC banking transactions after that bank was cited for multiple anti-money laundering failures.
A Reuters review last month on that operation in New Castle, Delaware reported that managers were more concerned with clearing out paperwork as fast as possible than in investigating transactions linked to illegal activities. For details click on .
A Deloitte spokesman said in July that Deloitte’s “work for HSBC was rigorous and thorough.” It declined further comment on client work.

Deloitte is one of the “Big Four” consulting and accounting firms, which also include Ernst & Young, KPMG and PwC. Together, the firms audit the books of most of the world’s largest corporations. Deloitte also has a thriving consulting and advisory business.
In the Standard Chartered case, Deloitte “intentionally omitted critical information” in a report to regulators on its independent review of the bank, Lawsky said. The review was done by Deloitte’s financial services advisory group, which is separate from its auditing arm.
Deloitte had been retained as part of a legal agreement between Standard Chartered’s New York branch and banking regulators following other compliance failures by the bank involving anti-money laundering policies, Lawsky said.
At one point, Standard Chartered asked Deloitte to delete from its draft report any reference to payments that could reveal the bank’s practices involving Iranian entities, Lawsky said.
In an email about the draft report cited by Lawsky, a Deloitte partner said “we agreed” to the request because “this is too much and too politically sensitive for both Standard Chartered Bank and Deloitte. That is why I drafted the watered-down version.”

Using Deloitte’s “watered-down” report and fraudulent data, Standard Chartered misled New York banking regulators into believing it had corrected flaws, while the opposite was true, Lawsky said.
Lawsky also said that Deloitte unlawfully gave Standard Chartered confidential reports that Deloitte had prepared for two other major foreign banking clients under investigation for money laundering. The reports had “detailed and highly confidential information concerning foreign banks involved in illegal US dollar clearing activities,” Lawsky said.
Late last year, Deloitte’s audit arm came under scrutiny from Democratic Senator Claire McCaskill, who chairs a US Senate subcommittee on contracting oversight.
McCaskill in November asked Deloitte for a list of all of its audit work for the federal government, saying a report from audit regulators had raised serious questions about the integrity of its audits.
The report, from the Public Company Accounting Oversight Board, which polices US audit firms, faulted Deloitte for failing to promptly improve quality controls after problems were found in some 2007 audit inspections.

Deloitte is a major contractor for the US government, with about 6,100 employees in its $1.3 billion federal government services practice, according to the firm’s Web site.
Deloitte’s Chinese arm has also run into problems with several audits of US listed Chinese clients. Since January, Deloitte has resigned or been dismissed from audit roles with seven US-listed Chinese companies, according to data from research firm Audit Analytics.
No evidence suggests the departures involved wrong-doing on Deloitte’s part.
Deloitte China told Reuters in a statement last month that companies facing issues “represent just a minuscule proportion” of its total portfolio of listed companies.
Deloitte in 2011 also lost part of a contract in Afghanistan to provide technical assistance to its central bank after failing to report signs of fraud at Kabul Bank before a run on the bank in September 2010.
The US Agency for International Development had funded the contract to promote the stability of Afghanistan’s financial sector and prevent losses.
Deloitte was not working for Kabul Bank, but an AID inspector general’s report said Deloitte “did not aggressively follow up on indications of serious problems” at the bank, Afghanistan’s largest.