When a little-known New York state official took on one of the world’s largest international banks, it struck me as a classic case of the dog chasing the fire truck: Would he know what to do if he caught it?
It turns out that the dog had a pretty good idea.
Benjamin Lawsky, New York’s superintendent of financial services, is the dog in question, while the fire truck he successfully pursued is London-based Standard Chartered PLC. Lawsky accused Standard Chartered, currently ranked number 46 among global banks by assets, of violating U.S. money laundering laws and helping Iran move billions of dollars in contravention of American and allied sanctions.
This is the sort of case in which we expect federal regulators, not state officials, to take the lead. A lot of people thought Lawsky was out of his depth when he threatened to revoke the New York banking license of Standard Chartered’s American unit. Although the bank reportedly derives around 90 percent of its profit from operations in Asia, Africa and the Middle East, its U.S. unit provides crucial access to the American banking system, which is the source of the world’s supply of dollars.
The New York connection gave Lawsky powerful leverage. Standard Chartered agreed to cough up a substantial penalty - $340 million - in order to settle Lawsky’s allegations that the firm covered up a decade of financial transactions. Unlike similar instances in the past, where banks have settled without revealing much about their alleged improper activity, in this case Lawsky also pressed Standard Chartered to acknowledge $250 billion of transactions involving Iranian clients, a figure the bank had previously disputed.
The settlement demonstrated Lawsky’s ability to recognize and deal with a serious offense while federal regulators dithered. Federal investigations of Standard Chartered date from 2010, according to Reuters, and have not yet been resolved.
Hiding transactions with Iran is not a foot fault, especially for a large, international financial institution. Respecting sanctions and anti-money laundering laws is the price of doing business in the global financial system.
Occasional lapses are to be expected. But when there is evidence of systematic evasion, regulators have no choice but to come down hard on the institution involved. Though Lawsky continues to receive scattered criticism for his aggressiveness in this case, he had every reason to believe that Standard Chartered’s violations were habitual and systemic, rather than isolated incidents. It is his job to use the tools at his disposal to halt such abuses, and he does not deserve to be criticized for taking this responsibility seriously.
Sen. Carl Levin, D-Mich., is at least one voice rightly praising Lawsky. In a statement following the Standard Chartered settlement, Levin said Lawsky’s department “showed that holding a bank accountable for past misconduct doesn't need to take years of negotiation over the size of the penalty; it simply requires a regulator with backbone to act.”
It’s still an open question whether federal authorities will seek to impose civil or criminal sanctions against specific individuals who may have had knowledge of Standard Chartered’s evasions. In the meantime, Lawsky deserves credit for turning over a rock and casting a spotlight on what was crawling beneath it.
Posted by Larry M. Elkin, CPA, CFP®
When a little-known New York state official took on one of the world’s largest international banks, it struck me as a classic case of the dog chasing the fire truck: Would he know what to do if he caught it?
It turns out that the dog had a pretty good idea.
Benjamin Lawsky, New York’s superintendent of financial services, is the dog in question, while the fire truck he successfully pursued is London-based Standard Chartered PLC. Lawsky accused Standard Chartered, currently ranked number 46 among global banks by assets, of violating U.S. money laundering laws and helping Iran move billions of dollars in contravention of American and allied sanctions.
This is the sort of case in which we expect federal regulators, not state officials, to take the lead. A lot of people thought Lawsky was out of his depth when he threatened to revoke the New York banking license of Standard Chartered’s American unit. Although the bank reportedly derives around 90 percent of its profit from operations in Asia, Africa and the Middle East, its U.S. unit provides crucial access to the American banking system, which is the source of the world’s supply of dollars.
The New York connection gave Lawsky powerful leverage. Standard Chartered agreed to cough up a substantial penalty - $340 million - in order to settle Lawsky’s allegations that the firm covered up a decade of financial transactions. Unlike similar instances in the past, where banks have settled without revealing much about their alleged improper activity, in this case Lawsky also pressed Standard Chartered to acknowledge $250 billion of transactions involving Iranian clients, a figure the bank had previously disputed.
The settlement demonstrated Lawsky’s ability to recognize and deal with a serious offense while federal regulators dithered. Federal investigations of Standard Chartered date from 2010, according to Reuters, and have not yet been resolved.
Hiding transactions with Iran is not a foot fault, especially for a large, international financial institution. Respecting sanctions and anti-money laundering laws is the price of doing business in the global financial system.
Occasional lapses are to be expected. But when there is evidence of systematic evasion, regulators have no choice but to come down hard on the institution involved. Though Lawsky continues to receive scattered criticism for his aggressiveness in this case, he had every reason to believe that Standard Chartered’s violations were habitual and systemic, rather than isolated incidents. It is his job to use the tools at his disposal to halt such abuses, and he does not deserve to be criticized for taking this responsibility seriously.
Sen. Carl Levin, D-Mich., is at least one voice rightly praising Lawsky. In a statement following the Standard Chartered settlement, Levin said Lawsky’s department “showed that holding a bank accountable for past misconduct doesn't need to take years of negotiation over the size of the penalty; it simply requires a regulator with backbone to act.”
It’s still an open question whether federal authorities will seek to impose civil or criminal sanctions against specific individuals who may have had knowledge of Standard Chartered’s evasions. In the meantime, Lawsky deserves credit for turning over a rock and casting a spotlight on what was crawling beneath it.
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