StanChart sanction crisis poses cultural questions

August 7, 2012

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

(Note strong language in paragraph 3)

Standard Chartered’s true sanctions crisis could be over culture, not cash. The bank has hit back at the claim by a U.S. regulator that it hid $250 billion worth of trades for Iranian clients in order to dodge U.S. sanctions between 2001 and 2010. The denial is robust, but the case still raises worrying questions about how StanChart approached regulatory requirements. Given the limited changes in the bank’s top team, these will be harder to brush off.

While the $250 billion figure from the New York Department of Financial Services is eye-watering, StanChart maintains that only around $14 million of trades are really at issue. The difference may lie in the fact that, until 2008, many Iran-related trades could be legally processed through the United States in a process known as a “U-turn”. Even so, fear of financial penalties and the possible loss of StanChart’s Wall Street licence wiped almost 7 billion pounds off the bank’s market value in early trading on Aug. 7.

Even if StanChart avoids serious financial pain, the regulatory order paints a picture of institutional arrogance and dissembling. It claims StanChart’s then-U.S. head warned London of the risk of “catastrophic reputational damage”. It suggests auditor Deloitte “watered down” a report on sanctions compliance at the bank’s request. Most inflammatory is the reported rant about “fucking Americans” from an unnamed group executive director in London. Those quotes may be taken out of context, but the burden of proof now lies with the bank.

Moreover, if StanChart’s culture does reveal past flaws, the fallout could be felt today. It’s over five years since the bank says it stopped handling Iranian business, but its executive team remains largely intact. Chief executive Peter Sands, promoted from finance director in 2006, is in the same job. So are eight of StanChart’s 18 board members. Finance director Richard Meddings previously oversaw governance in the Americas.

StanChart could do without another question mark over its governance. Executive director Jaspal Bindra caused a stir when he took three weeks to notify the company after borrowing against his own StanChart shares in January. Largest shareholder Temasek declined to back several of StanChart’s executive directors at its last shareholder meeting. Even if the bank proves largely blameless for its Iran trades, there is scope for soul-searching.

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