StanChart sanction crisis poses cultural questions
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
(Note strong language in paragraph 3)
Standard Charteredās 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 bankās 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 āU-turnā. Even so, fear of financial penalties and the possible loss of StanChartās Wall Street licence wiped almost 7 billion pounds off the bankās 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 StanChartās then-U.S. head warned London of the risk of ācatastrophic reputational damageā. It suggests auditor Deloitte āwatered downā a report on sanctions compliance at the bankās request. Most inflammatory is the reported rant about āfucking Americansā 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 StanChartās culture does reveal past flaws, the fallout could be felt today. Itās 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 StanChartās 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 StanChartās executive directors at its last shareholder meeting. Even if the bank proves largely blameless for its Iran trades, there is scope for soul-searching.