Standard incompetence

August 20, 2014

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Standard Chartered’s compliance department is apparently pretty bad at complying. In 2012, the bank was fined $340 million for hiding transactions with sanctioned Iran. As part of the settlement, Standard Chartered bank (SCB) was required to “remediate anti-money-laundering compliance problems,” Dealbook’s Ben Protess and Chad Bray report, and hire an outside monitor to judge whether the problems were in fact remediated.

They weren’t, and the bank will pay $300 million for “anti-money laundering failings in its United Arabs Emirates and Hong Kong businesses,” Reuters Michelle Price reports. The failures, laid out in a settlement with the New York Department of Financial Services, display an almost comical or willful ineptitude, depending on your perspective. SCB, the settlement says, “created a rulebook with procedures to aid it in detecting high-risk transactions.” But the rulebook was filled with errors that SCB didn’t know about, because it didn’t try to find out if the rulebook was adequate before or after it wrote it. This allowed transactions that should have been closely scrutinized to sail through unimpeded. To top it all off, SCB didn’t properly monitor its own transaction monitoring system. You can see why an independent monitor would be necessary.

As part of its settlement, the bank will also suspend clearing payments in dollars for certain clients, and take even more remedial measures. One of those is extending for two more years the term of Navigant, the independent monitor that caught the latest slip up.

Matt Levine wonders why, given how bad SCB seems to be at understanding and preventing money-laundering, the monitor should content itself with just reporting SCB’s problems: “If the monitor knows so much about anti-money-laundering procedures, shouldn’t it have just designed the procedures? Isn’t the goal to have less money laundering?”

The bank’s management isn’t taking the fall. CEO Peter Sands, Protess and Brayreport, says he has “no other plans” than to remain in his position. Earnings per shareare down, though, and the board is under pressure to make a change. If Sands is ousted, it wouldn’t be the first time a board used scandal as a pretext for a financially-motivated decision.  — Ben Walsh

On to today’s links:

Primary Sources
The full FOMC minutes – Federal Reserve

Generation Debt
“Young borrowers are actually among the least likely to experience a serious credit card default” – Richmond Fed

Correlation of the Day
The richer you are, the more likely you are to think trophies are only for winners – Alex Tabarrok
And another: Colorado has drastically reduced its teen pregnancy rate by giving teens access to long-term contraceptives – WaPo

Regional cost disparities are all about housing – Squarely Rooted

Patent Power
“Patent trolls are emerging as the world’s most nefarious rentier types” – Izabella Kaminska

FYI re: Your Mortality
Mortality spikes on payday: “It’s not the wages of sin that are death. It may be just the wages of wages” – John Carney

Investigating the variation in how much it costs to raise a kid – Nick Bunker

For the Wages
“The fantasy of finding someone who is punctual, productive and willing to be paid a pittance is hard to let go” – WSJ
“If we were brave enough, we’d say our survey data indicate [a] quick wage uptick is ‘unlikely'” – Atlanta Fed

Legal Arcana
“…eventually that hope will turn into lawsuits, as hope does” – Matt Levine

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