A man walks past the Standard Chartered bank building in Hong Kong Tuesday, Aug. 7, 2012.Kin Cheung/The Associated Press
Standard Chartered can breathe a costly sigh of relief. The British bank has agreed to pay a civil penalty of $340-million (U.S.) to settle allegations by the New York Department of Financial Services (DFS) that it handled more than 60,000 transactions for Iranian clients, in contravention of U.S. sanctions. The fine is manageable for a firm that earned more than 11 times that amount in the first six months of the year. But it may still be an expensive reminder of the cost of doing business in New York.
First, there's the matter of how DFS boss Benjamin Lawsky handled the matter. Sure, the former chief of staff to New York's Governor Andrew Cuomo has managed to wangle a hefty sum from Standard Chartered. But what exactly is it for?
Mr. Lawsky accused the bank of handling some $250-billion-worth of transactions, labelled it a "rogue institution" and threatened to withdraw its banking license, which would have all but killed its $230-billion-a-day dollar-clearing business, a centrepiece of its entire franchise. By that measure, at less than 0.2 per cent of the alleged offence, the penalty he's imposing feels like a gargantuan climb-down.
Perhaps he has privately accepted Standard Chartered's version of events – that just $14-million of the transactions actually contravened the law. If so, the bank certainly deserves to be punished for this. Paying 23 times the face amount may look unduly harsh, but it should do the trick.
Mr. Lawsky also broke ranks with several other regulators investigating the bank, including the Department of Justice, the Treasury and the Federal Reserve. The last was so concerned about the impact of what now appear to be Mr. Lawsky's hyperbolic accusations that the watchdog was calling Standard Chartered every three hours for a "liquidity and numbers check" after he threatened to revoke its bank license.
Add it all up and it's hard to avoid the impression Mr. Lawsky just carried out an effective old-fashioned shakedown, and one that also happens to be good politics in a bank-bashing era. Either way, he has just served notice that yet another regulator has its eye on Wall Street – and that banking in New York may now carry even more frictional costs than the industry bargained for.