On Monday, the New York State Department of Financial Services
(DFS) accused London-based
Standard Chartered PLC
(
SCBFF
) of concealing transactions worth $250 billion (£160 billion)
pertaining to Iran. According to the DFS, these transactions, which
took place in the last decade, were in contempt of the U.S. laws
and regulations, and would be dealt with sternly.
As per the DFS, Standard Chartered had set up an operation named
Project Gazelle to funnel Iranian money through American financial
system. The company duped the regulators by removing the codes of
transfer and carried out nearly 60,000 transactions with the
Iranian government in the last ten years. This resulted in huge fee
income for the bank at the cost of the national security of the
U.S.
Background
Since 1979, the U.S. regulators have put sanctions on all sorts of
financial transactions relating to Iran. The highly scrutinized
transactions termed as 'U-turns' were permitted to pass through the
U.S. financial system only if the funds transfer ended up in
non-Iranian banks.
The lawful compliance of these 'U-turns' was the lookout of the
banks. However, by 2008, it was proven beyond a doubt that the
system of transferring checks had been abused severely. In order to
safeguard national security, U-turns were banned as the regulators
suspected Iranian banks, at the behest of the Iranian government,
were providing funds for nuclear and missile programs as well as
extremist activities.
The banks consumed by their own interests, flouted the laws and
carried out transactions for countries having economic restrictions
imposed by the U.S. Consequently, the regulating authorities came
down hard on such unwarranted activities of these banks.
Misconducts by Other Banks
Recently, the top executives at
HSBC Holdings plc
(
HBC
) faced a tough inquiry by the congressional committee for their
alleged involvement in money laundering during the period
2004-2010. The investigation revealed substantial lapses in the
bank's anti-money laundering compliance. This resulted in a
worldwide displacement of funds from riskier nations through the
bank. Controversial transactions pertaining to its Iranian
clientele and the illegal narcotics trade in Mexico have drawn
maximum attention.
Earlier this year, the U.S. government held Netherlands-based
ING Groep NV
(
ING
) responsible for transferring billions of dollars through the
American financial system to nations that were economically
restricted by the U.S. As a result, the bank ended up paying $619
million in penalties.
Moreover, Wachovia bank, acquired by
Wells Fargo & Company
(
WFC
) in 2008, was accused of facilitating funds transfer related to
the Mexican Drug cartel. It ended up paying $160 million as
compensation.
Conclusion
Standard Chartered stands to lose its New York banking license if
the leveled charges are proven. Though, the company has strongly
rejected all the accusations by the DFS, revoking of the banking
license would spell catastrophe for the foreign bank. It would mean
a complete isolation from the U.S. markets and billions of dollars
losses.
Shares of Standard Chartered currently retain a Zacks #3 Rank,
which translates into a short-term Hold rating.
(We are reissuing this blog to correct a mistake. The original
article, released yesterday, August 7, 2012, should no longer be
relied upon.)
HSBC HOLDINGS (HBC): Free Stock Analysis Report
ING GROEP-ADR (ING): Free Stock Analysis Report
(SCBFF): ETF Research Reports
WELLS FARGO-NEW (WFC): Free Stock Analysis
Report
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