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Marcy Wheeler: Standard Chartered Bank Admits Promontory’s Estimates of Its Iran Business Were Wrong

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Yves here. A few quick comments on the New York state settlement. Some readers are unhappy that there wasn’t a prosecution. First, as we’ve written before, criminal prosecutions of big financial firms put them out of business (tons of customers are forbidden to do business with them) so they settle pronto (prosecuting individuals is another matter completely). Second, Lawsky is only a banking regulator and does not have prosecutorial powers. To do that, he would have needed Eric Schneiderman’s cooperation. But Lawksy’s boss, Andrew Cuomo and Schneiderman are rivals. And Schneiderman has thrown his lot in with the Obama Administration, which has been ferociously trying to undermine Lawsky. As Neil Barofksy noted in a Bloomberg story:

“I can’t think of another case where there has been such uniformity among federal regulators undercutting an enforcement case”

Marcy’s observation below is very important, and is being glossed over or even denied in the mainstream media. The Wall Street Journal has one of its all too common alternative reality editorial page pieces. Key snippet:

Of the $250 billion of transactions at issue, it now appears that $249 billion and change were legal at the time they occurred.

In a word, no.

By Marcy Wheeler. Cross posted from emptywheel

Standard Chartered just settled with NY’s Superintendent of Financial Services. The settlement–for $340 million and a monitor of SFS’ choosing–is less than some reports said the settlement might have been.

But here’s the detail I’m most interested in:

The New York State Department of Financial Services (“DFS”) and Standard Chartered Bank (“Bank”) have reached an agreement to settle the matters raised in the DFS Order dated August 6, 2012. The parties have agreed that the conduct at issue involved transactions of at least $250 billion. [my emphasis]

Just .1% fine, so not that big. But an admission that the scope of the fraud and the Iran business really did amount to $250 billion.

I find that interesting for two reasons. First, because it’s going to cause all kinds of headaches for the folks at Treasury who would like to let SCB off easy but ordinarily base settlements on the amount of the underlying activity.

More importantly, for me, because it demonstrates what a sham the Get Out of Jail Free industry is. A former OCC head and his minions at Promontory Financial Group claimed to have added it all up and determined that SCB only hid $14 million of transactions from Iran. SCB now says that Promontory was wrong.

By orders of magnitude.

Granted, SCB–and most of the people who pay Promontory to soft-pedal their crimes and risk–tried not to admit it had gotten that estimate from Promontory. Going forward, I expect we’ll see Promontory’s clients hide their involvement even more.

Still, this is a useful demonstration of how corrupt the Get Out of Jail Free industry is.

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22 comments

  1. Jonas

    I suspect there’s still wiggle room or StanChart wouldn’t have signed it. Stan Chart would say the term “conduct at issue” doesn’t mean just the illegal activities, but anything contested by either side. So it’s a tautology or a description, not an admission.

  2. kezza

    Sorry to disappoint, but the entire claim seems to be rested on only the statement from DFS, without the corresponding statement from StanChart.

    1. Yves Smith Post author

      1. Lawsky is by all accounts very careful. He’d not muff a public statement of this importance.

      2. If you read Standard Chartered’s statements starting as of this week, they’ve abandoned their $14 million argument. But the media, perhaps following continuing messaging from the Feds, keeps thumping it.

      1. emptywheel

        Right, even in their public statements they’re saying, “well, maybe $300 million was wrong.”

        But there they are signing a legal settlement for more money than that, admitting to $250B in transactions.

        If Treasury does base its settlement on anything less than the $250B (even if it bends over backward to invent a new formula for the settlement) it’ll lose serious credibility.

  3. polistra

    It also shows the corruption of the “sanctions industry”. The US Govt has allowed all sorts of sales to Persia under various “humanitarian” pretenses. Safe bet that some of that business was going through SCB.

    In other words, we haven’t really been putting the screws on Persia, we’ve just been favoring some contractors over others.

    1. this is going to hurt me more than it hurts you

      SCB’s ace in the hole, and Britain’s, is that the US government’s unilateral sanctions are legally void in breaching UN Charter Article 41. Without UN authorization the US can’t impose a financial embargo any more than it can impose a blockade. UNCTAD is all over this, not that you will ever hear about it inside the hermit kingdom. In arbitration or at the ICJ a lot of the penalties might go away, so the US can only push it so far.

      1. Yves Smith Post author

        No, you really don’t get it. It looks like you spouted off without reading his order.

        Lawsky can yank their license, basically for the disregard they showed for US law. And they weren’t breaking it out of any political high-mindedness. Two of his six charges under NY law are violations of books and records keeping. Those can be criminal if serious or persistent. They were both in SCB’s case. Every banking regulator in the world has rules requiring the keeping of accurate books and records. SCB has no way out of Lawsky’s charges. That’s why they settled.

    2. Heron

      Exactly. What the sanctions really do is bar the general market from dealing with Iran and Iranian firms. At a stroke it not only makes the Iran business into a monopoly(or at “best” an oligopoly), it also gives those banks allowed to handle it under the table the perfect excuse to charge a risk premium for basic banking services.

      1. OpenThePodBayDoorHAL

        Let’s see…isn’t this covered under NDAA? I mean “material assistance of any kind to terrorists” and all that? StanChart execs better not go outdoors, chances are they’ll see a drone with a Hellfire missile coming their way.
        But wait…wouldn’t that also apply to Hilary, providing Stinger’s to al-Qaeda in Syria? Yes, it would.
        I don’t know why I bother any more. Put a fork in it. Save ye who can.
        I mean if Lie-bor, the “largest fraud of any kind in the history of the world” can’t result in an indictment or two, let alone a conviction, then we really are doomed. Sorry, folks.

  4. Warren Celli

    Ah yes, the body count stage…

    This is now like arguing body count in the Iraq war.

    “The parties have agreed that the conduct at issue involved transactions of at least $250 billion.”

    Loose paraphrase;

    “The parties have agreed that the conduct at issue involved the deaths of 110,000 persons in Iraq.”

    They will now exhaust you in looking at each individual transaction (battle) and summing the fraudulent results (deaths). And Treasury will use your efforts as proof that that this is still in contention and so they can foot drag as they please. A waste of time.

    “Balls of Steel” Lawsky should have said in his piece of crap settlement;

    “The parties have agreed that the conduct at issue involved FRAUDULENT transactions of at least $250 billion.”

    As for NOT putting big financial firms out of business because “tons of customers are forbidden to do business with them” and this necessitates “settling pronto”. I call BS on that too big to fail like spin. They put the mafia out of business and tons of customers were forbidden to do business with them. Maybe the customers should be more discerning as to who they do business with.

    That poor “balls of steel” loser Lawsky did not have loser Schneiderman’s cooperation is also a lame apologist — the dog ate my homework level — excuse for a crooked, now blatant scam ‘rule of law’ that is selectively enforced from top to bottom. It is called Scamerican Just Us!

    “Balls of steel” Lawsky should be wearing a striped suit and be behind ‘bars’ of steel, like that father that stole some video tapes for his kids for Christmas, and is now doing life in prison under the outrageously unjust ‘three strikes’ ‘law’.

    Deception is the strongest political force on the planet.

    1. Walter Wit Man

      Why can’t a bank trade with Iran?

      There is more evidence the U.S. supports terrorism than there is evidence that Iran supports terrorism.

      We should prohibit transactions with U.S. banks on humanitarian grounds.

      The whole premise of this enforcement action is false and meant to justify war against Iran.

  5. Jill

    I must agree with many above. These sanctions are likely illegal and certainly immoral. They are the first crime. There is no justice for the people of Iran who have suffered under that crime. Where is the prosecutor in the US who will file charges for war crimes?

    I hold no grief for SC. I am certain that they are engaged in many illegalities. I do not think they fostered transactions for Iran for humanitarian reasons. They can pay fines and go to jail (preferably) but this is just a small cog in a much larger cruelty. Sanctions kill.

    1. Cynthia

      The US/Israel/NATO are waging war against ordinary Iranian people. Hardest hit are pregnant women, infants, and the elderly. Economic sanctions constitute crimes against humanity. In Iraq during the nineties some half a million people, mostly young ones and the most vulnerable, died due to western-imposed sanctions.

  6. neil terry

    I wonder if these illegal services had covert authorisation at some time in the past. We presumably want to track Iranian money if we are degrading the country before going to war and to arrange trades in dud munitions surplus to our use. HSBC and SCB may just have been a conduit in such a deeper game. Hence their disdain.

    1. emptywheel

      I’ve actually argued that JPMC–after having settled on its own illegal transactions with Iran–appears to have been involved in the “Scary Iran Plot” (alleged assassinationa attempt) sting.

      But JPMC’s settlement is remarkable in that the settlement has not, AFAIK, ever been released. Which is sort of what we’d expect from a bank that has effectively become a covert player.

  7. JamesG

    The top news story this morning on NPR’s Marketplace Morning Report said that the settlement didn’t include admission of wrongdoing. What the heck!? The settlement clearly states that they do admit it. When can we get a retraction from the bankster’s publicist, NPR?

  8. MacCruiskeen

    “Just .1% fine, so not that big.”

    How much of the $250 billion was profit for the bank? I would presume the actual fees generated by this business is not a large percentage.

    1. Yves Smith Post author

      Correct, but I have no idea what the normal charges would be and how much extra SCB charged thanks to dealing with an off-limits customer.

  9. MichaeC

    The question for Lawsky is

    How did he arrive at the fine?

    Did he determine that the violations of NYS laws were related to a subset of the full set of $250 bilion transactions involved and admitted to by SC in the combined NYS/FED investigations.

    It’s possible that the remainder of the 250B involved Federal crimes that the Feds appear to be about to sweep under the carpet.

    Who knows at this point? But declaring the fine a pittance at the moment seems premature until we know how much the FEDs could impose if they were so inclined.

    But since SC has admitted the entre 240B was involved the regulators claim that only 300m were actually illegal needs to be explained.

    Did the Feds also hire Promontory to perform their review as well, or was the Feds 300 number arrived at by thier own agents?

    Given the huge sums it is astonoshing if the Feds don’t demand settlements orders of maginitude greater than Lawsky

    Some simple math based on the high end of fee estimates for this service (15%)

    250B at 15% = 35.7 B
    251B at 15bp = 375 M

    So SCs profit was somewhere between 375m and 37.5B, which leaves plenty of room for a massive fine from the FEDS.

    Whatever the fine they ultimately asses, it should go right to the enforcement budgets at the Fed agencies,

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