NYS Order on Standard Chartered’s Iran Transfers Opens Up US, UK Regulatory Pig Fight

I hope Benjamin Lawsky, the New York Superintendent of Financial Services, has balls of steel. He will need them.

In case you missed it, a major news story yesterday is the bombshell that Lawsky dropped on the British bank, Standard Chartered, in the form of an order (a regulatory determination) that set out in considerable detail how the bank, with deep involvement of senior in house counsel and compliance staff, had doctored (“repaired”) wire transfers so as to disguise the fact that the customers were major Iranian banks, including its central bank. Both SCB’s outside US counsel (in 2003) and the head of the US operations (in 2006) raised big red flags that the way the banks was operating was out of line with the regs. The US chief was begging to exit the Iran business. From the order:

Firstly,” he wrote, “we believe [the Iranian business] needs urgent reviewing at the Group level to evaluate if its returns and strategic benefits are . . . still commensurate with the potential to cause very serious or even catastrophic reputational damage to the Group.” His plea to the home office continued: “[s]econdly, there is equally importantly potential of risk of subjecting management in US and London (e.g. you and I) and elsewhere to personal reputational damages and/or serious criminal liability.

Yet these concerns were ignored. The order states that over $250 billion was transferred impermissibly from 2001 to 2010 on behalf of Iranian clients, and it is also looking into similar transfers with Libya, Sudan, and Myanmar.

The order says that the state regulator will put a monitor of its own choosing in place at the bank’s expense, and it has summoned it to appear on August 15 and explain why it should not lose its New York license and its access to US dollar clearing services. As we pointed out yesterday, it is very unusual for a state regulator to act on its own in such an aggressive manner (not that I disapprove). And I can’t think of a single case where a bank has been threatened in public with the loss of a major license. I presume that is what happened privately to Salomon in the wake of its Treasury bond bidding scandal, when CEO John Gutfreund and three other executives suddenly stepped down. Bankers Trust pleaded guilty in a suit by New York and other states for escheatment fraud. Guilt of a felony meant municipalities and many private companies were forbidden to conduct business with it, which lead to a brokered marriage to Deutsche Bank.

Across the pond, banks, MPs, and the media are up in arms. Part of this is a failure to understand the laws and the DFS’s role; this is seen as a Washington conspiracy to kick the City when it is already down thanks to the Libor scandal (and if I were at the Bank of England or the FSA, I’d be furious at the way Geithner managed to fob off all responsibility on them, so I suspect there is a lot of pent up hostility looking for an outlet). Per the Financial Times:

“This is an attack,” said one senior City figure. “If we don’t stand up to it, it could be catastrophic for London’s financial standing. There has to be some stage where Number 10 or the Treasury says something in defence of the banks.” A second said: “Political intervention may be needed over this.”

And in a separate article:

In London, John Mann, an opposition Labour party member of parliament’s influential Treasury select committee, said he was concerned about an “increasing anti-British bias by US regulators and politicians”, which he said could have been influenced by a desire to shift financial business from London to New York.

“This is a real power grab [by US authorities] and the stakes are very high,” he said.

And of course, Standard Chartered is trying to claim that these were “small paperwork errors” (where have we heard that line before?). If you read the order, there is too much evidence in there alone to regard that as credible.

But the Treasury and Fed are also in an uproar, although they have no one to blame but themselves for their discomfort. The Treasury (supposedly the lead actor in investigating “terrorist financing” and violations of economic sanctions; the Office of Foreign Assets Control is a Treasury operation), Fed, DoJ, District Attorney of New York and the DFS were all investigating Iran transfers at various banks, including SCB, since 2010. The others has settled; SCB was still under investigation and seemed to believe it would get a clean bill of health.

The UK media is depicting Lawsky as a “rogue regulator,” a lone wolf who has way overstepped his authority and is out of line in trying to enforce Federal laws relating to Iran. The facts are somewhat different.

Lawsky came into his post in 2011. A reliable and connected source says that the Fed has gone out on the broad tape claiming that Lawsky did not inform them. In fact, he met with them about three months ago, laid out his case, and the folks at the Fed said, in effect, “Go for it.” Lawsky took them at their word and now everyone is gunning for him. The behavior pattern is awfully reminiscent of what another prosecutor, Neil Barofsky, found when he worked busting drug lords in Columbia: like DEA and DOJ, the Fed evidently cares far more about not being made to look like incompetent enablers rather than shutting down a massive infusion of money to Iran. Geithner has also mounted a major campaign against Lawsky.

Despite the enormous row that this action has kicked up, Lawsky may be able to ride it out. The key is whether Cuomo continues to back him. At least as of the publication of stories last night (I’m putting this up to go live a bit after I turn in), Treasury has made no formal statement, although there was a bit of a bleat issued, per Bloomberg:

The New York intermediary through which the transaction went through did not have to be notified by the British bank that it was carrying out this transaction on behalf of an Iranian entity in order to meet the requirements of this regulation, said John Sullivan, the Treasury Department spokesman responsible for terrorism and financial intelligence.

Sullivan declined to discuss any further details about the probe of Standard Chartered.

The Administration may well be hamstrung in its ability to rein in Lawsky. Given that this is an election year, and the race is close, Obama can’t afford to alienate older, well heeled Jews, who are ovewhelmingly pro-Israel (the younger generation is another story). So Geithner and Obama can’t afford to engage in open war. Indeed, if the Romney camp is smart, it will depict the Administration’s failure to join Lawsky as proof that it is soft on Iran and terrorism generally.

Similarly Lawsky will gain considerable stature if he prevails, so it isn’t likely that the Administration can offer a big enough inducement to get him to back off (and the way Schneiderman was seduced and then treated shabbily would be enough to make anyone with a operating brain cell wary of trusting them to deliver on their promises).

Separately, I’m astonished by the amount of abjectly ignorant commentary on this matter thus far. The UK press is not comporting itself well (failing to understand that dollar clearing services are ultimately backstopped by the Fed, hence something the US is within its rights to regulate, or complaining about a “Washington” regulatory grab by a New York regulator). But there are some lapses in the US coverage as well, particularly (and I suspect to see more of this) the uncritical acceptance of the argument that SCB (and now the embarrassed and upset Federal regulators) is trying to make, that Lawsky’s case rests on his supposedly aggressive reading of the reporting requirements for transfers with Iranian banks. An example in the New York Times:

The agencies involved, including the Treasury Department, are debating just how expansive the suspected wrongdoing was at Standard Chartered. Benjamin M. Lawsky, a former prosecutor who now leads the state banking regulator, claimed the bank had processed $250 billion in tainted money while cloaking the identities of its Iranian clients by stripping their names from paperwork. Some federal authorities, though, believe that the amount is much smaller, perhaps in the millions. Standard Chartered, for its part, said that only $14 million did not comply with regulations.

The wide disparity stems from different interpretations of how many Standard Chartered transactions violated a federal rule that governs the way money from abroad moves through the American financial system.

It’s hard to see the DFS position as some sort of regulatory overreach when the bank’s own US outside counsel objected strenuously to the bank’s view thåt wire stripping was OK in 2003, and the top executive in the US was later deeply concerned too. More important, if you read the order, only one of the seven violations of the law cited relies on the Federal statue involving clearing of dollar transactions with Iran, and that is formulated narrowly:

SCB engaged in transactions within the United States without complying with the requirements of 31 C.F.R. 560.516 in that SCB prevented its New York branch from determining whether the underlying transactions were permissible under by 31 C.F.R. 560.516 before effecting them.

Two of the other violations, Offering False Instrument for Filing P.L. § 175.35, and Falsifying Business Records P.L. § 175.10, depending on the severity of the violation (and these look severe) are Class E felonies. Note from the Bankers Trust example above: being found to be a felon is a death warrant for a bank.

Some readers are unhappy that this action centers on Iran, but as I keep stressing, this initiative is all about past violations, and does not escalate the conflict with Iran. And the Brits and the US media are treating this contremps as a banking story, not a Middle East story. I find the stung reaction of the British bankers a positive sign. Maybe Lawsky’s charge will finally demonstrate that a race to the regulatory bottom erodes the stature and credibility of a financial center. As remarkable as it no doubt seems to Americans, we aren’t at the bottom in some areas of banking, and that might come to be seen, as it was until the 1980s, as a competitive strength.

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  1. Jesse

    The Treasury and Fed are alarmed because of the way Lawsky exposed the craven nature and extent of the crimes, rather than quietly settle them in private for a promise and a wristslap.

    But what alarmed them even further were the implied threats from London that they might expose a large US bank to a similar public shaming for a different set of transgressions.

    The Fed and Treasury’s concern is all about protecting their best boy no matter what he does. Isn’t it always that way?

  2. Jill


    The following is from the Washington Post: “Federal Reserve officials declined to discuss the Standard Chartered case as it is an ongoing investigation. But spokeswoman Barbara Hagenbaugh said the central bank “has been working closely with various prosecutorial offices and [other regulators] on matters involving Iran and other sanctioned entities.”

    No other state or federal regulators would discuss the Standard Chartered case.

    U.S. officials have repeatedly expressed concerns about Iran’s ability to use commercial banks to soften the impact of financial sanctions against the Islamic Republic. The officials acknowledge that it’s unclear how much, if any, of the money directly benefited Iran’s weapons programs or terrorist operations, but they say help from foreign banks could ease the pressure on Iran’s leaders at a particularly sensitive time.

    “Sanctions violations are something that this administration takes extremely seriously and has a strong record of action to this end,” White House press secretary Jay Carney said Tuesday. “The Treasury Department remains in close contact with both federal and state authorities on this matter.”


    I have no doubt of the illegality of actions here and the need for investigation of SC officers. The timing of the annoucement is what connects it to the ginning up of war against Iran for me.

    I know we analyze these facts differently but I am not ignoring facts. I am making a good faith analysis of what I’m reading with conclusions that are different from yours. I hope that your reading of Lawsky is correct. However, from this article and an new one in the Guardian it does not appear that Lawsky acted independently of Federal authorities in this investigation.

    In today’s Guardian there is a call for personal responsibility (as in jail time and fines) of bank officers. That is an excellent idea!

    Clearly SC is subject to US law.

    1. Yves Smith Post author


      You continue to make selective and frankly bizarre readings. Reuters, the Financial Times, the NYT’s Dealbook all stress what I pointed out yesterday, that Lawsky acted alone on this and the Federal regulators are ripshit over that. I’ve had this confirmed by private, well connected sources. Yet you continue to come here and insist on your reading that this has something to do with escalation against Iran. This is flat out barmy. If you bothered doing OTHER research, you’d also know sanctions and money transfer procedures were tightened considerably as of earlier this year. This move won’t lead to tighter sanctions because 1. the Feds are not aligned with Lawsky and 2. the is pretty much no where further to go on the sanctions front. The old rules were stringent, the new ones are Draconian.

      Lawsky got his job in 2011. He wanted to kick ass and take names, that’s how you build a name in his job. He saw this as an ongoing case that the Feds had neglected and decided to go after it. His last job was as a SDNY prosecutor. They are trained to be aggressive. This action is also politically promising for Cuomo, which is why I imagine he backed it (Lawsky as a newbie is almost certain not to go ahead without Cuomo’s blessing). This is not hard to understand, but you refuse to get it.

      1. enouf

        … I’ve had this confirmed by private, well connected sources. Yet you continue to come here and insist on your reading that this has something to do with escalation against Iran. This is flat out barmy. …

        Q. Will not all this hullabaloo, in effect, ‘escalate’ sentiment against Iran amongst the (otherwise ignorant) populace here in the USA?

        Q. Does one really think one can ascertain motives (ulterior, or otherwise) when it comes down to “profit”? Yes, the devil is in the details, but the ‘details’ are what makes good pond scum.

        IMHO, both you and Jill fail to accept the systemic root cancer, .. IOW, you both fail to see the ‘State’ as the enabler of such shennanigans, that you then can quibble about.

        That’s just my humble opinion — I *do appreciate* all the work and effort required to maintain this blog — it’s amazing to me — Thank you so much for all you (and your staff, etc) do.


  3. Robespierre

    This fights between the fiancial powers in NY and the ones in London is very reminecent to turf fights between drug gangs.
    And you have to love the moral compass here:
    Firstly,” he wrote, “we believe [the Iranian business] needs urgent reviewing at the Group level to evaluate if its returns and strategic benefits are . . . still commensurate with the potential to cause very serious or even catastrophic reputational damage to the Group.”

    So he is basically saying that if the returs and stratigic benefits are high enough lets continue with the laudering…

    1. C

      Yeah, not that breaking the law is “wrong” or anything just whether it is worth the payoff.

    2. avg John

      That is straight out of an International Management 101 Textbook. A company policy of aligning employee’s loyalty, goals and interests, first and foremost to the company’s goals and defined strategic objectives. Bottom Line. It supersedes loyalty to one’s faith, one’s family, and one’s country. If you’re going to dance with the devil, you might as well get paid for it. They don’t make those big bucks for nuthin!

  4. Peripheral Visionary

    On cue:

    “King questions StanChart probe”


    “The governor of the Bank of England has questioned the approach of the US regulator that accused Standard Chartered of breaching sanctions by hiding $250bn of transactions linked to Iran.

    “Speaking to reporters at a quarterly briefing, Sir Mervyn King appeared critical of New York state’s Department of Financial Services, which broke ranks with other regulators probing StanChart’s alleged Iranian dealings to go public with a damning report on Monday.”

  5. Peripheral Visionary

    With respect to the Iran angle: people should certainly question the “all’s fair in fighting against American Imperialism” line of reasoning. That’s an argument that’s been used to try and cover up inexcusable behavior in the past.

    Whether or not U.S. policy toward Iran has been appropriate is an entirely separate question of if banking regulations as written will be enforced. If regulations are only a secondary consideration to whether or not something feels right when weighed on invisible scales of vaguely-defined social justice, why do we need regulations in the first place?

    1. TK421

      Wasn’t it “we saved the banks but lost the public”? I bring this up only because I would be surprised if Geithner saw a difference between the banks and America. The public, on the other hand–f**k ’em.

  6. psychohistorian


    You say that banking in the US hasn’t reached the bottom yet.

    I would counter by saying that it is simply optics rather than reality.

    Nice posting and go long on popcorn.

    1. Warren Celli

      Psychohistorian, I share your lens and viewpoint.

      Banking reached rock bottom a long time ago. Its basically a parasitic monster plague that puts control of the money supply and credit in the hands of the aberrant few. The ‘rule of law’ is also at an all time rock bottom low; with law bought and paid for through institutionalized graft and corruption, and selectively enforced, it is now a blatant gangster scam.

      Further, anyone that thinks that another hero prosecutor with “balls of steel” is going to ride in alone like Clint Eastwood and change things needs their head examined. How many times have we seen that movie? And how does it always end? War criminals Bush and Cheney are still walking free, while 300,000 thousand homeless veterans that they conned into fighting a war for corporate profits, are now living under bridges and in the woods and meeting their makers earlier than the rest of us.

      Speaking of Clint Eastwood (the hero always rides in and saves the day cultural meme builder) he just endorsed Romney. But don’t worry Obama has George Clooney! Movies for everyone in Scamerica! Lots of theaters.

      There are a lot of vectors to this current Lansky move. In the end it will be just more good cop bad cop theater to blame game the middle class herd thinning. That NY banking license to steal is after all pretty valuable. I would be surprised to see a new suitor take over. Any speculation? And Jill’s instincts are good, in spite of Lansky’e limited focus, this whole episode kicks the wheel of already pre-demonized Iran. So many hot buttons, so many movies, so much distraction and deflection.

      Deception is the strongest political force on the planet.

  7. readerOfTeaLeaves

    With respect to Iran, per se, I assume there are many moving parts behind the scenes that most of us will never know about. Replace the word “Iran” with “Pfefferneuse” and the dynamics are still the same: Treasure and DoJ appear worse than useless, and The City will holler that it is being maligned. No doubt it is already bleating for Cameron and his political pals to cover the the banks’ public derrieres; these bankers excel at crybaby whinging.

    It’s been clear for quite some time that global money laundering is rampant, and implemented by ‘respectable’ institutions. It’s also become clear that The City lies at the core of this system.

    This whole story seems to be getting at the heart of what Nicholas Shaxson (in his brilliant “Treasure Islands”) calls ‘the Spider Web’; the global network of tax havens, offshore accounts, and illicit money. Clearly, The City – as well as Wall Street – have been creaming billions off this network, which probably explains how the FIRE sector became 40% of US GDP by 2008. We’ll probably never get a good estimate as to how much of the US economy was being kept afloat by money laundering in the late GWBush era, but the sums were surely considerable. We managed to financialize even fraud — with Treasury and DoJ turning a blind eye.

    In a number of respects, this news item raises questions about the role and purpose of banks. Here’s hoping that level of the topic is addressed at some point, as Yves highlights at the end of this post.

  8. Otherwise

    One of the reasons why there has been so much uproar on the English side is that people are getting the impression that the US regulators etc are singling out UK banks whilst letting wrongdoings in US banks ride.

    This is not an unreasonable view to take considering the general soft-pedaling by US regulators (which has been well documented on this site).

      1. Susan the other

        I wish an internet university would offer the History of Propaganda. And break it down into its specialties: patriotism, need for other people’s resources, sheer hatred and racism, religion, finance, etc.

  9. Tim

    A couple of notes:

    Historically, foreign bank branches in the US were regulated solely by state Banking regulators. In the 1970s when the International Banking Act was approved by Congress branches of foreign banks in the US became subject to jurisdiction of the Fed in addition to their traditional state regulators. However, an additional option was created which foreign banks could choose to have their US branches regulated solely by your friends and mine at the OCC. These are so called “Federal Branches.” Most foreign banks however, with some exceptions RBC and UBS come to mind choose to remain dual regulated by NY State and the NY Fed. I suspect though many large foreign banks if this is going to be the future of bank regulation by NY State may perhaps decide this is good time to change their charters to the OCC and its TBTF friendly management. Given many smaller banks are leaving the OCC for state charters this would be an even bigger bifurcation for financial regulation between large foreign and domestic banks regulated by the OCC and most small community banks regulated by the states. Don’t kid yourself the OCC would NEVER do what Lawsky is doing right now. Lawsky does have a big problem in that he is a self funding agency if most of the foreign banks in NYC decamp for the OCC that would put a substantial hole in his budget which to some degree subsidized other activities in consumer fraud and foreclosure prevention etc.

  10. HMS tool

    The Queen is most displeased. The colonial subjects from New York will be dealt with harshly if this sort of behavior persists.

  11. Susan the other

    my comment just got lost again… it usually happens when I take to long to make it…the bottom line was that I think this whole expose is an indication that there will be no war with Iran.

  12. beesymph

    Yves: I am not sure why this story gets spun in your reporting into Obama does not want to offend well-heeled Jews. Money laundering is money laundering whether or not it involves Iran or Mexican drug cartels. Karl Denninger has raised the issue of the shockingly mild reaction to Wachovia’s laundering of money for the Mexican drug cartels. Under your logic Obama did not want to upset the Hispanic vote in pursuing Wachovia aggressively.

    The heart of this story is not about Jews or Mexicans or even Iran. It is a banking system which regularly violates the law, full well knowing that its highly priced lawyers and government supporters will reduce any punitive action to the insignificant. Given the profitiablity of many of these illegal activities and relatively light fines with no demands to remove CEOs, it becomes quite a profitable activity to violate the law. In fact one theory of organized crime activity, it is a wonderfully profitable activity since there are near monopoly profits for law breaking, drugs, prostituion and gambling for examples.

    If we are serious about regulating the banks it will take executives being imprisoned, disgorgement of profits and revocation of banking charters. Anything less, then we are just kidding ourselves on what constitutes unlawful behavior.

    Finally, the apologists for banks will decry the loss of jobs for the innocent employees who work for the bank. Well many of these employees are not innocent. There compensation is the direct or indirect fruit of illegal activities. And the argument that the banks will migrate to London or other places. Then great – only honest banks will do business in the US. Whata great advertising idea – come to the US and do business with an honest bank.

    1. aet

      “Money laundering is money laubdering”

      Assuming the premise, are we?

      “Money laundering’ is nothing more nor less than an imprecise colourful turn of phrase, usually denoting criminal tax avoidance – or, as with sanctions, a purely political exercise.

      As real “conservatives” know, ALL governmental regulations WHATSOEVER as to how money may change hands amongst its citizens and those others such may do business with, must ALWAYS be subject to critical examination, and must ALWAYS justify themselves: otherwise, they become just another exercise in arbitrary tyranny, of the most effective kind.

      “Money laundering is money laundering” – yeah, that sure helps a LOT when sorting out what’s just, and what isn’t, in Governmental control and regulation of economic conduct.

      Oh wait – the phrase doesn’t really help at all, it just means “you must do as the Government commands” – doen’t it?

      So-called “money laundering” is a false crime – it harms none but the revenuers.

      1. gordon

        “So-called “money laundering” is a false crime – it harms none but the revenuers”.

        Yes, well, the US seems to have something of a deficit problem at the moment, so I’ve heard, and maybe if there was just a little less money laundering and tax avoidance the budgetary position might look a little better. And if that were so, maybe there would be a little less pressure on Govt. funding of medical care and other social payments and on Social Security. Just a random thought, you understand.

        1. gordon

          Yes, that as well. Looks like a pretty real crime to me, not only according to the letter of the law, but also bad in its effects. Not a lot of upside at all, really.

    2. aet

      . “Well many of these employees are not innocent. There compensation is the direct or indirect fruit of illegal activities.”

      By the law which you claim to respect so very much, they are innocent until proven guilty – and you are guilty of libel.

      That you do not name those you libel defends from legal action, aa but we who are not the Law may judge of the spirit of your remarks.

      Moral outrage used as an engine of tyranny.

      That’s what you’re up to, really.

      History has seen it put to such use before, and its always ugly and cruel in its effects..

    3. Yves Smith Post author

      This was a minor point (a couple of sentences) in a long story. I’m simply trying to calibrate how openly the Obama camp will be in going to war with Lawsky, and the need to not offend an important donor group will constrain them in terms of what they do in public.. But there is plenty they can and will do behind closed doors.

      You are basically shooting the messenger. This is a big part of the calculus, and the influence of this group in NY is the biggest reason Cuomo might continue to protect Lawsky’s back. Don’t kid yourself.

      1. Aquifer

        Thanx – I was about to ask above why it would be in Cuomo’s best interest to back a guy who appears to be embarrassing this Dem admin ….

        But will this hurt Cuomo with the Bank guys come election time, or is SC a throwaway entity?

        And of course, there is always Cuomo’s ace in the hole – ending the rebate on the STT …

        1. MichaelC

          It would be in Cuomo’s interest to continue to support Lawsky, to improve his presidential chances in 2016. If he is calculating the the banksters days are numbered, they won’t be of any help to him, If he gets out in front ans starts throwing a few under the bus and the whole house of card does collapse in the next few years, he’s a hero.

          Timmy’s a lame duck, so perhaps Cuomo is preparing for battle with his successor. There may not even be enough time before the election to shut him down, even if Timmy and O want to.

      2. gordon

        I don’t see any need to be apologetic. I think what you said about Israeli sympathisers and their political power is perfectly true and relevant. It’s selective enforcement of the laws in order to manoeuvre politically among religiously based pressure groups – the ghost of James II is probably grinning from ear to ear.

  13. charles sereno

    In defense of Yves: Even if this charge against Standard Chartered (in a wild stretch of imagination) came about from a neo-con plot against Iran, but the Bank did indeed break the law, then we must still be grateful that justice is pursued. As for Mr. Lawsky’s equipment, its presence should first be established before any speculation about its composition. Here are some facts. Mr. Lawsky is less than a year into his $125,000 job as NY State’s first Superintendent of Financial Services. According to the NY State Banking Department, “Superintendent Lawsky’s objectives for the new Department of Financial Services include ENHANCING NEW YORK’S STATUS AS THE WORLD’S FINANCIAL CENTER, vigorously protecting consumers, and preventing systemic risk.” (My bold) Six months into his job, Lawsky was interviewed by Jonathon Epstein of The Buffalo News. (jepstein@buffnews.com) Lawsky comes off as a worshipful, former Chief of Staff of Gov. Cuomo. He has no banking experience and is busy merging 2 former departments, hardly giving the appearance of an intrepid “David” ready to take on the Treasury, D of J, and City of London.

    1. Walter Wit Man

      Wasn’t this comment in response to a previous comment by jsmith that has been erased?

      Also, I thought I left a comment to Tim above but it’s been erased. I don’t recall it being strident or uncivil or anything . . . although I guess I made a similar argument to what Jill is making above re Iran which may have been unwanted.

      1. Walter Wit Man

        And this comment was meant to reply to Foppe’s comment above. I though jsmith used “gauche” and that was Foppe’s reply.

      2. Yves Smith Post author

        He was challenging my moderation rules. Thats’ a no-no. I don’t tolerate that. Comments that take issue with how I run the site are candidates for expungement.

        And the comment that hit the moderation tripwire was indeed an offender (not to me, but it confirmed the tripwire I had set up was well chosen)

  14. LucyLulu

    From an article in Tehran Times 4 days ago. Perhaps, Lawsky wasn’t as rogue as originally thought:

    ” Ahead of the House vote (Aug 1), Obama ordered new sanctions on Iran’s energy and financial sectors. By Executive Order he prohibited foreign financial institutions from doing business with Iran. Violators face stiff penalties.

    Specifically, Iran’s oil, petroleum products, and petrochemicals were targeted.

    Separately, the Treasury Department sanctioned China’s Bank of Kunlun and Iraq’s Elaf Islamic Bank for providing financial services to Iranian banks.

    Beijing reacted furiously. Relations between the two countries are strained. Foreign Ministry spokesman Qin Gang said Washington violated “norms of international relations.”

    “The U.S. has invoked domestic law to impose sanctions on a Chinese financial institution, and this is a serious violation of international rules that harms Chinese interests.”


  15. briansays

    from jesse

    This is the credibility trap.

    Some of it is professional not-initiated-hereism, but quite a bit more is a culture of privilege and practical exemptions for the few who run the system. And professional courtesy with London for both our banks and theirs.

    Cronyism and complicity, active or passive, take your pick.

    “If you want to understand exactly what’s going on here, reread the four or five pages in chapter 1 of my book about my battles with Washington over the FARC case. Exactly the same thing happening here.

    They’d rather trash a potentially legitimate case than admit that they were asleep at the switch, especially now after the recent revelations about their failures with LIBOR and HSBC.”

    Neil Barofsky, speaking about the Standard Chartered affair.

    Read the entire story at Business Insider here.

    They didn’t “fail” to regulate LIBOR. They did not even bother, for whatever motives that you care to impute or infer. They knew what was going on and turned a blind eye to it, just as they are doing with the rigging of the commodity and equity markets.

    The incompetence and non-involvement defense is getting a little worn out in this financial scandal.

    Casual corruption of the markets is now being accepted as a necessary system overhead, as a tax on the public to support the failed financial system, which is being kept alive to support a kleptocracy of politicians and the monied interests. It is sustained through fraud and force, but has little to do with the real economy anymore.

    1. Up the Ante

      Personnas various ‘with their panties in a wad’, lol,


      “Casual corruption of the markets is now being accepted as a necessary system overhead, as a tax on the public to support the failed financial system, which is being kept alive to support a kleptocracy of politicians and the monied interests. It is sustained through fraud and force, but has little to do with the real economy anymore. ”

      It will become an “economy” of fraudulent personnas.

  16. neil terry

    My take on this is that the US is looking to redistribute banking profits to its own. I’d like to believe the action is against banksterism, but I can’t. I suspect these trades were ‘allowed’ in order not to force them further into the shadows. At stake in the business model is the subsidy U-turn trades give to the organisation doing the laundering. Criminal money is essentially a heavy subsidy that gives advantage to the mainstream business.
    We won’t find these dirty deals gone in a few years’ time, just whatever dodge that replaces them.

  17. SteveA

    Making false entries in the books and records of a bank isn’t a felony under this Administration. Good to know.

  18. Doc at the Radar Station

    Here’s a cool conspiracy theory that I just thought of…haha
    What if this has very little to do with Iran
    What if this has very little to do with the election
    What if this has mostly to do with…
    the upcoming disintegration of the Euro and the banking fallout which will result.

    Are we (the US Federal Reserve, i.e.) going to just STAND THERE when everything starts coming undone and do NOTHING? Well, doing something(which we will do) is going to look really really bad if we help out banks(directly or indirectly) who are breaking the law (down the road). So, I wonder if we are drawing up the list of who gets lifeboats and who doesn’t in the upcoming sequel of GFC Part II.

  19. djrichard

    I wouldn’t mind so much if there was trickle down fraud and trickle down law breaking.

  20. scraping_by

    Ronald Reagan self-consciously developed his role as an imitation of FDR, playing the Presidency with the same cadences and relabeling neoliberal class warfare as New Deal virtues.

    Mr. Lawsky is perhaps developing his role as an imitation of Eliot Spitzer. Spitzer rocketed from obscurity to the governor’s office by enforcing the law on those who are, by current standards, above the law. But by picking on a furiner, an Englishman to please the Irish anti-Albion vote, he avoids pissing off rich people who have long memories and the goods on the tame sheep in his life.

    His years of being Gov. Cuomo’s right hand show who he really stands with. But we’ll see the law theatre and maybe get a few gobsmacks to cheer for.

  21. beesymph

    One additional thought about this article. Everyone should stop and take a deep breath and think about the following: perhaps there is a honest public official who decided to enforce the law. A bank broke the law and they are being prosecuted. Fifty years ago we would not have to entertain hypotheses about Iran, the Israel lobby, political connections, drug cartels, the disintegration of Europe etc. You broke the law you were about to do some serious time and pay large penalties. Ask the GE and Westinghouse executives who went to jail for price fixing in the 1960’s.

    Applying Occam’s Razor to the problem, the law is broken and an alleged malefactor is being prosecuted. No other hypotheses are needed. Ultimately, a court will decide whether the government has a valid case.

    One person argued that the law stupid. We don’t get to pick which laws are observed. Perhaps punishing those who shoplift small amounts of good is stupid too. Well if you think a law is stupid take it up with the legislature. Laws can be repealed.

    It is a sad commentary that we are amazed that a prosecutor intends to do their job. And in fact if it turns out the sums involved are as large as advertised, the bank was aiding an enemy of the US in direct contravention of American foreign policy. Again, don’t like the policy, elect candidates who remove sanctions on Iran. In the interim there is am imperative to enforce criminal laws and punish the guilty. The converse is nihilism and the decay of society. Is that what we really want?

    1. Yves Smith Post author

      Please note: I’m not speculating on Lawsky’s motives. He’s an ex SDNY prosecutor, he probably likes getting bad guys.

      Where the political calculation is unquestionably relevant is Cuomo. Lawsky needs Cuomo to back him.

  22. aeolius

    I would go a little further then you and say that this is an early major move by Cuomo for his 2016 election. The documentdoes seem rather hastily composed. The wonderful connection with US security could have been more artfully woven in. The rush job proably was to coattail on The LIBOR publicity. Lawsky/Cuomo can go after banksters (was this your word? It is now mainstreamed) with little political cost. It upholds the Obama 1% crusade without ruffling the Schumer crowd. And of course the Martin Act gives Cuomo a bully pulpit and the means to keep in the public eye with his own LIBOR bank probes.

    1. Up the Ante

      “The document does seem rather hastily composed. ” Did you expect Lawsky to include a link to the email archive ? Standard Chartered must now convince him face-to-face why they should be allowed to bank in NYS, and Lawsky has rights to full disclosure of EVERYthing. “Hastily composed” will doubtless be Standard’s presentation at that hearing. Enjoy.

      “The rush job ..”
      The only rush job was the Londonites attempting to hide LIBOR and Standard Chartered behind the Olympics.

      “clock is running Late”

  23. vlade

    I find the whole furore funny.

    SCB clearly broke the sanctions – given the evidence, it’d be very hard for them to press that they were doing this only for U-turns, unless they had a conversation with someone at Fed which went like “You’re showing as doing lots of Uturns compared to market. It need not be so many”.

    Thinking of it though, if they had something like that, I wonder whether they would dare to bring it up right away, or basically hold it off and hope that G. would stop this.

    Anyway, even if SCB loses access to CHIPS (NY USD clearing), it could use – unless it loses US license – FEDWIRE. Requires pre-funding, but SCB is flush with liquidity.

    US business is small, and the question is what impact it will have on Asia. If banned in NY only, not that much I’d say, if in whole US, that’s going to be much worse (more scrutiny is not what some of the Asian clients would want…)

    1. Yves Smith Post author

      No, you don’t have the licensing right.

      SCB does $190 billion a day in dollar clearing. Losing its NY branch license means it loses access to Fedwire and dollar clearing. Lawsky explicitly threatens that in his order (he does not mention Fedwire in name, but that’s the implication).

      1. vlade

        It clears a lots of US funds, but it derives relatively little profit (directly). See latest financial statement. If you look at the wholesale banking, America,UK and Europe are thrown into one bag. It makes about 1/6 of the WB profits, but has some of the highest cost base.

        Of course, some of those non-US profits are USD transactions, so having US clearing helps to keep the already high cost down (especially with CHIPS, which is really more of a netting than payment engine, which incidentally exposes you to credit risk, although as I said, SC is flush with liquidity so it matters less to them than some other banks).

        FEDWIRE can be accessed by any bank with a FED account (for which NY banking license is not a preq). See points 9.1 and 9.2 of http://www.federalreserve.gov/paymentsystems/files/fedfunds_coreprinciples.pdf So Lawsky can threaten, but that doesn’t mean he can actually block it (as long as Fed allows SC to have an account with it, and Lawsky can’t otder Fed to close it).

        BTW, having NY office was CHIPS requirement but isn’t from 1998, and now that I did a bit of digging “any [bank] with a regulated US presence may become and owner and participate.. “, so again, losing NY license – as long as you could get another one pronto, would not kick SC out of CHIPS. Maybe Lawsky should check what he can actually do before he threatens? It would be mightily embarassing to him if he tried to strip SC of the clearing business only to be told he can’t (say because he pissed off Fed).

        Of course, if Fed would make it clear that when SC loses NY bank license, it should not get one anywhere else in US, and it would close their Fed account, that would be a problem – but it would be Fed’s call, not DFS.

        It’s hard to say how large a problem, since I can’t estimate the marginal costs of SC using third party to clear USD + loss of clients (which is probably what is more dangerous to them).

        1. Tim

          As I mentioned in my previous comment SCB would seem to have two options. One is convert their NY Branch to an OCC regulated “Federal Foreign Branch” in theory this should not be allowed by the OCC but I suspect is on the table. Second would be to open a state regulated branch in some other state. However, only a few other states legal provisions for state regulated foreign branches Illinois, California, and Florida are ones that come to mind. Florida if up to them under its “pro business” Governor I suspect would be quite pleased to roll out the welcome mat to SCB however both the state of FL and SCB would take a reputational hit. SCB would like look like one of those shady stock promoters in Boca that got ran out of NYC. Both options would need the approval of the Feds. The question can NY State block them from CHIPS but not Fedware if they go to a Federal Branch or move out of state. In the case of a Federal Branch NY State would be going very much against the tide of OCC’s strong preemption powers. I would say its still an open question. A futher comment of course as a “Federal Foreign Branch” you can operate in any state even if that state doesn’t have a specific legal regime for regulating foreign banks.

        2. Up the Ante

          Your comment is another way of saying rather a card was played.
          Now look at all the characters who must Perform, front, rear, sides, future, past ..


  24. keepon

    “The Treasury and Fed are alarmed because of the way Lawsky exposed the craven nature and extent of the crimes….”

    Geithner re: transparency:
    ‘No one has ever made the banks disclose the type of s**t that I made them disclose…’

    The verity of Neil Barofsky’s account: Proven.

    Look out Mr. Lawsky. I feel another Timmy “F bomb” aimed in your direction.

    The Head of Treasury is a LIAR who EMRACES the Cartels at great cost to America and Americans! Think this is why we’re all upside down?

    WHY has this man not been taken out?

  25. Vili Garvin


    Your post presents a solid defense of Lawsky and his intentions/actions. However, it is based upon an flawed premise: Lawsky has got it right and everybody else has got it wrong.

    Neither you nor I, nor any other speculator, can categorically state that SBC have infringed any law or regulation beyond the $14m-worth that they themselves accept. Just because Lawsky says it’s so, doesn’t make it so. All we can do is cogetate and speculate on their possible/alleged wrongdoing.

    The old saw about asking 4 lawyers their opinion on a simple point of law and receiving 4 different answers is all too true. It’s all down to interpretation. Lawsky is a lawyer dabbling in banking/financial matters. Can you really be sure that he has uniquely interpreted things correctly?

    The point I’m trying to make is simple. It’s all well and good looking for reasons why so many people want to disagree with him: British pompousness or stupidity, Treasury or Fed fears of some other blowback, etc. etc. Until undisputable proof of (complete) wrong doing (as opposed to clever manipulation of the regulations and loopholes) is offered, the simplest way to look at this is that Lawsky has gone over the top or, perhaps, is just plain wrong.

    1. Up the Ante

      “The old saw about asking 4 lawyers their opinion on a simple point of law and receiving 4 different answers is all too true. It’s all down to interpretation. ”

      From your remove, yes. You must speculate again as to how much he knows, and how much he knows others know.

      Let’s try not to be absurd, shall we ?

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