Standard Chartered PLC (SCBFF - Free Report) has reached a $340 million settlement with the New York State Department of Financial Services (DFS) pertaining to money laundering in Iran. The agreement comes almost a fortnight after the London-based bank was accused by the New York’s top regulating authority.
Earlier this month, the DFS had accused Standard Chartered bank of concealing transactions worth $250 billion (£160 billion) relating 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.
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.
The tough stance taken by the DFS to revoke Standard Chartered’s New York banking license prompted the bank’s CEO Peter Sands to negotiate with the DFS. The weeklong negotiations created a worldwide frenzy. At the end of the hurried discussions, the parties reached a conclusive settlement, whereby the bank agreed to shell out hefty compensation to the regulatory authority.
According to Standard Chartered, out of the alleged claim of $250 billion money laundering, only $14 million worth of transactions violated the U.S. regulations. However, the DFS head Benjamin Lawsky has claimed in a statement that the parties did reach a consensus as to the amount involved in laundering. As the terms of the deal have not been made public yet, it would be too early to comment on such crucial points of the agreement.
Recently, the top executives at HSBC Holdings plc , another UK-based bank 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 drew maximum attention.
The DFS came down hard on the unwarranted activities of the banking giant and the huge settlement is a big victory for the regulator. Moreover, the state of cash strapped New York stands to benefit from this settlement, as the money would flow in its general fund.
Still, no one can ignore the fact that the huge compensation amount is being paid to a state regulatory authority, whereas the national regulators are nowhere in the scene. This is indeed baffling for an average investor.
Shares of Standard Chartered currently retain a Zacks #3 Rank, which translates into a short-term Hold rating.