Standard Chartered scandal: Bank to pay out £217m in wake of Iran cash scandal

The 160-year-old bank saw £6bn wiped from its value after it was branded a “rogue institution” by the New York State Department of Financial Services (DFS), amid claims it exposed the US to terrorists, drug barons and weapons dealers.

The DFS accused it of keeping about 60,000 transactions secret from US regulators over a period of nearly ten years.

The regulator’s superintendent said that, in addition, a monitor would be installed at the bank for at least two years to evaluate money-laundering controls at its New York branch. Standard, which employs 2,100 staff in the UK, previously said in a statement it “strongly rejects” the portrayal of it by the DFS in a report detailing its accusations.

It said last week the claims were inaccurate and 99.9 per cent of its dealings with Iran complied with regulation.

Standard, which employs nearly 90,000 people worldwide and sponsors Liverpool Football Club, was threatened with losing its licence to operate within New York state.

A spokesman for the bank last night said that the decision to agree to the settlement was a “pragmatic decision in the best interest of shareholders and of  customers”.

In an explosive legal order issued last week, DFS superintendent Benjamin Lawsky said: “In short, SCB (Standard Chartered Bank) operated as a rogue institution.”

Standard, between January 2001 and 2010, it said, had conspired with Iranian clients to route payments through New York, after stripping information from wire transfer messages used to identify sanctioned countries, the regulator claimed.

The bank moved 60,000 transactions through its New York branch that were subject to US economic sanctions and then covered up the dealings, the financial watchdog claimed.

The institutions include the Central Bank of Iran, as well as Bank Saderat and Bank Melli, both of which are also Iranian state-owned.

The US suspected that the Gulf state was using its banks to finance “terrorist groups”, such as Hezbollah, Hamas and the Palestinian Islamic Jihad.

Findings included a memo sent in October 2006 from the bank’s US chief executive to the group executive director in London, raising concerns about the activities with Iran and its inherent risks.

He said: “Firstly, 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.

“Secondly, there is equally importantly potential of risk of subjecting management in US and London (for example, you and I) and elsewhere to personal reputational damages and/or serious criminal liability.”

The group executive director allegedly replied in abusive terms, demanding to know: “You f****** Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”

The watchdog, which reviewed 30,000 pages of documents during the investigation, also uncovered evidence of apparently similar schemes at the bank with other US-sanctioned countries, such as Libya, Burma and Sudan.

A statement released by Standard last week said: “The group does not believe the order issued by the DFS presents a full and accurate picture of the facts.

“Standard Chartered ceased all new business with Iranian customers in any currency over five years ago.”

Unveiling a 9 per cent rise in pre-tax profits for the first half of the year of £2.3bn, chief executive Peter Sands said the bank saw “some virtue in being boring”.

Mr Sands, previously touted as a successor to Bank of England governor Sir Mervyn King, went on: “For me, as chief executive, our culture and values are a top priority, something we can never take for granted, something we embed in our systems of measurement and reward.”

The bank has no UK branches, but is headquartered in London, a key hub for its wholesale banking business.

Yesterday’s settlement follows a US Senate investigation last month, which accused HSBC – Europe’s biggest bank – of allowing rogue states and drugs cartels to launder billions of pounds through its US arm.

The findings, which accused HSBC of ignoring warnings and breaching safeguards that should have stopped the laundering of money from Mexico, Iran and Syria, led to the resignation of head of compliance David Bagley.

In June, US and UK regulators fined Barclays £290m for manipulating Libor – a key interbank lending rate that affects mortgages and is linked to trillions of pounds of investments.

The claims ultimately led to the resignation of Barclays boss Bob Diamond, sparked a criminal investigation and became the focal point of a row in Westminster over ethics in the banking sector.

Barclays is unlikely to be alone. At least 15 other institutions, including Royal Bank of Scotland, are being investigated for Libor manipulation and face hefty fines and legal costs if misconduct is found.