Words ought to be a little wild, for they are the assault of thoughts on the unthinking
- J.M. Keynes

Thursday, 9 August 2012

Standard Chartered Doth Protest Too Much


Livening up the summer and continuing with the Bob Diamond approach, Standard Chartered has threatened to unleash hell on the “*******Americans”. Or one of their small, overzealous non-captured regulators to be precise.

In an interview to the FT, Peter Sands, CEO said that “…we were very surprised by the announcement…and we strongly reject both the position and the facts, the portrayal of the facts by the DFS. We differ on a range of matters of substance, fact and argument.” The surprise is fairly evident. However one eagerly awaits the rejection of facts and their portrayal. Specifically, the rebuttal of the following points from the DFS order which would showcase the Olympian legal and public relations skill possessed by the bank.

Paragraph 20 of the order: 
As early as 1995, soon after President Clinton issued two Executive Orders announcing U.S. economic sanctions against Iran, SCB’s General Counsel embraced a framework for regulatory evasion. He strategized with SCB’s regulatory compliance staff by advising that “if  SCB London were to ignore OFACs regulations AND SCB NY were not involved in any way & (2) had no knowledge of SCB Londons [sic] activities & (3) could not be said to be in a position to control SCB London, then IF OFAC discovered SCBLondons [sic] breach, there is nothing they could do against SCB London, or more importantly against SCBNY.”  He also instructed that a memorandum containing this plan was “highly confidential & MUST NOT be sent to the US.”

This is apparently a direct quote from an email which goes on to say:
“when dealing with OFAC countries that are not on the UK’s list SCB London should use another US Dollar clearer in NY. It should not in any event use SCB NY.” 
“SCB should use eg [National Westminister Bank] who in processing the transactions would breach OFAC regulations & would expose themselves to a penalty.”

The facts are pretty well established. Maybe the fault is with their portrayal. DFS might have omitted the last line which stated “Just joking of course. This is what some evil bank would do but not us because we believe it is not just about what we do, but how we do it. (Great line, we should make it official).”

Paragraph 24 of the order: 
In March 2001, SCB’s Group Legal Advisor counseled several of SCB’s officers that, “our payment instructions [for Iranian Clients] should not identify the client or the purpose of the payment.”

Again the facts seem irrefutable. Maybe the portrayal is again unfair and Standard Chartered is a victim of being selectively quoted. Maybe the Group Legal Advisor went on to state that “However we need to ascertain that the payment instructions are authorised and compliant with both the spirit and letter of the law because as you know we believe it is not just about what we do, but how we do it”.

Paragraph 45 of the order: 
Having improperly gleaned insights into the regulators’ concerns and strategies for investigating U-Turn-related misconduct, SCB asked D&T to delete from its draft “independent” report any reference to certain types of payments that could ultimately reveal SCB’s Iranian U-Turn practices. In an email discussing D&T’s draft, a D&T partner admitted that “we agreed” to SCB’s request because “this is too much and too politically sensitive for both SCB and Deloitte.  That is why I drafted the watered-down version.”

Memo from the ‘powers that be’ to all staff: Henceforth, email communication is banned. All messages will be sent on self-destructing papyrus. This message will self-destruct in 5 seconds.
Maybe DFS has the facts but is selectively displaying them. Maybe the “watering down” was in the national interest in conformance with the Patriot Act and others. The non-watered down version would have been damaging to the USA not to Standard Chartered as DFS seems to be unjustly implying.

Paragraph 48 of the order: 
In September 2006, New York regulators requested from SCB statistics on Iranian U-Turns, including the number and dollar volume of such transactions for a 12 month period. In response, SCB searched its records for 2005 and 2006, and uncovered 2,626 transactions totaling over $16 billion. SCB’s Head of Compliance at the New York branch provided the data to SCB’s CEO for the Americas, who in turn, sent it to the SCB Group Executive Director in LondonIn his memorandum to the Executive Director, the CEO expressed concern that this data would be the “wildcard entrant” in the ongoing review of U-Turns by regulators and could lead to “catastrophic reputational damage to the [bank].” Based on direction from “the powers that be,” SCB’s Head of Compliance in New York provided only four days of U-Turn data to regulators.

This seems to be based on employee interviews by the authorities. Standard procedure of refuting the facts and discrediting the employee can be followed. The memorandum is trickier to deny. Maybe the portrayal is unjust. The response to the memorandum which has not been revealed could have been “You are right. We must correct all failings at once and inform the regulators immediately because as you know we believe it is not just about what we do, but how we do it.

Even though Standard Chartered have responded by swinging their fists wildly and loudly proclaiming their innocence, their defence seems to rest on legal technicalities than proof of appropriate behaviour. Moreover with their own staff warning about reputational damage if their actions regarding Iranian counterparties came to light countersuing when the actions have actually come to light requires some chutzpah. And a disregard for shareholder’s money. 

This required a strategy of ‘Ok, you scored your political points now can we talk settlement away from the spotlight’ rather than the currently employed ‘FU. We’re Standard Chartered. How dare you?’ strategy.

But the spectators are not complaining. As the Olympics are about to come to a close, it promises to provide a much needed distraction from the predictably boring Eurocrisis.

1 comment:

  1. I think you will find this plays out as an overzealous regulator pulling back a bit come August 15th.
    It does not stand to reason why STAN LN would put themselves in such a position instead of settling ala HSBC. Bob Diamond has made a career of being antagonistic - it has always worked for him - until it didn't. Peter Sands is very different.
    The DFS (really? - seems like a brand management exercise) document reads like a noir novel selectively presenting juicy facts. I find it highly unlikely that federal agencies had let this thing fly while it was upto a local regulator to take up cudgels on behalf of the US of A. This thing has been on the works for some time - the sensationalistic nature of the DFS release smells like someone looking for higher office. Look for watering down comments for both sides prior to Aug 15th.

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