- By Region
It is easy to see why Standard Chartered was blindsided by New York state’s Department of Financial Services, and the regulator’s allegations on Monday that the UK bank is guilty of $250bn of Iranian sanctions breaches. Not only were the bank’s chairman and its head of press on holiday. So was chief executive Peter Sands.
After an overnight flight back from Canada, Mr Sands is looking a little tired, but the 50-year-old banker is as feisty as ever in his defence of StanChart as it reels from the US regulator’s unexpected accusations.
In his first interview in the wake of the affair, Mr Sands appears puzzled and irked in equal measure. “We had no inkling,” he says. “We had been discussing our review for some time. Our expectation was that there would be a co-ordinated approach to bring about an integrated resolution [with other regulators], so it was a surprise to have this happen on Monday with a unilateral action by the DFS and without any prior notice.”
Mr Sands makes a brief apology over the $14m of transactions which the bank agrees were problematic, though he insists any inaccuracies in facilitating these payments were “inadvertent”.
He says the bank found “under 300” non-compliant transactions. “Clearly those were mistakes and we’re sorry they occurred.”
However, he insists the remaining 99.9 per cent of the alleged sanctions breaches are simply a mischaracterisation by the regulator. He says all relate to quite legitimate use of the so-called U-turn mechanism used in the period under examination – the decade to 2010 – to facilitate dollar payments between Iranian-linked institutions and other counterparties.
“U-Turns were transactions between non-US entities and Iran that could be cleared in New York,” the chief executive says. “The Americans set up the U-turn mechanism to allow that to continue even while the US had sanctions in place on Iran. A compliant transaction that clearly started with a non-US entity and ended up with a non-US entity having been cleared in New York.”
He cites two examples of the type of transactions which the bank accepts breached the rules. The first involved failing to recognise an Asian counterparty has US nationality. “There was a payment, for example, to one Asian company where we later discovered the owner had dual citizenship in the US,” Mr Sands says. “Because they had dual citizenship, therefore they’re a US person, therefore they’re a non-compliant transaction.”
A second category of “inadvertent sanctions breaching” involved facilitating business for non-US branches of US banks, which under sanctions rules count as “US persons”. “Where the confusion lies is that if it’s an overseas subsidiary it’s not a US ‘person’, but if it’s an overseas branch, it is,” Mr Sands says. Some banks categorise their operations abroad as locally regulated subsidiaries, others use branch structures.
Though he makes clear he takes “very seriously our relationship with our regulators around the world”, there is no hiding his contempt for the DFS’s 27-page report, and its colourful allegations of corruption and wrongdoing – compared in tone by one of Mr Sands’ senior colleagues to a John Grisham novel.
“There are a whole range of inaccuracies, odd interpretations, things we simply don’t understand in the report,” Mr Sands says. “We’ll be contesting a lot of the points.” Aside from the core contention that only $14m, not $250bn, of transactions are questionable, he says key details are wrong, such as that the monitoring of sanctions compliance was conducted in Chennai in India. “Actually a lot of it was done in London,” Mr Sands says.
The scene is now set for a heated exchange between bank and regulator when they meet in New York next Wednesday. In the meantime, Mr Sands is left to bemoan the damage done to StanChart’s standing. “Our reputation has been damaged. It’s not worth pretending that isn’t the case,” he says.
The bank’s stock rebounded 7 per cent in London on Wednesday, but at £13.15.5 the share price remains well short of the near £16.00 level it enjoyed in the wake of last week’s record results.
Even if Mr Sands does manage to rejoin his family in Canada, it is not going to be much of a break.