Ben Lawsky is New York State’s Superintendent of Financial Services. His scathing order against Standard Chartered Bank (SCB) makes for fascinating reading.

The order opens with the assertion that:

For almost ten years, SCB schemed with the Government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250 billion, and reaping SCB hundreds of millions of dollars in fees. SCB’s actions left the U.S. financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity

A blitzkrieg of allegations continues as the order accuses SCB of operating as a ‘rogue institution’, with ‘obvious contempt’ for US banking regulations and to:

  • falsifying business records;
  • offering false instruments for filing;
  • failing to maintain accurate books and records of all transactions effected and all actions taken on behalf of SCB;
  • obstructing governmental administration;
  • failing to report misconduct to the Department in a timely manner;
  • evading Federal sanctions; and
  • numerous other violations of law that, as with the above, have an impact upon the safety and soundness of SCB’s New York branch and the Department’s confidence in SCB’s character, credibility and fitness as a financial institution licensed to conduct business under the laws of this State.

Almost 17% was wiped of SCB shares as news broke of the order on Tuesday. Prices rallied as SCB went on the offensive, amidst counter-claims of anti-British bias by US regulators.

Lawsky’s ‘maverick’ actions are reported to have angered other US regulators. ‘Big 4′ auditor Deloitte & Touche LLP faces accusations of complicity:

SCB intentionally withheld material information from New York and Federal regulators in its effort to service Iranian Clients. SCB carefully planned its deception and was apparently aided by its consultant Deloitte & Touche, LLP (“D&T”), which intentionally omitted critical information in its “independent report” to regulators

Lawsky is in a high-stakes game. His Department’s order concludes:

Motivated by greed, SCB acted for at least ten years without any regard for the legal, reputational, and national security consequences of its flagrantly deceptive actions. Led by its most senior management, SCB designed and implemented an elaborate scheme by which to use its New York branch as a front for prohibited dealings with Iran – dealings that indisputably helped sustain a global threat to peace and stability. By definition, any banking institution that engages in such conduct is unsafe and unsound.

If correct, Lawsky will make the ‘big splash’ that his appointment in 2011 promised. If wrong, he risks going down as a ‘rogue regulator’ that belly flopped.

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