NEW YORK: Standard Chartered yesterday agreed to settle US allegations that it helped Iranian clients dodge sanctions, accepting a fine of $340 million from New York's banking watchdog.
The bank had denied accusations that it systematically hid $250 million worth of Iranian client transactions that were carried out over ten years.
Under the terms of the deal, Standard Chartered agreed to its transactions being monitored for two years and to appoint auditors to investigate compliance with US sanctions.
The deal does not cover separate probes by federal US regulators, including the Treasury Department.
Although the cash settlement may appear to be a steep, it is far from the worst-case scenario for the bank.
New York state's Department of Financial Services had questioned whether Standard Chartered should be allowed to keep its banking license, raising the specter of being cut out of a major market.
And the bank should have deep enough pockets to cover the fine, without operations being dented. In the first half of this year Standard Chartered reported profits of $3.95 billion.
The greater price may be reputational damage.
The London-headquartered bank is a household name in many emerging markets.
Since the allegations became public just over a week ago the firm's shares have lost around 15 percent of their value.
The allegations thrust Standard Chartered to the center of a major geopolitical dispute.
Though Standard Chartered CEO Peter Sands has long known that US regulators were looking into Standard Chartered's Iranian dealings, he had been confident the bank would escape the kind of regulatory scandals that have hit British rivals HSBC and Barclays .
"This is very different to some of the things you've been hearing about elsewhere," he had told reporters after the bank's first half results were published on Aug. 1.
Sands and Chief Financial Officer Richard Meddings, who had also departed on holiday after the results, were among top executives who scrambled together a conference call to tackle the accusations.
With its shares having lost nearly 15 percent of their value, the bank has come under pressure from shareholders to settle early rather than engage in a legal battle.
"Clearly there was concern amongst all our stakeholders. Obviously a swift settlement would be ideal, but it has to be on acceptable terms," the Standard Chartered spokesman said.
The affair has also taken on a political dimension, with some British members of parliament suggesting it is part of a US effort to undermine London as a financial center. Britain's Chancellor of the Exchequer George Osborne made a series of phone calls to his US counterpart last week expressing concern at the way details of the case came out.
A UK government source told Reuters that Osborne had engaged in "quiet diplomacy" to ensure British business was getting a fair hearing.
The stakes for Standard Chartered are high, given that the loss of its state banking license would effectively cut it off from direct access to the US bank market. Most of Standard Chartered's business is in Asia and the Middle East.
The DFS has declined to comment on the negotiations.
Standard Chartered is already cooperating in a separate probe dating to 2010 that includes the US Justice Department and the Manhattan district attorney. That investigation is aimed at determining whether Standard Chartered violated US sanctions laws.
Shares in Standard Chartered were up 1 percent to 1,346.5 pence at 1115 GMT on hopes of a resolution.
Investec analyst Ian Gordon believes the bank will end up paying a fine running into several hundred million dollars but said it could afford to do so because of its strong balance sheet. He recommends clients buy the stock.
