StanChart faces US sanctions probe

US authorities have reopened an investigation into Standard Chartered to determine whether the UK bank hid transactions that flouted sanctions laws as it was settling a related action two years ago, people familiar with the matter said.

The inquiry is a blow for StanChart and its embattled management team. Peter Sands, one of the longest serving chief executives of any global bank, faces growing doubts about his future after this week announcing the group’s third profits warning of the year.

StanChart’s shares fell 5 per cent on Thursday. They are down more than 13 per cent since the start of the week and have halved in the past 18 months.

New York’s Department of Financial Services, the Department of Justice and the Manhattan district attorney’s office are jointly investigating whether StanChart withheld prohibited transactions from investigators in 2012 when it paid $667m and signed a deferred prosecution agreement to resolve a criminal case.

Analysts said the consequences could include a much bigger fine, a guilty plea by the bank, pressure from regulators for senior executives to leave StanChart and even the suspension of all or part of its ability to clear US dollar transactions.

Joseph Dickerson, banking analyst at Jefferies, said that if the bank were found guilty, “this would be a big problem. The US has a very low if not a zero tolerance approach on this kind of thing.”

James Chappell, banking analyst at Berenberg, said: “At risk is StanChart’s dollar clearing licence, and that is a very big deal.”

The follow-on investigation raises the stakes for the UK bank, which has already had more run-ins with the US authorities since its troubles in 2012. StanChart’s chairman, Sir John Peace, broke the terms of the deferred prosecution agreement by claiming the problems related to “clerical errors” rather than a “wilful” intention to break the rules. Sir John was forced by US authorities to apologise for his comments and was summoned to Washington with Mr Sands and then finance director Richard Meddings to be reprimanded by regulators.

The bank also paid $300m in August to DFS for failing to improve its procedures to flag high-risk transactions following the 2012 pact.

US officials are taking a less forgiving stance with financial institutions that have become repeat offenders or those that have not lived up to the terms of settlements.

This year Credit Suisse and BNP Paribas were forced to plead guilty in unrelated cases, DoJ officials said, because both banks failed to co-operate fully with investigations.

DFS, which is headed by Benjamin Lawsky, has also reopened an investigation into Bank of Tokyo Mitsubishi-UFJ, which paid $250m last year to the bank regulator for violating sanctions laws prohibiting transactions with Iran, Sudan and Myanmar, a person familiar with the matter said.

DFS had fined PwC $25m in August for watering down a report – under pressure from BTMU – that was given to regulators. Now DFS is seeking more than $250m from the bank for its role in the PwC report, this person said.

The office of Cyrus Vance, the Manhattan DA, has opened a criminal investigation into the altering of the PwC report, people familiar with the matter say.

Spokesmen for StanChart, DFS and the Manhattan DA all declined to comment. The inquiry was first reported by The New York Times.

FT.com