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Who are you f-ing Americans?

Standard Chartered paid off the new Sheriff of New York City, Benjamin Lawsky, to the tune of $340 million to get rid of the pest.  As Investec's commentator Ian Gordon said yesterday, they “acted with pragmatism and integrity in the face of extreme provocation”.

What really gets me here is the whole USA versus the rest of the world thing.

It was pretty well summed up in the email everyone has been quoting from StanChart's London manager to their New York office: “You fucking Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians?”

Well, those Americans unfortunately control the world's economies because we’re all tied to the dollar.

But what would the world look like if we weren't?

At this year’s Olympic Games, like the world’s economies, America came top of the table and China second.  What will happen when it’s the other way around?

It will be one day and in the not too distant future.

According to the BRIC report of 2003, it would be sometime around 2041.

According to the latest reports, it will be within the next decade.

Screen Shot 2012-08-15 at 12.05.54

Source: the Economist 

Then the world changes for it is only as long as the dollar is the reserve currency of the world that all the banks need to process transactions through the USA.  When, rather than if, the USA loses that economic grip, everything will change.

What happens if a basket of currencies is used as the reserve currency in the future?

Or the Renminbi?

The game changes big time.

That is why banks like Standard Chartered and HSBC want to keep China happy, and why banks like Standard Chartered and HSBC are making the Americans so pissed off.

Both banks focus on Asia as their core markets today.

That's where the growth is, and their most powerful influence is China.

China has been an ally of Iran, which is why both banks have tried to walk the fine line between pleasing their Asian and Middle Eastern interests, whilst not falling foul of their American need to keep a processing hub for the world’s reserve currency: the dollar.

It is why Standard Chartered claimed that it was only 300 transactions worth $14 million that flouted US laws as a ‘clerical error’, rather than the 60,000 transactions worth $250 billion that has now been conceded in paying the fine.

It probably was the former rather than the latter, as the US has unilaterally targeted Iran for over two decades whilst the rest of the world has not.

It is America’s singular focus of support for the nation state of Israel that drives this anti-Iranian focus.

That is why China and Russia have not been on the train, and why Europe was slow to jump on too.

But Europe has joined the train, as has the United Nations.  

That is why we now find organisations like SWIFT joining the train.

SWIFT first of all changed their messaging systems to ensure that all bank details travelled from the originating institution to its final destination – the cover payments changes as agreed by the Wolfsberg Committee – in 2009, and followed these actions by conceding to a European Parliamentary decision to eject the Iranian banks, including their central bank, from the SWIFT network completely in March this year.

It is through these global decisions that banks such as Standard Chartered and HSBC – plus the rest including ING, Credit Suisse, RBS and US domestic banks such as Citigroup – got caught out.

It’s that sheer complexity of global transactions, changing regulations, legacy systems that constrain change and political stances that distance nations.

Think about it.

You have a transaction from Iran or to Iran.

It originates or completes in, let’s say, Zurich.

The transaction might travel through multiple jurisdictions and, at some point, has to go through the USA for processing to enable a dollar movement.  Nearly all cross-border global monetary movements will end up going through the USA at some point because they have to, as it owns the reserve currency of the world: the dollar.

The question then is at what point did US, European and United Nations mandates change, to affect which transactions, based upon what information was held with those transactions – knowingly or unknowingly- as they travelled the world, and which bank did what actions, when.

So simple, ay?

Also, keep in mind that Standard Chartered is processing $190 billion A DAY through its New York office.  Therefore, if during a period of TEN YEARS, $250 billion slipped through that may or may not be dodgy, is that such a big surprise?

Sure, the bank should not be breaking a nation's regulations, obviously, but if those regulations are designed politically by one nation at the opposition of another equally important nation, then banks make choices.

That’s why so many banks have been caught out in this money laundering mess, as any global bank is likely to have offended at some point by dealing with one nation against the wishes of another.

That is also why, as per usual, paying a fine and fezzing up means that the bank can draw a line and move on.

That’s what StanChart is trying to do, although there are still other US authorities – the US Treasury, the Federal Reserve, the Justice Department and New York prosecutors – that they have to clear.

In a final, final thought on all of this however, you need to consider the political motivations of US law enforcers in more depth.  

I blogged the other day saying that these money laundering moments coming from the USA are purely catching out our banks because, based upon the above, it's easy to do that.

What about catching their own banks however?

It irritates many over here that UK banks have been all over the global headlines as seedy money launderers when US banks, such as Citigroup and Wachovia, have been similarly caught laundering Colombian and Mexican drug money.

Wachovia was fined $110 million in 2010 for “for failing to apply the proper anti-laundering strictures to the transfer of $378.4 billion” in Meixco, whilst Citigroup, JPMorgan and Bank of New York are also caught in the process.

In fact, an economic analysis recently found that only 2.6% of Colombian drug money remains within the country, “while a staggering 97.4% of profits are reaped by criminal syndicates, and laundered by banks, in first-world consuming countries”.

The fact that these issues don’t get the headlines is because US regulators saw fit to not pursue the prosecution of some of their own banks, such as Wachovia, and just fined them a mere $110 million to brush the whole thing under the carpet.

So to the FSA and Bank of England, I suggest you target the US banks for drug money laundering, make a few headlines and $s out of the fines, and get rid of this message that all of our banks are sleazy just because they processed transactions to Iran.

Or is that just being petty?

If you're interested, I expressed a more politically correct version of these views on Bloomberg this morning: 

Postnote:

Someone asked me why Standard Chartered is a UK bank when it’s all focused upon Asia, Africa and Middle East.  The answer is that it is an Indian-African bank by origin, created 160 years ago as the Chartered Bank in India to support the British Empire’s expansionism.  It moved to Hong Kong later, and then merged with Standard Bank of South Africa in the late 1960s.  The foundation of the bank is therefore British expanisionism in Asia, Africa and the Middle East, which is why it has its base here but focuses over there.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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8 comments

  1. My reactions exactly when news first broke out about NY regulators blaming SCB. But reading through your post, I suppose its obvious that they (SCB) couldn’t get too far in terms of getting away with it.
    Firstly USD is the global reserve currency and secondly the SWIFT processing means that the transactions had to pass via the US soil.
    While it does irk me that the US is starting to get nosy in to just about all aspects of business, do we have a choice really? Well until China comes of age, we’ll have to live with this and many more I reckon.

  2. Chris —
    As one of your favorite Americans, I suppose that I have to respond to the individual in the Stand. Chart. New York office …
    We do not care what you do with Iran. You can deal with them in any and every way you want. But, do not, repeat NOT, try and circulate the money transfers through your branch in New York and expect that you will be able to do so with impunity. Circulate the movements through London, Hong Kong, Singapore, or Johannesburg, for all we care.
    But, not only did you do the transfers, you did so intentionally, and you attempted to do so with all fraudulent intent. You tried to break our laws, on our shores, and hide in the process. No one in the U.S. forced you to use our currency for your trades. Use the bloody Renminbi for all we care. But, if you use our currency, and a branch in the U.S. to effectuate your fraud, then expect that people will be looking, and (if they catch you) you will be punished.
    Make your choice … do the crime … do the time (or pay the fine)!

  3. @John thanks and agreed
    @Will also agree, just that the approach should be equitable and fair, which this was and is not.

  4. David Blenkinsop

    Chris, your points are well made. I would just add that it is amazing how the Americans only discovered money laundering after 9/11. I seriously believe that before that, it was rife in America.

  5. I’m sorry, this is crap. It may be credible if the Iranians were really good guys and the US was really doing everything out of some unreasonable backing of Israel, or if the world would be a better place have China, with it’s human rights record, as the dominant country and international policeman.
    However, Iran is a genuine threat to the world… not because of Israel but because they are nutters – or at least their leadership is. And the only way to have any chance of keeping them in check is financial. And all non-political reasonable people appear to agree that they need to be kept in check. The world needs a policeman because the UN is morally bust, and the US is the only country capable of doing the job. And when China eventually accedes to the role, do we think things will really be better based based on their human rights record? The hell it will.
    Stopping these nutty Iranian bastards is dirty work and someone has to get it done. I vote for a little collateral damage in the banking system being an acceptable cost.

  6. @david exacta mondo
    @ianp amazing how many people are duped by Western propaganda to be so anti a country they know little about. It may be their leaders are at issue, but the country itself? Note: the Arab Spring.

  7. So let me see if I understand this Standard Chartered defense — there’s no crime because US sanctions against Iran are wrong?

  8. It’s more to do with the balance of interests Mark.
    Importantly, the US sanctions against Iran are not wrong in the US, EU and UN view, but the question raised is:
    * when did the US introduce these rules,
    * when did they apply to financial transactions,
    * when did they apply to financial transactions processed through non-US companies (SWIFT) and
    * when did the position gain UN and EU backing, rather than a US sole position.
    You shouldn’t contravene a country’s laws, which StanChart admit they did with the USA. However, you are allowed to operate within those laws until those laws change, and the question is more to do with what changed when.
    For example, information stripping Iran-based bank details from a SWIFT message was fine until the law changed that meant that cover payments had to be tracked through SWIFT so that US could see where these originated.
    That is why StanChart had issue with the volume of transactions – 60,000 worth $250 billion versus 300 worth $14 million.
    Finally, StanChart added the additional defense that some of these transactions were by people with dual nationality. So they may perform an account opening with a Saudi or Turkish or other passport, whilst actually transacting as an Iranian-born or Syrian or other nationality. That is not easily traced.
    It’s also worth noting that the view over here is that Lawsky held StanChart to ransom, and it set a dangerous precedent. Read this Economist piece if you want to know more: http://www.economist.com/node/21560583?fsrc=rss|fec
    “This odd episode is disturbing for bigger reasons. The bank’s initial reaction to the charges was one of indignant denial. If that was merely bluster, the DFS settlement leaves much to be desired in as much as it extracts money from Standard Chartered’s shareholders but imposes no consequences on the people in charge. If the bank’s initial response was justified, however, this settlement is arguably even worse. For that would suggest that when faced with incendiary charges by a critical regulator, and the potential loss of its licence, Standard Chartered felt it had no choice but to pay up. Extracting payments through threats is usually seen as extortion. That a government agency might be the one playing this role is rightly a concern to the whole industry.”

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