Greece has gone quiet – it is August after all, when by tradition nothing much happens in Europe, even in nations whose finances will supposedly not survive to see September. We don’t have much to say about this, but suspect it will turn out that there is a bit of a story here. It looks as though a way may have been found for the nation’s most pressing debts to be paid off by some outside parties, which can only mean the Germans. Frau Merkel would obviously have to be at the centre of any such scheme, but must have all fingers and crossed in the hope that the electorate will not see things in this light, since they would in all probability be highly unsympathetic. Meanwhile, summer holidays notwithstanding, the judges of the Constitutional Court in Karlsruhe continue their deliberations on the whole business. These are serious people when it comes to German money being frittered away improperly, and their rubber stamp cannot be taken for granted.
The hottest news in the financial week must surely be the accusations levelled at Standard Chartered Bank, and we suspect that readers will have seen entirely different coverage of this depending upon which side of the Atlantic they source their information.
The gist of the allegations is that the bank has for years been evading sanctions against Iran and various other terrorist sponsoring states by facilitating wholesale money transfers while avoiding the rules which were supposed to ensure that they really did represent bona fide commercial transactions. What’s new there, you may ask? Banks around the world have recently been accused of all manner of sharp practice, from misselling financial products, wholesale and retail, to massive unauthorised trading to money laundering, and almost without exception the truth of the matter has turned out to be even worse than originally suggested. It would appear that over the course of about thirty years the entire industry has lost all vestige of propriety, and has devoted itself to separating customers from their money with complete immunity from any of the legal or ethical considerations which once meant something. This column has not been slow to draw attention to this trend, and we don’t believe that we can be accused of any undue sympathy for these institutions. Yet, there are facets of the latest case which we do feel warrant a closer look.
First of all, the identity of the accuser is interesting. The list of wrongdoings was not produced by the SEC, which has generally led the way in these matters, and the US Treasury Department and the Federal Reserve are also said to have been blindsided, and to be less than pleased. Instead, the case for the prosecution is being made by Dan Lawsky, the head of the state of New York’s recently formed Department of Financial Services. If you had never previously heard of the man or his organisation you need not feel ashamed, but he clearly has every intention of doing something about that. The SEC has in the past shown a bit of a tendency towards showboating, but they are staffed by professionals and in general make sure to have a fairly watertight case before launching their suit. Lawsky, by contrast, is an avowedly partisan attack dog, with no tradition of evenhandedness to uphold or precedent to worry about.
What has StanChart really done? They stand accused of illicit transfers amounting to $250bn, and admit to ( and apologise for ) $14m, so quite a bid/offer spread. It does seem clear from the usual selection of embarrassing emails that the bank’s lawyers were far more concerned with observing the letter of the rules than their spirit, and that universal attitude really does have to change, but doesn’t it also mean that the regulations should have been better drafted?
If this isn’t settled, this could have huge implications for one individual bank’s immediate future, but there have also been wider repercussions regarding the rivalry between the City of London and Wall Street. A lot of people have finally woken up to the evident fact that while the various US authorities generally seem to let off their own banks with a slapped wrist ( when they do not give up completely, as with this week’s case against Goldman Sachs, which you might think a primary school child could have won ), they do seem to go in with all guns blazing when they have a foreign institution in their sights. Certainly, Mr Lawsky’s clearly expressed remit is to establish his town as the world’s leading financial centre, which might appear to contain a certain conflict of interest.
This leaves one more question, which is whether financial regulation really is more lax in the UK, and there may be reasons to suspect this is the case. As evidence, we look at the way US institutions themselves behave. JP Morgan has been trouble lately for putting on huge bets which were presented as “hedges” but which turn out to have been nothing of the sort. When the giant bank’s boss Jamie Dimon decided to put this business through his London office, was he perhaps influenced by the thought that it was less likely to be questioned by the local regulators? Even more blatant is the case of MF Global, where UK clients are being treated far worse than those in the US. The reason is that the trades where client funds were improperly used to finance the firm’s proprietary punts in busted sovereign debt, even though they were quite clearly ordered from New York – only one man held the power to take such decisions – were routed through London. A lot of regulators appear to have been looking the wrong way, but in London this has been elevated to an art form